THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


A  TREATISE  ON  THE  LAW 


PERTAINING   TO 


CORPORATE    FINANCE 


INCLUDING 


THE  FINANCIAL  OPERATIONS  AND  ARRANGEMENTS 
OF  PUBLIC  AND  PRIVATE  CORPORATIONS 


A8   DETERMINED   BY 


THE  COURTS  AND  STATUTES 
OF  THE  UNITED  STATES  AND  ENGLAND 


BY 

WILLIAM    A.    REID 

p 

or  THX  NEW  YORK   BAA 


IN    TWO   VOLUMES 
VOL.    I 


ALBANY 
H    B    PARSONS,  LAW  PUBLISHER 

1896 


Copyright,  1896, 

BY 
HENRY   B.   PARSONS, 


T 
K 
1896 


c? 

V 


PREFACE 

a 


This  work  is  a  practical  treatise  upon  the  law  of  "  Corporate 
Finance"  -The  Financial  Operations  and  Arrangements  of 
Public  and  Private  Corporations  —  aH  declared  by  the  courts  in 
a  large  collection  of  cases.  The  idea  in  the  preparation  of  the 
work  has  been  that  a  lawyer  searching  for  law  adapted  to  his  case 
would  be  aided  by  a  work  giving  the  rules  declared  by  the  courts, 
and,  as  far  as  necessary,  showing  how  these  conclusions  were 
reached,  the  reasoning  of  the  courts,  and  the  application  of  the 
law  to  the  particular  cases  as  exemplified  by  the  facts  therein.  In 
the  text  such  a  statement  of  facts,  when  necessary,  has  been  made 
as  will  give  an  accurate  idea  of  the  case  presented  to  the  court, 
and  the  rules  declared.  The  notes  contain,  in  many  cases,  the 
full  reasoning  or  argument  of  the  courts  in  support  of  the  rules, 
and  frequently  a  differentiation  of  cases  which  may  l»e  assumed 
to  be  in  conflict  with  the  rules  declared. 

Especially  has  the  author  thought  a  work  prepared  upon  this 
plan  would  be  of  great  use  to  those  who  have  not  access  to  large 
libraries.  I  trust  it  may  prove  a  ready  and  useful  help  to  those 
who  may  use  it. 

WM.  A.  REID. 

NEW  YORK  CITY,  January,  1896. 


TABLE  OF  CONTENTS. 


TABLE  OF  CONTENTS. 


VOLUME  I. 

CHAPTER  I. 

UKNKHAI.    POWER  TO   INCUK   PECUNIARY   LIABILITY  —  PUBLIC  CORPORATIONS. 

PAOK. 

£    1.  General  rules  applicable  to  public  corporations 4 

2.  Distinct  ion  between  public  and  private  corporations 5 

8.  Borrowing  money 6 

4.  The  United  States  Supreme  Court  on  borrowing  money 7 

5.  The  New  Jersey   Court  of  Errors  and  Appeals  on  borrowing 

money 8 

6.  Issue  of  negotiable  securities 9 

7.  Power  of  Indiana  cities  to  issue  bonds 12 

8.  Miscellaneous  rules  as  to  issuing  bonds 12 

9.  Bonds  issued  for  the  erection  of  a  county  court  house 15 

10.  Funding  county  indebtedness  by  issuing  interest- bearing  bonds. .  15 

11.  Issue  of  bonds  to  pay  subscription  to  stock  of  railroad  corpo- 

rations    16 

12.  Notes  or   warrants  to  cover  funds  to  be  set  aside  in  future 

taxation 18 

18.  The  issue  of  scrip 18 

14.  Purchase  of  real  estate  for  erection  of  public  buildings  on  time. .  19 

15.  Erection  of  town  buildings 20 

16.  Purchase  of  sites  for  erection  of  and  repair  of  school  buildings. .  21 

17.  The  same  subject  continued 22 

18.  Purchasing  on  credit 24 

19.  Building  and  repair  of  bridges 24 

20.  Incurring  liability  under  California  statutes 25 

21.  Incurring  liability  under  Indiana  statutes 26 

22.  Incurring  liability  under  Kansas  statutes 27 

28.  For  lighting  the  streets  of  a  city 28 

24.  Contract  on  time  for  lighting  streets 29 

25.  Caring  for  the  indigent,  etc 30 

26.  Employment  of  physicians  for  the  poor  — Indiana  statute  con- 

strued   31 

27.  Expenses  connected  with  epidemic  diseases 31 

28.  For  what  towns  may  not  be  made  liable 82 

29.  Expenses  of  a  committee  to  secure  legislation 34 

30.  For  the  payment  of  bounties  to  volunteers 35 

31 .  Validating  a  contract  of  village  trustees 36 

82.  Illustrations  of  liabilities  incurred  for  a  "corporate  purpose". . .  36 


Viii  TABLE  OF  CONTENTS  —  VOLUME  I. 


§  38.  Purchase  of  fire  engines  and  apparatus 37 

34  Illustrations  of  wrongfully  incurred  liability 39 

35.  Purchase  of  cemetery  grounds 40 

38.  Erection  of  crematory  for  garbage 41 

87.  Use  of  private  property  for  sewers 42 

88.  Detection  of  criminals 42 

39.  Aiding  private  corporations 42 

40.  Subscription  to  capital  stock  of  railroad  corporation 44 

41.  Power  of  the  legislature  as  to  compensation  in  such  matters 47 

42.  Constitutionality  of  legislation  authorizing  such  aid 47 

43.  In  what  respect  the  power  of  the  municipality  is  restricted 49 

44.  Subscription  for  less  than  the  amount  voted 51 

45.  The  effect  of  subsequent  legislation  upon  such  a  subscription ...  52 

46.  Statutory  authority  to  construct  a  railroad 53 

47.  Constitutional  provisions  construed 53 

48.  What  is  not  a  work  of  ' '  internal  improvement "  in  the  meaning 

of  Nebraska  statutes 54 

49.  What  is  such  a  work 55 

50.  Contracts  of  guaranty 55 

51.  Employment  of  agents  or  attorneys 56 

52.  Contracts  for  legal  services  —  when  allowed 57 

53.  Contracts  for  legal  services  —  how  made 59 

54.  When  a  public  corporation  is  bound  for  legal  services 59 

55.  Employment  of  counsel  for  defense  of  officers 60 

56.  Indemnity  for  expenses  of  litigation 61 

57.  When  a  public  corporation  is  not  bound  for  professional  services 

of  an  attorney 62 

58.  The  same  subject  continued 63 

59.  What  contracts  with  attorneys  are  contrary  to  public  policy 64 

60.  Limitations  upon  the  indebtedness  to  be  incurred 64 

61.  The  same  subject  continued 66 

62.  Limitations  upon  power  to  incur  indebtedness  —  procuring  a  sup- 

ply of  water 68 

63.  The  same  subject  continued 69 

64.  Donation  of  bonds  to  aid  in  developing  water  power 70 


CHAPTER  II. 

GENERAL  POWER  TO   INCUR   PECUNIARY  LIABILITY — PRIVATE  CORPORATIONS. 

§  65.  General  rules  as  to  incurring  indebtedness 72 

66.  Purchase  of  property 74 

67.  Aiding  other  corporations 76 

68.  Contracts  of  suretyship 77 

69.  Guaranty  of  bonds  of  one  railway  corporation  by  another 78 

70.  Guaranty  of  bonds  of  railroad  corporation  by  one  of  another  kind.  79 

71.  Circumstances  surrounding  corporation  may  authorize  the  guar- 

anty   80 


TABLE  OF  CONTENTS  —  VOLUME  I.  IX 

PAGE. 

72.  Guaranty  of  dividend  upon  preferred  stock  of  another  corpora- 

tion   82 

73.  What  contract  of  another  corporation  may  not  be  guaranteed. . .  84 

74.  Athletic  club 84 

75.  Banking  associations 85 

76.  A  savings  bank's  powers 86 

77.  Corporations  dealing  in  lands 87 

78.  Insurance  corporations 81) 

79.  Manufacturing  corporations 91 

80.  Mining  corporations 92 

81.  Railroad  corporations 98 

82.  The  same  subject  continued 93 

83.  Raising  money  by  borrowing  notes  and  indorsement  of  them  ...  95 

84.  Evidences  of  indebtedness  —  forms 97 

85.  More  rules  on  this  subject 98 

86.  Bonds  of  a  banking  association. 101 

87.  Power  to  secure  their  indebtedness 102 

88.  Limitation  of  indebtedness 102 

89.  Debt  limited  by  par  vulue  of  capital  stock 103 

90.  When  a  statutory  limitation  of  indebtedness  does  not  apply 105 

CHAPTER  III. 

POWERS  OF  AGENTS  AND  OFFICERS  —  PUBLIC  CORPORATIONS. 

91.  General  rules 108 

92.  More  general  rules 110 

93.  Illustrations  of  the  duty  and  powers  of  municipal  officers 112 

94.  Ratification  by  municipal  corporations  of  contracts  made  by 

their  agents  and  officers 113 

95.  Agents  and  officers  of  counties  —  generally 115 

96.  Power  of  county  officers  in  California 117 

97.  Power  of  county  boards  in  Illinois 119 

98.  Power  of  county  commissioners  in  Indiana 121 

99.  Power  of  supervisors  of  counties  in  Iowa 123 

100.  Power  of  county  commissioners  in  Kansas 125 

101.  Power  of  County  Courts  in  Kentucky 126 

102.  Power  of  supervisors  in  Michigan 127 

103.  Power  of  County  Courts  in  Missouri 128 

104.  Power  of  county  supervisors  in  New  York 130 

105.  Power  of  county  commissioners  in  Pennsylvania 132 

106.  Power  of  county  board  in  Wisconsin 182 

107.  Power  of  township  trustees  in  Indiana 132 

108.  Power  of  selectmen  of  towns  in  Massachusetts 134 

109.  Power  of  selectmen  of  towns  in  New  Hampshire 134 

110.  Power  of  supervisor?  of  townships  in  Pennsylvania 135 

111.  Power  of  selectmen  and  agents  of  towns  in  Vermont 186 

1 12.  Power  of  town  officers  in  Wisconsin 188 

118.  Power  of  officers  of  school  districts. ..  188 


;  TABLE  OF  CONTENTS  —  VOLUME  I. 

CHAPTER  IV. 

POWER  OF  AGENTS  AND  OFFICERS  —  PRIVATE   CORPORATIONS. 

PAOB. 

114.  Agency  in  general 142 

115.  Rules  as  to  an  agent's  acts 145 

116.  To  what  the  powers  conferred  on  an  agent  may  be  extended 146 

117.  Illustrations  of  the  binding  force  of  an  agent's  act 148 

118.  Power  of  general  agents 149 

119.  When  the  authority  of  a  general  agent  will  not  be  implied 151 

120.  Pow^r  of  officers  generally 152 

121.  The  same  subject  continued 154 

122.  Power  of  directors  —  general  rules 157 

120.  Directors  for  the  first  year 159 

124.  Directors  do  facto 160 

125.  Illustrations  of  the  power  of  directors 161 

120.  More  illustrations  on  this  subject 163 

127.  Illustrations  of  a  lack  of  power  in  directors 165 

128.  When  notes  will  be  held  to  have  been  authorized  by  a  board  of 

directors 167 

129.  Waiver  by  directors  of  their  power  to  repudiate  a  contract 168 

180.  Power  of  trustees  of  a  corporation 168 

131.  Power  of  officers  of  a  corporation  to  employ  attorneys 169 

182.  When  officers  may  use  bonds  as  collateral 170 

133.  When  the  execution  of  a  note  is  not  authorized 171 

184.  Execution  of  promissory  notes  and  transfer  of  choses  in  action .  172 

135.  Notes  signed  by  officers  of  corporation 178 

180.  Power  of  bank  officers 174 

187.  Power  of  a  bank  cashier 175 

188.  When  the  authority  of  its  cashier  cannot  be  questioned   by  a 

bank 177 

139.  Indorsement  of  a  draft  by  cashier  and  president  of  a  bank 178 

140.  Povircr  of  a  treasurer  of  a  savings  bank 179 

141.  Power  of  officers  of  mining  corporations 180 

142.  General  rules  as  to  the  power  of  a  president 181 

143.  Rule  as  to  evidence  in  such  cases 184 

144.  Power  of  president  as  to  transfer  of  assets 187 

145.  When  a  president's  act  is  binding 188 

146.  Illustrations  of  the  power  of  a  president 189 

147.  Illustrations  of  a  lack  of  power 192 

148.  What  would  show  the  authority  of  a  president 194 

149.  Question  of  authority  for  the  jury 196 

150.  Power  of  a  president  as  to  execution  of  notes 196 

151.  In  what  cases  the  authority  of  a  president  may  not  be  questioned.  197 

152.  Giving  a  judgment  note  —  New  Jersey 198 

153.  The  same  subject  —  Illinois 200 

154.  Where  contract  of  purchase  includes  giving  a  judgment  note. . .  202 

155.  What  raises  a  presumption  of  authority 204 

156.  Power  of  officers  acting  conjointly 204 


TABLE  OF  CONTENTS  —  VOLUME  L  XI 

•MB 

157.  An  illustration  on  this  subject 206 

158.  One  holding  several  offices 207 

159.  Note  executed  by  a  secretary 208 

160.  Power  of  superintendents,  etc 209 

161.  A  manager's  power 211 

162.  Manager  of  a  foreign  corporation 212 

163.  Authority  of  a  manager 214 

164.  What  is  not  within  the  duties  of  a  cashier  of  a  corporation 216 

165.  Auditing  board  of  a  corporation 217 

166.  Power  of  a  treasurer  generally 217 

167.  Power  of  a  treasurer  as  to  transfer  of  a  note 218 

168.  Power  of  a  treasurer  as  to  execution  of  a  note 219 

169.  Authority  of  a  treasurer  to  borrow  money  by  means  of  sterling 

contracts 220 

170.  Power  of  u  treasurer  to  indorse  in  name  of  corporation  a  note 

for  accommodation 222 

171.  Power  of  a  treasurer  to  indorse  a  note  of  another  corporation 228 

172.  When  a  corporation  will  be  bound  by  a  note  executed  by  its 

treasurer 225 

178.  When  a  corporation  is  bound  by  acts  of  its  treasurer 226 

174.  When  a  corporation  will  not  be  bound  by  the  act  of  its  treasurer . .  228 

175.  Another  illustration  of  such  a  case 230 

176.  When  contracts  of  a  chief  engineer  will  bind  a  railroad  corpora- 

tion    230 

'77.  Ratification  by  corporation  of  agent's  acts  —  general  rules 233 

178.  Modes  of  ratification 235 

179.  Illustration  of  ratification  of  conduct  of  agent 236 

180.  What  does  not  amount  to  a  ratification 237 


CHAPTER  V. 

FRAUDULENT  ACTS  OF  OFFICERS. 

181.  General  rules 241 

182.  General  rules  continued 248 

183.  Breaches  of  trust 247 

184.  Officers  interested  in  contracts  with  a  corporation 249 

185.  Directors  of  an  insolvent  corporation  preferring  themselves  to 

other  creditors 258 

186.  Directors  contracting  with  a  syndicate  composed  of  themselves 

—  when  such  a  contract  cannot  be  rescinded ....   255 

187.  Directors  issuing  shares  of  stock  to  themselves 257 

188.  Officers  profiting  by  their  relation  to  the  corporation 258 

189.  Repudiating  or  avoiding  such  contracts 264 

190.  Rules  as  to  such  contracts 265 

191.  Circumstances  under  which  the  directors  cannot  avail  them- 

selves of  the  defense  of  the  invalidity  of  the  contract 267 

192.  Purchase  by  officers  of  debts  due  by,  or  property  of,  corpora- 

tion. . .  269 


ii  TABLE  OF  CONTENTS  —  VOLUME  I. 

PAGE. 

193.  Purchase  and  sale  of  property  of  corporations  by  officers 272 

194.  Illustrations  of  a  sale  of  property  to  corporation  which  was  not 

fraudulent 274 

195.  When  a  transfer  of  property  of  corporation  will  be  upheld 276 

196.  Officers  voting  themselves  salaries  or  compensation 278 

197.  Interest  upon  exorbitant  salary  voted  officer  recoverable 281 

198.  Contracts  between  corporati6us  having  the  same  directors  in  part.  282 

199.  Issue  of  worthless,  or  overissue  of,  stock 286 

200.  False  representations  of  officers  —  deceit 288 

201.  A  leading  English  decision  on  this  subject 292 

202.  The  rule  adhered  to  in  England 293 

203.  Officers  conspiring  to  wreck  a  corporation 294 

204.  President  conspiring  against  a  corporation  —  terms  on  which  the 

corporation  could  rescind  the  contract  made  by  him 295 

205.  Promoters  of  corporations  accountable  for  profits 296 

206.  Promoters  obtaining  stock  of  corporation  for  nothing 298 

207.  Jurisdiction  of  equity  courts  as  to  breaches  of  trust,  etc 300 

208.  When  a  court  of  equity  is  not  open  to  the  complaints  of  stock- 

holders   303 

209.  Remedy  in  equity 305 

210.  Malfeasance  of  the  president  of  a  corporation  —  a  stockholder's 

remedy 312 

211.  When  a  demand  upon  a  directory  to  bring  suit  is  not  required. .  313 

212.  When  a  stockholder  may  bring  an  action 316 

213.  Dissolution  of  a  corporation  by  a  scheme  of  stockholders  and  a 

sale  of  property  to  themselves 321 

214.  The  rights  of  the  minority  in  such  a  case 324 

215.  Principles  applied  to  this  particular  case 326 

216.  When  a  fraudulent  assignment  of  a  mortgage  by  the  treasurer 

of  a  corporation  will  bind  it .' 327 

217.  When  a  corporation  may  recover  money  fraudulently  paid  out 

by  its  treasurer 328 

218.  When  a  corporation  must  respond  for  damages  resulting  from  a 

fraudulent  issue  of  its  stock 330 

219.  The  same  subject  — a  Massachusetts  decision 334 

220.  The  same  subject  —  a  Pennsylvania  decision 336 

221.  When  a  corporation  may  not  respond  for  damages 339 

222.  A  Massachusetts  decision  on  this  subject 341 


CHAPTER  VI. 

PERSONAL   LIABILITY  OF  OFFICERS. 

223.  Directors'  liability  —  general  rules 346 

224.  Liability  of  other  officers  —  general  rules 350 

225.  Rules  as  to  liability  of  officers  for  diversion  of  property  of  cor- 

poration   " 354 

226.  Liability  of  officers  arising  from  manner  of  execution  of  com- 

mercial paper 357 


TABLE  OF  CONTENTS  —  VOLUME  I.  XIII 

FAOE. 

227.  Liability  of  officers  arising  from  indorsement  of  commercial 

paper 380 

228.  Liability  of  officers  of  savings  banks  363 

229.  Liability  of  a  treasurer  of  a  corporation  for  payment  of  orders 

on  forged  indorsements 368 

230.  Liability  on  contract  made  before  complete  organization  of  the 

corporation 367 

281.  Rule  as  to  recovery  in  such  a  case 872 

232.  County  treasurer  liable  upon  his  receipts  to  collector  for  money .  878 

233.  County  treasurer  liable  as  bailee  of  county  funds 874 

234.  County  treasurer  paying  court  orders  on  forged  instruments 876 

235.  Arbitration  as  to  liability  of  a  treasurer  of  a  township 877 

236.  Liability  under  special  provisions  of  charter  or  statute 879 

287.  Liability  under  provisions  of  charter  —  Pennsylvania 882 

238.  Statutory  liability  —California  statutes  883 

289.  Statutory  liability  —  Colorado  statutes 884 

240.  Statutory  liability  —  Iowa  statutes 885 

241.  Statutory  liability  —  Massachusetts  statutes 886 

242.  Statutory  liability  —  Minnesota  statutes 887 

243.  Statutory  liability  —  Missouri  statutes 888 

244.  Statute  of  New  York  —  liability  for  failure  to  file  annual  report.  889 

245.  Actions  to  enforce  this  liability 893 

246.  What  are,  and  what  are  not,   "debts"  for  which  liability  under 

this  statute  may  arise 895 

247.  A  United  States  Supreme  Court  decision  on  this  subject 897 

248.  Statute  of  New  York  —  liability  for  creation  of  debts  in  excess  of 

capital  stock 3U9 

249.  Liability  for  incurring  indebtedness  in  excess  of  capital  stock  — 

Illinois  statute 402 

250.  United  States  Supreme  Court  decision  on  a  similar  statute  —  the 

proper  action  in  such  a  case 406 

251.  New  York  statute  —  liability  for  false  statement  in  certificate, 

etc. ,  filed 407 

252.  Illustrations 410 

253.  Statutory  liability  —  Rhode  Island  statutes 414 

254.  Statutory  liability  —  various  states 414 

255.  Liability  of  directors  or  officers  under  an  English  statute 418 

CHAPTER  VII. 

ULTRA  VIRES — PUBLIC  COKPO RATIONS. 

256.  Issue  of  negotiable  securities 424 

257.  Borowing  money  by  school  districts 425 

258.  Incurring  liability  in  excess  of    funds    in    the  treasury  and 

amount  of  tax  allowed  for  one  year 427 

259.  Incurring  a  debt  without  provision  by  taxation  for  interest  and 

sinking  fund 429 

260.  Employment  of  an  agent  to  negotiate  bonds 430 


iv  TABLE  OF  CONTENTS  -  VOLUME  I. 

PAOK. 

261.  Investment  of  sinking  funds  .................................  431 

262.  Contract  with  corporation  attorney  for  legal  services  ...........  433 

263.  Discount  of  its  warrants  by  a  corporation  .....................  434 

264.  Illustrations  of  ultra  vires  contracts  ..........................  437 

265.  Estoppel  of  a  public  corporation  to  deny  its  liability  on  an  ultra 

vires  contract  .............................................  439 

266.  Estoppel  of  a  contractor  with  a  public  corporation  to  enforce  an 

ultra  vires  contract  ........................................  442 

267.  Injunction  of  public  officials  —  rules  ..........................  445 


CHAPTER  VIII. 

ULTRA   VIRES  —  PRIVATE  CORPORATIONS. 

§  268.  The  doctrine  of  ultra  vires  as  explained  by  English  courts.    .  .  447 

269.  These  rules  applied  by  English  courts  to  special  acts  of  corpora- 

tions ......................................................  448 

270.  The  doctrine  of  ultra  vires  as  explained  by    United    States 

courts  ...................................................  450 

271.  Illustrations  of  acts  not  ultra  vires  the  corporation  ..............  453 

272.  Illustrations  of  acts  ultra  vires  the  corporation  .................  463 

273.  Leasing  corporation's  property  and  franchises  for  a  term  of 

years  ...................................................  469 

274.  Loaning  funds  of  a  corporation  ...............................  476 

275.  Investing  funds  of  corporation  in  stock  of  others  .............  478 

276.  Directors  of  an  insurance  company  raising  a  guaranty  capital.  .  .  480 

277.  Converting  common  into  preferred  stock  ......................  482 

278.  The  effect  of  laches  on  the  part  of  complaining  stockholders  in 

such  cases  ..............................................  485 

279.  Rules  declared  by  courts  as  to  estoppel  of  corporations  to  plead 

ultra  vires  .................................................  487 

280.  "When  the  doctrine  of  ultra  vires  is  not  applicable  .......  ..  ......  492 

281.  Rules  declared  by  courts  as  to  estoppel  of  parties  to  contracts 

with  corporations  to  plead  ultra  vires  ......................  492 

282.  Financial  arrangements  contrary  to  public  policy  —  rules  govern- 

ing proceedings  on  the  part  of  the  state,  etc  .................  497 

CHAPTER  IX. 

BANKS   AND   BANKING. 

§  288.  Powers  of  banks  generally  ...................................  504 

284.  The  guaranty  of  commercial  paper  by  a  bank  ..................  507 

285.  Acts  ultra  vires  a  bank  .......................................  508 

286.  Taking  mortgage  on  and  purchase  of  real  estate  ...............  509 

287.  Purchasing  notes  .........................................  512 

288.  Purchasing  stock  of  corporations    ............................  516 

289.  Increase  of  capital  stock  ....................  519 


TABLK  OF  CONTENTS  —  VOLUME  I.  XV 


290.  Loans 519 

291 .  Dividends  on  bank  shares 521 

292.  Lien  of  a  bank  on  moneys  and  securities  of  its  customers 523 

293    Lien  of  a  bank  on  shares  of  stockholders  for  their  debts  to  the 

bank 525 

294.  Interest  received  by  banks 527 

296.  A  bank's  duty  as  to  securities  deposited  with  it 586 

296.  The  rights  of  a  bank  as  to  securities  pledged  to  it  588 

297.  Personal  guaranty  of  a  bank  by  stockholders  and  directors 545 

298.  Misrepresentations  by  a  bank  as  to  solvency  of  a  customer  545 

CHAPTER  X. 

OFFICKKS   OK    HANKH. 

299.  Directors  —  their  powers  and  duty 548 

300.  Jurisdiction  of  state  courts  in  cases  of  directors  of  national  banks 

violating  their  duty 554 

301.  Jurisdiction  of  courts  of  equity  in  such  cases 556 

302.  Statutory  liability  of  directors  of  national  banks  —  actions  to 

enforce  it  —  rules 557 

303.  President  —  his  power  and  duty 561 

804  President's  acts  binding  on  bank  —  illustrations 564 

305.  President's  arts  not  binding  on  bank  —  illustrations 566 

306.  When  u  bank  is  not  chargeable  with  constructive  notice  and 

knowledge  of  its  president 568 

307.  Cashier  —  his  power  and  duty 569 

808.  Cashier's  liability  for  his  acts 578 

309.  Knowledge  of  its  cashier  not  imputuble  to  bank  —  illustrations. .  582 

810.  Rules  as  to  ratification  of  a  cashier's  act  by  the  bank 583 

311.  Act  of  cashier  binding  on  bank 586 

312.  Estoppel  of  a  bank  to  deny  the  validity  of  an  act  of  its  cashier 

in  drawing  drafts  on  its  correspondent  and  fraudulently  indors- 
ing them 587 

318.  Promise  by  cashier  to  pay  draft  of  a  customer  to  be  drawn  at  a 

future  day  not  binding  on  the  bank 588 

814.  Teller  and  bookkeeper  —  their  powers  and  duties 593 

CHAPTER  XI. 

DEPOSITS  AND  CHECKS. 

i  315.  General  deposits 597 

816.  Depositors  —  duty  and  rights , . . . .  602 

317.  When  the  ownership  of  a  deposit  is  questioned  —  rules 607 

818.  Passing  of  title  by  deposit  of  check 610 

819.  Deposits  in  savings  I  auks 616 

820.  Receiving  deposits  by  a  bank  knowing  its  insolvency 619 

821.  Certificates  of  deposit 635 


vi  TABLE  OF  CONTENTS VOLUME  II. 

PAGE. 

822.  Special  deposits 634 

323.  The  duty  of  a  bank  as  to  deposits  and  its  right  as  to  their 

application 636 

324.  Checks  generally 644 

325.  Certification  of  checks 651 

326.  Acceptance  of  a  check  by  a  bank  —  illustration 654 

327.  Presentment  of  checks  for  payment 655 

328.  When  a  draft  on  a  bank  fails  to  bind  the  fund  in  bank 661 

329.  Forged  checks  —  rules 666 

330.  Payment  of  forged  checks  or  payment  of  checks  on   forged 

indorsements 671 

381.  Payment  of  raised  checks 675 

CHAPTER  XIL 

COLLECTIONS. 

332.  General  rules 681 

333.  Duty  of  bank ,  685 

334.  Rules  as  to  notes  payable  at  bank 689 

335.  When  a  bank  is  liable  for  failure  to  collect  notes 692 

336.  What  action  on  its  part  will  relieve  a  collecting  bank  from 

liability 693 

337.  Rules  as  to  checks  and  drafts 695 

338.  Negligence  of  a  bank  as  to  check  held  for  collection 703 

339.  When  a  bank  collecting  a  draft  is  liable  to  the  owner 705 

340.  When  indorser  of  check  is  relieved  from  liability 708 


VOLUME   II. 

CHAPTER  XHL  . 

INSOLVENCY  OP  BANK. 

341.  Rules  generally 709 

342.  Appointment  of  a  receiver  for  a  national  bank 718 

343.  When  an  appointment  of  a  receiver  is  not  authorized 714 

344.  Powers  of  a  receiver  for  a  national  bank 714 

345.  Actions  of  such  receivers  —  rules 715 

346.  Action  to  control  the  conduct  of  such  receivers 718 

347.  What  a  receiver   cannot   set  off  in  an  action  to  recover  trust 

funds  coming  into  his  hands 720 

348.  When  a  receiver  cannot  question  the  disposition  of  funds  com- 

ing into  the  hands  of  a  clearing  house  association  721 

349.  Attachment  of  property  of  an  insolvent   bank  retains  its  lien 

against  a  receiver  of  the  bank  subsequently  appointed 722 


TABLE  OF  CONTENTS VOLUME  II.  XV11 

PACK. 

860.  Claims    against    an    insolvent    bank  —  jurisdiction    of    court 

appointing  receiver 724 

851.  For  what  amount  claim  should  be  made  and  allowed 727 

852.  What  a  claimant  may  be  charged  with  729 

858.  Claim  of  an  indorsor  who  paid  a  note  not  surrendered  to  him. . .  780 

854.  Debts  due  savings  banks  preferred  under  New  York  statute 782 

855.  Claims  of  municipal  corporations  for  moneys  deposited  by  their 

officers 785 

856.  Claims  preferred  to  general  creditors  —  illustrations 788 

857.  Claims  not  preferred  to  those  of  general  creditors  —  illustrations.  747 

CHAPTER  XIV. 

LIABILITY   OF   BANK  SHAREHOLDERS. 

858.  Rules  generally 756 

859.  Rule  under  Minnesota  statute 759 

860.  Rule  under  Michigan  statute 760 

861.  Stockholder  relieved  from  liability  by  a  sale  of  bis  stock  through 

a  broker 762 

862.  Pledgee  of  stock  incurs  no  liability 768 

863.  When  a  stockholder  ic  relieved  from  liability 766 

864.  The  rule  where  shares  arc  transferred  to  avoid  liability 766 

865.  When  a  transfer  of  shares  does  not  relieve  the  stockholder 767 

366.  Liability  of  stockholder  survives 768 

867.  Liability  of  a  married  woman  upon  shares  of  stock  held  by  her 

in  her  own  right 770 

868.  Rules  as  to  actions  to  enforce  liability  of  stockholders 772 

CHAPTER  XV. 

OFFICERS  OF  NATIONAL   BANKS  —  CRIMINAL   ACTS. 

869.  Misapplication  of  funds  by  officers 778 

870.  Making  "  false  entries  "  in  reports,  etc 774 

871.  Improper  certification  of  check 781 

872.  Restrictions  of  banking  law  of  New  York  upon  banks  and  their 

officers 783 

CHAPTER  XVI. 

FISCAL    MANAGEMENT  —  PUBLIC  CORPORATIONS. 

878.  The  power  of  county  commissioners  under  statutes  of  Nebraska 

as  to  purchase  of  lands  for  a  poor  farm 785 

874.  Power  of  a  building  commission  of  a  town  in  Connecticut 783 

875.  For  what  purposes  r,  board  of  education  in  Connecticut  cannot 

use  the  public  funds 789 

876.  Management  of  school  funds  of  the  state  by  an  auditor  of  a  county 

under  Indiana  statutes ...  791 


TABLE  OF  CONTENTS  —  VOLUME  II. 

PACK. 

§  877.  Erroneous  payments  into  the  treasury  of  a  county  by  a  county 
treasurer  under  Indiana  statutes  —  his  right  to   recover  the 

same 793 

378.  For  what  a  school  district  may  settle  account  of  an  ex-assessor. .  794 

379.  The  board  of  auditors  of  a  town  may  be  ordered  to  pay  a  judg- 

ment against  the  town  for  interest  on  its  bonds 794 

880.  The  right  of  a  de  facto  county  treasurer  to  salary 796 

881.  Payments  to  city  official  in  excess  of  his  salary  may  be  recovered 

of  him 798 

382.  Compelling  a  ministerial  officer  to  distribute  the  fund  in  his 

hands 799 

383.  County  warrants  —  their  issue  and  validity  —  rules  governing. . .  801 

384.  Statute  of  Limitations  not  applicable  to  county  warrants 803 

CHAPTER  XVII. 

FISCAL  MANAGEMENT —  PRIVATE  CORPORATIONS. 

§  385.  Execution  of  contracts  by  corporations 805 

386.  What  would  be  conclusive  of  the  execution  of  a  contract 810 

387.  Declaring  dividends 810 

388.  Rules  as  to  declaring  dividends  by  a  mining  corporation 811 

389.  Borrowing  money  to  pay  dividends 814 

390.  Rescinding  a  declaration  of  dividend 815 

391.  Contracts  within  and  outside  the  power  of  private  corporations. .  317 

392.  Rules  as  to  estoppel  to  plead  that  contents  are  ultra  vires 820 

CHAPTER  XVIII. 

COUNTY  BONDS. 

§  393.  County  bonds  generally 824 

394.  Bonds  issued  for  refunding  indebtedness 827 

395.  Bonds  not  within  the  power  cf  a  Texas  county  to  issue  for  the 

erection  of  court  houses 828 

396.  Rights  of  holders  of  such  bonds 820 

397.  The  effect  of  a  statute  of  Texas  as  to  county  bonds  in  which 

school  funds  may  be  invested 830 

398.  Validity  of  bonds  as  affected  by  the  place  of  execution 831 

399.  Validity  of  bonds  as  affected  by  constitutional  requirements 832 

400.  Validity  of  bonds  as  affected  by  limitations  as  to  indebtedness..  833 

401.  The  validity  of  judgments  against  a  county  for  which  the  bonds 

were  issued  cannot  be  questioned  in  actions  on  the  bonds 840 

402.  The  statements  of  a  county's  agent  in  sale  of  the  bonds  not 

operative  as  an  estoppel  upon  the  county  to  refund 841 

403.  When  a  county  may  plead  an  overissue 842 

404.  When  the  defense  that  a  county  was  not  fully  organized  when 

the  bonds  were  issued  is  not  open  to  the  courts 843 

405.  Counties  suable  in  federal  courts 845 

406.  Plea  of  Statute  of  Limitations  on  county  bonds 845 


TABLE  OF  CONTENTS VOLUME  II.  XUC 

PAOE. 

407.  When  statute  as  to  presentation  of  claims  is  not  applicable  to 

judgments  up<>u  bonds  and  coupons 846 

408.  The  proper  proceeding  of  courts  where  some  of  the  bonds  of  a 

series  are  valid  and  others  invalid 847 

CHAPTER  XIX 

CITY  BONDS. 

409.  City  bonds  generally 849 

410.  Extension  of  a  bonded  debt  of  a  city 852 

411.  Bonds  for  funding  indebtedness 854 

412.  Effect  of  a  statutory  limitation  on  bonds 856 

413.  Bonds  in  compromise  of  outstanding  indebtedness 858 

414.  The  effect  of  a  statute  legalizing  an  issue  of  bonds 859 

415.  Bonds  for  public  improvements  —  limitations  on  power  to  issue.  860 

416.  Effect  of  an  order  by  resolution  of  council  of  a  city  for  an 

election  to  authorize  the  issue  of  bonds 861 

417.  Bonds  valid  when  issued  as  a  part  of  the  general  indebtedness 

of  a  city 863 

418.  Validity  of  bonds  as  affected  by  a  restriction  in  the  charter  of  a 

city 863 

CHAPTER  XX. 

TOWNSHIP  BONDS. 

419.  Effect  of  ordinance  of  town  council  not  being  published  upon 

the  validity  of  the  bonds 865 

420.  Bonds  for  purchase  of  gravel  road   under  Indiana  statute  — 

statute  held  to  be  constitutional 867 

421.  The  duty  and  power  of  county  authorities  where  the  vote  of  the 

towns  is  favorable  in  such  cases 870 

422.  Effect  upon  bonds  of  a  constitutional  limitation  upon  the  indebt- 

edness to  be  incurred  by  towns 873 

423.  Town  bonds  for  improvement  of  public  park  under  resolution 

of  the  Connecticut  legislature — when  authorized  and  to  what 
extent 874 

424.  The  effect  of  recitals  in  town  bonds  as  to  estoppel  of  the  town  to 

claim  they  were  issued  without  authority 876 

425.  What  is  required  of  a  bona  fldo  purchaser 877 

CHAPTER  XXI. 

SCHOOL  DISTRICT  BONDS. 

426.  School  district  bonds  generally 878 

427.  Bonds  executed  by  a  de  facto  board  of  education 880 

428.  The  power  of  a  city  in  California  to  issue  bonds  for  building 

school  houses...  880 


XX  TABLE  OF  CONTENTS  —  VOLUME  II. 

PAGE. 

§  429.  The  power  to  issue  bonds  under  Nebraska  statutes 882 

430.  When  such  bonds  are  void  under  Nebraska  statutes 883 

431.  Validity  of  bonds  as  affected  by  constitutional  restriction  upon 

indebtedness  of  municipal  corporations 884 

432.  Bonds  secured  by  a  pledge  of  school  fund  and  property 887 

433.  Conditions  precedent  to  the  issue  of  bonds 888 

434.  The  adoption  of  a  statute  to  obtain  authority  to  issue  bonds  — 

mode  of  calling  election 890 

435.  When  non-compliance  with  the  requirements  of  the  Constitution 

of  the  state  is  not  a  defense  against  bona  fide  purchasers 892. 

436.  When  the  defense  that  the  site  of  the  school  house  was  not 

owned  by  the  district  is  not  open  in  a  bona  fide  holder's  action 

on  the  bonds 893 

437.  When  the  defense  that  the  proceeds  of  the  bonds  were  used  for 

another  purpose  is  not  open  in  such  an  action 894 

438.  What  does  not  create  an  estoppel  of  the  district  to  defend 895 

439.  One  of  the  latest  decisions  on  the  effect  of  recitals  in  bonds 89ft 


CHAPTER  XXII. 

MUNICIPAL    AID   BONDS  —  COUNTY. 

440.  County  aid  bonds,  generally 898 

441.  Elections  to  authorize  aid  bonds  —  how  called  —  how  questions 

must  be  submitted  to  voters  —  how  result  determined,  etc. . .  904 

442.  Conditions  to  subscription  —  the  right  to  prescribe,  etc 918 

443.  When  authority  to  subscribe  to  stock  gives  no  power  to  issue 

bonds  in  payment 920 

444.  When  a  donation  of  bonds  is  authorized 922 

445.  When  county  bonds  donated  to  a  railroad  company  cannot  be 

scaled  down 924 

446.  Bonds  of  an  Illinois  county  secured  by  mortgage  of  its  swamp 

lands 925 

447.  Precinct  aid  bonds 931 

448.  The  denomination  of  bonds  changed  from  those  named  in  the 

proposal  under  Alabama  statutes  —  their  validity  not  affected 

thereby 932 

449.  What  amounts  to  a  gift  of  bonds  in  aid  not  authorized. 933 

450.  Consolidation  of  railroads — effect  as  to  county  aid 934 

451.  Constitutionality  of  a  Tennessee  aid  statute 937 

452.  Ratification  of  bonds 938 

453.  Rules  as  to  statutes  legalizing  a  prior  issue  of  bonds 939 

454.  Recitals  on  face  of  aid  bonds  —  their  effect 941 

455.  Bonds  and  coupons  not  claims  which  require  presentation  to 

county  authorities  before  suit 943 

456.  Coupons  —  rules  governing 944 

457.  A  county  suable  on  precinct  bonds 946 

458.  Rules  as  to  pleading  in  such  cases 947 


TABLE  OF  CONTENTS  —  VOLUME  It, 

CHAl'TKK   XXIII. 

MUNICIPAL  AID  BONDS  —  CITY. 

PAOB. 

459.  City  aid  bonds,  generally 949 

460.  Rules  as  to  such  bonds  settled  in  United  States  Supreme  Court.  955 

461.  Why  state  decisions  should  not  control  United  States  Supreme 

Court 956 

462.  When  the  issue  of  aid  bonds  by  a  city  is  authorized 958 

463.  When  the  right  to  municipal  aid  is  lost  by  delay  in  constructing 

road 960 

464.  The  election  as  to  aid  and  the  effort  of  curative  legislation 961 

465.  This  case  distinguished  from  others 964 

466.  Aid  to  railroads  outside  the  state 964 

467.  Estoppel  of  a  city  to  claim  that  bonds  were  wrongfully  issued. .  964 

468.  What  will  not  affect  the  rights  of  bona  fide  bondholders 965 

469.  When  a  purchaser  of  void  municipal  bonds  cannot  maintain  an 

action  for  money  had  and  received 966 

470.  Miscellaneous  rules  as  to  railroad  aid  bonds 969 


CHAPTER  XXIV. 

MUNICIPAL  AID  BONDS  —  TOWNS. 

471.  Aid  by  towns,  generally 970 

472.  Bonds  invalid  unless  conditions  are  complied  with 977 

478.  How  irregularity  of  elections  affect  the  validity  of  bonds 979 

474.  Effect  of  recitals  on  face  of  bond 981 

475.  The  power  of  commissioners  of   towns  for  issuing  aid  bonds 

under  New  York  statutes 982 

476.  The  sealing  of  such  bonds 989 

477.  Proceedings  under  New  York  statutes  preliminary  to  issue  of 

bonds 992 

478.  Bonds  issued  after  the  passage  of  an  act  authorizing  a  change  in 

their  terms 998 

479.  Rules  as  to  the  taxes  collected  for  payment  of  aid  bonds  issued 

under  New  York  statutes 994 

480.  Power  of  town  authorities  as  to  aid  bonds  under  Kansas  statutes 

—  for  what  time  they  may  run  . . .  .* 998 

481.  Power  of  towns  in  Massachusetts  as  to  aid  bonds  —  their  power 

in  the  sale  of  them 999 

482.  Power  of  towns  in  Mississippi  as  to  aid  bonds  —  for  what  time 

they  may  run 1000 

483.  Actions  by  bona  fide  holders  on  such  bonds  —  what  they  need 

not  show 1001 

484.  Bonds  absolutely  void  —  effect  upon  holders 1003 

485.  When  a  curative  act  of  the  legislature  will  not  validate  them  . . .  1005 

486.  Effect  of  curative  act  of  New  York. .  1006 


TABLE  OF  CONTENTS  —  VOLUME  II. 

PAOK. 

§  487.  Township  aid  bonds  under  South  Carolina  laws  made  a  legal 

indebtedness  by  subsequent  legislation 1007 

488.  An  Ohio  statute  as  to  town  aid  held  unconstitutional 1011 

489.  Miscellaneous  rules  as  to  town  aid  bonds 1011 

CHAPTER  XXV. 

BONDS  AND  COUPONS  —  PRIVATE  CORPORATIONS. 

§  490.  Bonds  of  private  corporations,  generally 1013 

491.  Meeting  of  stockholders  to  authorize  the  issuance  of  bonds  — 

when  legally  held 1019 

492.  Interest  on  bonds  —  what  rate,  etc 1020 

493.  When  principal  becomes  due 1021 

494.  Bonds  —  when  "  issued  "  under  Wisconsin  statute 1022 

495.  When  a  mortgage  trustee  should  countersign  bonds 1022 

496.  Pledge  of  its  bonds  by  a  corporation  —  rights  of  pledgee,  etc ...  1023 

497.  Validity  of  bonds  as  affected  by  statutory  or  constitutional  pro- 

visions       1027 

498.  Validity  of  bonds  as  affected  by  the  manner  of  sale  and  charac- 

ter of  purchasers 1031 

499.  Reorganization  —  surrender  of  old  bonds  and  stock  for  new 

bonds  —  rules 1035 

500.  Bondholders  —  when  bona  fide  holders  and  when  not  —  the  rights 

of  such 1037 

501.  Holders  of  income  bonds  —  rules  as  to  an  accounting  with  them.  1044 

502.  Detached,  uncanceled  coupons  —  rules  governing 1046 

503.  Actions  on  coupons  —  rules  governing 1047 

504.  Guaranty  of  bonds  of  one  corporation  by  another  —  rules 1049 

505.  Lease  of  a  bonded  railroad  —  when  lessee  is  not  bound  on  the 

bonds 1051 

CHAPTER  XXVI. 

MORTGAGES  AND  TRUST  DEEDS  —  PRIVATE  CORPORATIONS. 

§  506.  Power  of  corporations  to  execute  mortgages  and  trust  deeds  upon 

their  property 1054 

507.  Statutes  requiring  assent  of  stockholders  to  mortgages  con- 

strued   " 1061 

508.  Mortgages  and  trust  deeds — rules  to  as  place  of  execution, 

authorization  —  mode  of  execution,  to  whom  executed,  etc. . .     1069 

509.  Estoppel  of  corporation  to  deny  authority  of  officers  to  mort- 

gage   1077 

510.  Effect  of  laches  of  corporation  in  repudiating  a  mortgage 1079 

511.  What  are  reasonable  provisions  in  a  mortgage 1079 

512.  Chattel  mortgages  of  corporations 1081 

613.  Deeds  of  trust  and  mortgages  securing  directors  —  when  properly 

given 1083 


TABLE  OF  CONTENTS  —  VOLUME  II.  XX111 

PAOE. 

514.  The  validity  of  mortgages  as  affected  by  restrictions,  constitu 

tiooal,  statutory,  or  in  charter  upon  indebtedness  to  be  incur 

red 1067 

515.  A  mortgage  of  corporation  property  to  pay   purchase-money 

debts 1060 

516.  Illustration  of  an  equitable  mortgage 1091 

517.  Mortgage  of  a  consolidated  railroad  company  —  estoppel  to  claim 

its  validity  on  the  ground  that  the  consolidation  was  not  legally 

perfected 1092 

518.  Illustration  of  a  fraudulent  mortgage 1093 

519.  What  corporation  mortgages  cover,  and  what  they  do  not  cover.  1094 

520.  Trustees  of  such  mortgages  —  their  duty,  rights  and  powers 1101 

CHAPTER  XXVII. 

INSOLVENCY   OP   PRIVATE  CORPORATIONS. 

521.  How  far  the  assets  of  an  insolvent  corporation  are  a  trust  fund 

for  its  creditors  1106 

522.  The  power  of  directors  of  a  corporation  to  execute  an  assignment 

of  the  corporation's  property  for  the  benefit  of  creditors 1111 

523.  Preference  of  creditors  by  insolvent  corporations 1112 

524.  Attachment  of  property  of  insolvent  corporation  —  the  rights  of 

a  creditor  to  attach  —  lien  of  its  attachment,  etc 1117 

525.  Receivers  —  rules  as  to  appointment 1121 

526.  Removal  of  receivers  and  assignees 1126 

527.  The  rights  of  receivers  and  assignees  as  to  property  of  insolvent 

corporation 1127 

528.  Other  rights  of  receivers  and  assignees  of  insolvent  corporations.  1129 
629.  Insolvent  beneficial  association  —  rules 1181 

530.  Liability  of  stockholders  on  unpaid  subscriptions  —  the  court's 

right  to  enforce  and  how  enforced 1132 

531.  Creditors'  bills  —  equitable  jurisdiction 1140 

532.  Claims  against  insolvent  corporation  —  rules  as  to  allowances,  etc.  1142 

583.  Rules  in  cases  of  insolvent  banks 1144 

CHAPTER   XXVIII. 

FORECLOSURE  OF   MORTGAGES   AND  TRUST   DEEDS. 

584.  Jurisdiction  of  actions  to  foreclose 1147 

585.  Bringing  such  actions  —  rules 1150 

586.  Parties  to  such  actions 1158 

587.  General  rules  as  to  such  actions 1158 

538.  Decrees  in  such  actions  —  general  rules 1168 

589.  Decrees  for  sale  of  property 1166 

540.  Purchasers  at  sales  under  the  decrees  —  their  rights  and  liabilities.  1172 

541.  Who  may  be  heard  on  petition  in  foreclosure  suits 1176 

542.  Disposition  in  decree  of  proceeds  of  sale 1179 

548.  Allowances  in  foreclosure  suits 1182 


TABLE  OF  CONTENTS VOLUME  II. 

CHAPTER  XXIX. 

RECEIVERS   IN  FORECLOSURE  BUTTS. 

PAGE. 

§  544.  Receivers  —  their  appointment — when  they  should  be  appointed 

—  who  may  be  appointed  —  their  discharge  and  removal 1186 

545.  Conditions  attached  to  the  appointment  of  a  receiver 1193 

546.  Receiver's  right  as  to  possession  of  the  property  of  the  insolvent 

corporation 1 194 

547.  The  relation  of  the  receiver  to  property  leased  by  the  corporation 

coming  into  his  hands r 1197 

548.  Powers  of  receivers  as  to  contracts,  etc 1208 

549.  Power  of  the  court  and  its  receivers  as  to  regulating  wages  of 

employees 1208 

550.  Receiver's  certificates  —  when  they  will  be  authorized  —  the  lien 

of  such  certificates  and  its  enforcement 1210 

551.  Rules  as  to  claims  against  receiver  growing  out  of  rolling  stock 

coming  into  his  possession 1215 

552.  Application  of  earnings  of  the  road  during  receivership 1219 

553.  Jurisdiction  of  actions  against  receivers 1223 

554.  Claims  against  receivers  for  injuries  to  persons  or  property  dur- 

ing receivership 1227 

555.  Rules  as  to  actions  for  injuries  to  persons  during  receivership  . .     1231 

556.  Rules  as  to  allowances  to  receivers  for  counsel  and  expenses  of 

parties  in  actions  where  receivers  are  appointed  —  what  will 

be  allowed  and  what  not 1232 

557.  Actions  allowed  a  receiver  for  the  protection  and  benefit  of  the 

property  in  his  hands 1235 


CHAPTER  XXX. 

PRIORITIES  OP  LIENS  IN  FORECLOSURE  SUITS. 

558.  Priorities  of  liens  —  general  rules 1238 

559.  Debts  contracted  for  construction 1246 

560.  Presumption  as  to  preferential  character  of  a  claim 1246 

561.  Mechanic's  lien  as  viewed  by  the  United  States  Supreme  Court.  1247 

562.  Furnishers  of  supplies  —  Kentucky  statutes  construed 1249 

563.  The  rule  under  Ohio  statutes 1252 

564.  Contractors  —  Tennessee  statutes  construed 1252 

565.  Furnishers    of   supplies  —  Virginia    statutes  on  this     subject 

construed 1254 

566.  Loans  of  money  to  corporation  before  receivership 1256 

567.  Claims    for    services    rendered    the    corporation    prior  to  the 

appointment  of  a  receiver 1258 

568.  When  cases  are  not  properly  removable  to  United  States  court 

from  state  court 1360 


TABLE  OF  CONTENTS VOLUME  II. 

< 'HAITI-IK   XXXI. 
TAXATION   BY    I  i  K!  n     <  ORPORATIOHB. 

FAOK 

£  569.  General  rules 1262 

570.  Exemption  from  tuxes 1264 

571.  License  tax 1267 

572.  Assessment  of  taxes  for  benefits 1268 

573.  When  a  levy  of  taxes  by  a  school  district  is  not  authorized.   ....  1271 

574.  Irregularity  in  the  levy  of  taxes 1271 

575.  When  an  assessment  cannot  be  attacked 1272 

576.  Federal  taxation  of  incomes 1273 

577.  Injunction  of  a  collection  of  taxes 1278 

CHAPTER  XXXII. 

TAXATION   OK  PRIVATE  CORPORATIONS. 

§  578.  General  rules 1279 

579.  Exemption  from  taxation  —  rules 1280 

580.  Taxation  of  corporations  —  rules  in  New  York 1286 

581.  Taxation  of  corporations  —  rules  in  Pennsylvania 1290 

582.  Privilege  tax 1292 

583.  Computation  of  such  rule 129T» 

584.  Taxation  of  banks  and  shares  of  bank  stock  —  rules 1295 

585.  Taxation  of  railroad  corporations  —  rules 1300 

586.  Taxation  of  insurance  corporations 1306 


TABLE  OF  CASES. 


TABLE  OF  CASES. 


pThe  references  are  to  page*:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  706-1807.] 


A. 

Abbot  v.  American  Hard  Rubber  Co. , 

258,  274,  470,  476.  1111 
Abbott  T.  Baltimore  &  Rappahannockf 

Steam  Packet  Co.,  464 
Abbott  v.  Packet  Co.,  1232 
Abby  v.  Bill  u  pa,  153 
Aberdeen  Railway  Co.  v.  Blakie,  242, 

251,  259,  264,  283,  816 
Ackerman  v.  Halsey.  847,  653 
Ackley  School  District  v.  Hall,  879 
Adair  v.  Brimmer,  365 
Adair  v.  Robinson,  1299 
Adams    v.    Crosswood  Printing  Co., 

203 

Adams  v.  Davis,  1272 
Adams  v.  East  River  Savings  Institu- 
tion, 838 
Adams  v.   Hackensack  Improvement 

Commission,  711 
Adams  v.  Manning,  551 
Adams  v.  Milling  Co.,  254,  255,  1087, 

1111 

Adams  v.  Mills,  393 
Adams  v.  Spokane  Drug  Co.,  716 
Adams  Cotton  Mills  v.  Dimmick,  1057, 

1066,  1075 
Adams  Mining  Co.  v.  Senter,  92,  180, 

209,  233 
Adams  &  Westlake  Co.  v.   Deyette, 

11U 

Atkinson  v.  Auditor,  132 
Addcrley  v   Storm,  757 
Addis  v.  City,  109 

Addison  v.  Lewis,  263, 1096, 1108, 1258 
Adelbert  College  of  Western  Reserve 

University  v.  Toledo,  W.  &  W. 

Ry.  Co.,  1261 
Adrian  Water  Works  v.  City  of  Adrian, 

70 

Adriance  v.  Rome,  151 
Advertiser  &  Tribune  Co.  v.   Detroit, 

112 

&tn&  Insurance  Co.  v.  Wires,  178 
yEtna    Life    Insurance    Co.   v.   Lyon 

County,  839,  840,  841,  848 
JStna  Life  Insurance  Co.  v.  Middle- 
port,  980 
vEtna  Nat.  Bank  v.  Charter  Oak  Life 

Ins.  Co.,  80,  465 
JStna  Nat.  Bank  v.  Fourth  Nat.  Bank, 

598,  640,  658,  666 


Agawam  Nat.  Bank  v.  South  iladley, 
231 

Agricultural  Bank  v.  Biasell,  52i) 

Ahem  v.  Goodspeed,  984 

Ahl  v.  Rhoada,  1088.  1090 

Aiken  v.  Marine  Bank,  561 

Aikman  v.  School     istrict,  889,  891 

Aimen  v.  Hardin,  416 

Akin  v.  Jones,  665,  666 

Alabama  &  Georgia  Mfg.  Co.  v.  Rob- 
inson, 1022.  1154 

Alabama  Gold  Life  Ina.  Co.  v.  Central. 
etc.,  Assn.,  74,  102 

Alabama  Great  So.  R.  R.  Co.  v.  South 
&  No.  Ala.  R.  R.  Co.,  234 

Alabama  Iron  &  Ry.  Co.  v.  Anniston 
Loan  &  Trust  Co.,  1218 

Albany  v.  Abbott,  135 

Albany  v.  Cunliff,  446 

Alberger  v.  National  Bank  of  Com- 
merce. 1111,  1114 

Albers  v.  Commercial  Bank,  644 

Albert  v.  Savings  Bank  of  Baltimore, 
439 

Albitzue  v.  Guadelupe  y.  Caloo  Min- 
ing Co.,  1124 

Alderson  V.  Charles  County,  128 

Aldrich  v.  Dunham,  608 

Alexander  v.  Brown,  151,  197 

Alexander  v.  Burchfield,  658 

Alexander  v.  Central  Railroad  of  Iowa, 
1152 

Alexander  v.  Cauldwell,  146,  406,  469, 
567 

Alexander  v.  Learey,  816 

Alexander  v.  Tolleston  Club  of  Chi- 
cago, 494 

Alford  v.  Miller,  250 

Allard  v.  Gaston,  975 

Allegheny  City  v.  McClurksan,  65, 
108,  942 

Allegheny  County  v.  McKeesport  Dia- 
mond Market,  1267 

Allegheny  County  v.  Western  Penn- 
sylvania Hospital,  132 

Allen  v.  Addington,  294 

Allen  v.  Bank,  576 

Allen  v.  Citizens'  St.  Nav.  Co.,  143, 
144.  288 

Allen  v.  City  of  Janesville,  65 

Allen  v.  Clark,  895,  396 

Allen  v.  Commercial  Bank,  •'•">') 

Allen  v.  Curtis,  806,  811.  560 


XXX 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  706-1807.] 


Allen  v.  First  Nat.  Bank,  Xenia,  510, 

520 

Allen  v.  Fourth  Nat.  Bank,  672 
Allen  v.  Inhabitants  of  Jay,  43,  44 
Allen  T.  Louisiana,  71 
Allen  v.  Montgomery  R.  R.  Co.,  91, 

1054,  1077 

Allen  v.  St.  Louis  Bank,  539 
Allen  v.  South  Boston  R.  R.  Co.,  335, 

343 

Allen  v.  Sullivan  R.  R.  Co.,  1014 
Allen  v.  Suydam,  681 
Allen  v.  Taunton,  33 
Allen  v.  Walsh,  388 
Allen  v.  Wilson,  316 
Alley  v.  Adams  County,  919,  974 
Allis  v.  Jones,  235,  806,  807,  821,  1112 
Allison  v.  Coal  Company,  392 
Allison  v.  Hubbell,  188 
Allison  v.  L.  H.  C.  &  W.  R.  Co.,  46 
Allison  v.  Railway  Company,  946 
Alston  v.  State,  754 
Alta  Silver  Mining  Co.  v.  Alta  Placer 

Mining  Co.,  1075 
Alton  v.  Mulledy,  445 
Alves  v.  Bank,  528 
Alvord  v.  Syracuse  Sav.  Bank,  986 
American  Bridge  Co.  v.  Heidelbach, 

1222 
American  Central  R.  R.  Co.  v.  Miles, 

279,  356 

American  Construction  Co.  v.  Jackson- 
ville, T.  &  K.  W.  Ry.  Co.,  1196, 

1197 
American   Exchange   Nat.    Bank    v. 

Oregon  Pottery  Co.,  174,  206 
American  Express  Co.  v.  Haire,  687 
American  Ins.  Co.  v.  Oakley,  191 
American  Loan  &  Trust  Co.  v.  East 

&  West  R.  R,  Co.  of  Ala.  (Jersey 

City  Iron  Co.,  Intervener),  1246 
American  Loan  Trust  Co.  v.  St.  Louis 

&  Chicago  Ry.  Co.,  1048 
American  Loan&  Trust  Co.  v.  Toledo, 

C.  &S.  Ry.  Co.,  1018 
American  National  Bank  v.  American 

Wood  Paper  Co.,  1042 
American   Sunday  School   Union   v. 

Philadelphia,  1265 
American  Sunday  School   Union    v. 

City  of  Philadelphia,  1265 
American  Nat.  Bank  v.  Bushey,  602 
American    Pig  Iron  Storage  Co.   v. 

State  Board  of  Assessors,  1279 
American  Preservers'  Trust  v.  Taylor 

Mfg.  Co.,  501 
American    Trust    &   Sav.    Bank    v. 

Gueder  &  Paeschke  Manufg.  Co. 

619,  1146 

American   Tube  &  Iron  Co.  v.  Ken- 
tucky Southern  Oil  &  Gas  Co., 

1156,  1157 


Ames  v.  Merriam,  649,  658 

Ames  v.  Union  Pacific  Ry.  Co.,  1209 

Amey  v.  Mayor,  etc.,  49 

Anderson  v.  Armstead,  627 

Anderson  v.  Blattau,  627 

Anderson  v.  Kerns  Draining  Co.,  870 

Anderson  v.  Kinley,  239 

Anderson  v.  Kissam,  568 

Anderson  v.  Lemon,  251 

Anderson  v.  Leverick,  600 

Anderson  v.  Linn,  771 

Anderson  v.  Philadelphia  Warehouse 

Co.,  764,  765 

Anderson  v.  Railroad  Company,  1177 
Anderson  v.  Rogers,  704 
Anderson  v.  Santa  Anna,  939 
Anderson  v.  Sibley,  995 
Anderson  v.  Speers,  400 
Anderson  County  v.  Pocola    &    Fall 

River  Ry.  Co.,  899 

Anderson  County  Comrs.  v.  Beal,  966 
Andover  v.  Grafton,  134,  135 
Andover  v.  Kendrick,  145 
Andrew  v.  Blachley,  656 
Andrews   v.    Board    of    Supervisors 

Knox  County,  121 
Andrews  v.  Insurance  Co.,  493 
Andrews  v.  Kings  County,  1297 
Andrews  v.  National  Foundry  &  Pipe 

Works,  1099 

Andrews  v.  Suffolk  Bank,  688 
Anfenger  v.  Anzeiger  Publishing  Co., 

384 

Angel  v.  Town  of  Hume,  993 
Angle   v.    Chicago,    St.    P.,  Minn.  & 

Omaha  Ry.  Co.,  462 
Anheuser-Busch  Brewing  Co.  v.  Clay- 
ton, 753,  754 
Anheuser-Busch    Brewing    Assn.    vj 

Morris,  747 
Anonymous,  620,  720 
Anonymous  Case,  624 
Antietam  Paper  Co.  v.  Chronicle  Pub. 

Co.,  1074 

Anthony  v.  Adams,  33,  34 
Anthony  v.  Jasper  County,  866 
Appeal  of  Hopkins,  752 
Appleby  v.  Mayor,  etc. ,  446 
Arapahoe  Cattle  &  Land  Co.  v.  Stevens, 

163 

Ardher  v.  Waterworks  Company,  1121 
Ardesco  Oil  Co.  v.  North  American 

Co.,  473 
Argente  v.  San  Francisco,  5,  65,  233, 

441,  444,  788,  942 
Arkansas  Valley  Agr.  Society  v.  Eich- 

holtz,  257 
Armour  Bros.  Bkg.  Co.  v.  Board,  etc., 

of  Finney  County,  803 
Armstrong    v.    American    Exchange 

Nat.  Bank,  628 
Armstrong  v.  Chemical  Nat.  Bank,  544 


TABLE  OF  CASES. 


ZXJU 


Bank, 


[The  references  are  to  pagea 

Armstrong  v.  Cowles,  418 
Armstrong  v.  Ettlesohn,  720 
Armstrong  v.  Exchange  Nat. 

601 
Armstrong  v.  National  Bank  of  Boyer- 

town,  744 

Armstrong  v.  Scott,  712 
Armstrong  v.  Trautman,  720 
Armstrong  v.  Warner,  720 
Arnold  v.  Mayor  of  Poole,  98 
Arnold  v.  Suffolk  Bank,  526 
Arnold  v.  Weimer.  723 
Arnot  v.  Erie  Ry.  Co.,  1052 
Arnott  v.  City  of  Spokane,  437 
.Arthur  v.  Qnswold,  410 
Arthur    v.    School    District  of  Polk 

Borough,  l^i:{ 
A-i-hi  rin.in  v.  Bank,  1129 
Ahhburg  Ilailway  Carriage  &  Iron  Co. 

v.  Riche,  449,  451 
Asher  v.  Bank,  600 
Asher  v.  Sutton,  193,  562 
Asher  v.  Texas,  1267 
Ashhurst's  Appeal,  1084,  1112 
Ashley  v.  Board,  880 
Ashley   v.   Board  of    Supervisors  of 

Presque  Isle  County,  827,  844 
Ashley  v.  Kiunan,  280 
Ashley  v.  Ryan,  1294 
Ashenbrodel  Club  v.  Fin  lay,  470 
Ashuelot  Manufg.  Co.  v.  Marsh,  198 
Ashuelot    Nat.    Bank    of    Eeene    v. 

School  Dist.  No.  7,  Valley  County, 

ss4 
Ashuelot    Railroad     v.    Elliot,     265, 

1047 

Ashurst's  Appeal,  283 
Aspinwall  v.  Butler,  519 
Aspinwall  v.  Succhi,  390 
Association  v.  Austin,  738 
Association  for  Colored  Orphans   v. 

Mayor,  etc.,  of  New  York,  1289 
Atchison  v.  Butcher.  851 
Atchison  Board  of  Education  v.  De 

Kay,  888,  889 
Atchison,    T.    &    8.     F.    R.    Co.    v. 

Comrs.,  318 
Atchison.  Topeka  &  S.   F.  R.   R.  Co. 

v.  Jefferson  County,  899,  940,  973 
Atkins  v.  Petersburg  R.  R.  Co.,  1258 
Atkinson  v.  Rochester  Printing  Co., 

623,  62«.  7.VJ 
Atlanta  &  Florida  R.  R.  Co.  v.  Western 

Ry.  Co.  of  Alabama,  1141 
Atlanta  Hill  Mining  Co.  v.   Andrews, 

250 
Atlantic    Bank    v.    Merchants'   Bank, 

330,  882 

Atlantic  Cotton   Mills  v.    Indian  Or- 
chard Mills,  329,  838 
Atlantic   City   Water   Works  Co.   v. 

Read,  70 


I  contains  pp.  1-707;  ToL  II,  pp.  708-1807.] 

I  Atlantic  &  N.  C.  R.  R.  Co.  v.  Cowleu, 


M 

Atlantic  &Pac.  R.  R.  Co.  v.  Le  Sueur, 

1282,  1300 

A.  &  P.  R  R  Co.  v.  St.  Loui*.  493 
Atlantic  &  Pac.  Ry.  Co.  v.  Yavapai 

County,  1302 
Atlantic  State  Bank  of  Brooklyn  v. 

Savery,  528  • 

Atlantic  Trust  Co.  v.  Proceeds  of  the 

Vigilancia,  1066 
Atlantic  Trust  Co.  of  New  York  v. 

Town  of  Darlington,  1012 
Atlantic    Water  Works    v.    Atlanti« 

City,  80 

Atlas  Bank  v.  Nahant  Bank,  1118 
Atlas  Nat.  Bank  v.  Savery,  515,  516 
Attaway    v.    Third    National    Bank. 

245 
Attorney-General    v.    Aspinall,     121, 

249 
Attorney -General  v.  Bank  of  Niagara, 

305 
Attorney -General  v.  Bay  State  Mining 

Co.,  1073 
Attorney-General  v.  Bay  Supervisors, 

128 
Attorney -General  v.  Continental  Life 

Ins.  Co.,  664,  666 
Attorney-General  v. Corp.  of  Leicester, 

198,  249 

Attorney-General  v.  Kell,  249 
Attorney -General  v.  Life  &  Fire  Ins. 

Co.,  101,  102 

Attorney-General  v.  Lichfield,  121 
Attorney -General  v.  Norwich,  121 
Attorney -General  v.  Poole,  121 
Attorney-General  v.  Sefton,  1275 
Attorney-General  v.    Tudor  Ice  Co., 

494 
Attorney-General   v.   Utica  Ins.  Co., 

305,  555 

Attrill  v.  Huntingdon,  413 
At  water  v.  American  Exchange  Nat. 

Bank, 1124 

Atwood  v.  Merry  weather,  298,  324 
Atwood  v.  Shenandoah  Valley  R.  R. 

Co.,  1027,  1038 

Auburn  Savings  Bank  v.   Hayes,  734 
Auerbach  v.  Le  Sueur  Mill  Co.,  74, 106 
August  v.  Fourth  Nat.  Bank,  667 
Augusta  Bank  v.  Augusta,  923 
Augusta  Bank  v.  Hamlin,  175 
Augusta,   T.   &  G.  R  Co.  v.   Kittel. 

286.  254,  826,  1076.  1079,  1097 
Aurora  Agr.  &  Ilort.  Society  r.  Pad- 
dock, 163,  1078. 
Aurora  &  Cincinnati  R.  Co.  v.  City  of 

Laurenceburgh,  455 
Aurora  City  v.  West,  946,  955 
Austin  v.  Berlin,  884 
Austin  v.  Daniels,  247,  365 


XXX11 


TAULE  OF  OASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Austin  v.  District  Township  of  Col- 
ony, 140,  840 

Austin  v.  Gas  Company,  1264 

Australian  Steamship  Co.  v.  Mounsey, 
102 

Auxiliary   Company  v  Vickers,   1121 

Averell  v.  Second  Nat.  Bank,  595 

Averill  v.  Barber,  310,  316 

Avery  v.  Ladd,  1145 

Avery  v.  Job,  445  , 

Axt  v.  Jackson  School  Township,  133 

Ayers  v.  McCalla,  1262 

Aymar  v.  Boers,  702 

Ayrault  v.  Pacific  Bank,  688 

Ayres  v.  Bank,  601 

B. 

Babbitt  v.  Savoy,  35,  60 

Babcock  v.  Goodrich,  118 

Bachellor  v.  Priest,  702 

Bachrach  v.  Norton,  720 

Bacon  v.  Irvine,  316 

Bacon  v.  Mississippi  Ins.  Co.,  99,  182 

Bacon  v.  Pomeroy,  769 

Badger  v.  Badger,  168 

Badger  v.  Bank  of  Cumberland,  571 

Baer  v.  English,  1146 

Bagaley  v.  Pittsburg  Iron  Co.,  198 

Bagnall  v.  Carlton,  260,  297,  298,  299 

Bagnall  v.  State  of  Wisconsin,  1299 

Bagshaw  v.  Eastern  Union  Railway 
Co.,  300,  450,  471 

Bagshaw  v.  Seymour,  271,  294 

Bailey  v.  Bidwell,  621 

Bailey  v.  Mayor,  etc.,  29,  294 

Bailey  v.  Murphy,  530 

Bailey  v.  Pittsburg  &  Connellsville 
Gas.  Coal  &  Coke  Co.,  166 

Bailey  v.  Sawyer,  772 

Bailey,  Receiver,  v.  Burgess,  349 

Bain  v.  Peters,  713 

Bain  v.  Bank  of  Washington,  459 

Baird  v.  Todd,  67 

Baker  v.  Boston,  19 

Baker  v.  Guarantee  Trust  &  Safe  De- 
posit Co.,  1018,  1055 

Baker  v.  Harpster,  155 

Baker  v.  Inhabitants  of  Windham,  62 

Baker  v.  Johnson  County,  124 

Baker  v.  North  Western  Guaranty 
Loan  Co.,  490,  821 

Baker  v.  Railroad  Co.,  305 

Bakewell  v.  Police  Jury,  871 

Balbach  v.  Frelinghuysen,  613,  614. 
709,  712 

Balch  v.  Wilson.  710.  712. 

Baldwin  v.  Bank  of  Newbury,  359 

Baldwin  v.  School  City  of  Logans- 
port,  63 

Ball  v.  Allen,  660 

Ball  v.  Presidio  County,  831 


Ballard  v.  Carmichae/,  809 

Ballin  v.  Loeb,  1125 

Ballon  v.  Campbell,  218 

Ballston  Spa  Bank  v.  Marine  Bank, 
574 

Baltimore  City  R.  R.  Co.  v.  Sewell. 
198 

Baltimore  &  Ohio  R.  R.  Co.  v.  Glenn, 
1137 

Baltimore  &  Philadelphia  Steamboat 
Co.  v.  McCutcheon,  191,  210 

Bait.,  etc.,   R.  R.  Co.  v.  Wilkens,  334 

Bainbrick  v.  Campbell,  191,  210 

Bancroft  v.  Lyunfield,  35,  61 

Bancroft  v.  Wilmington  Conf.  Acad- 
emy, 574,  895 

Bangor  Boom  Corporation  v. Whiting, 
145 

Bangor  Savings  Bank  v.  City  of  Still- 
water,  37,  424 

Bangs  v.  Lincoln,  387,  769 

Bank  v.  Alexander,  608 

Bank  v.  Armstrong,  706,  731,  737,  750, 
753,  754 

Bank  v.  Baker,  513 

Bank  v.  Bank,  170,  209,  644,  655,  692 

Bank  v.  Beal,  731 

Bank  v.  Bergen  County,  857 

Bank  v.  Bletz,  529 

Bank  v.  Bouny,  1285 

Bank  v.  Bridges.  1086 

Bank  v.  Burkhardt,  1213 

Bank  v.  Burns,  692,  705 

Bank  v.  Butchers',  etc.,  Bank,  170 

Bank  v.  Butler,  545 

Bank  v.  Calder,  572 

Bank  v.  Carpenter,  527 

Bank  v.  Case,  772 

Bank  v.  Childs,  527 

Bank  v.  Christopher,  571,  583 

Bank  v.  Church,  209 

Bank  v.  City  of  St.  Joseph,  866 

Bank  v.  Colby,  545 

Bank  v.  Comegys,  207 

Bank  v.  Cortright,  807 

Bank  v.  Cunningham,  571 

Bank  v.  Cupps,  670 

Bank  v.  Davis,  535 

Bank  v.  Dearing,  775 

Bank  v.  Diefendorf,  620 

Bank  v.  Dowd,  626,  731,  750,  753 

Bank  v.  Dunn,  192,  193,  216,  217,  588 

Bank  v.  Flagg,  690 

Bank  v.  Foreman,  642 

Bank  v.  Gillespie,  736 

Bank  v.  Goetz,  752 

Bank  v.  Goodman,  682,  692,  705 

Bank  v.  Grace,  433 

Bank  v.  Graham.  546 

Bank  v.  Green,  620,  668 

Bank  v.  Gruber,  529 

Bank  v.  Headley,  600 


TABU 


xxxn: 


[The  references  are  t<»  pagea:  N"!    I 


Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Hank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Hank  v. 
Bank  v. 
Hank  v. 
Hank  v. 
Hank  v. 
Bank  v. 
Bank  v. 
Hank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 

146, 

Bank  v. 
Rink  v. 
Bank  v. 
Bank  v. 
Hank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v.' 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Bank  v. 
Hank  v. 
Bank  v. 
Bank  of 
Bank  of 

645, 


HenniriLrer.  .Vj:J,  642 

Hi-brr,  UT. 

Hoch,  562 
Hooper,  359 
Howard,  653 

Hubbcll,  618,  706 

Hughes.  523 

Johnson.  .VJ7 

.I..n,  -s.  172.  216,  641 

Keavv,  5SO 

Keim",  561 

Kennedy,  555 

Kitliler,  1155 

Kin-r.  721.  ",:\\ 

Ijmier,  517,  76:} 

Leach,  651 

Le  Grand,  642 

Littrll.  588 

Lovitt,  688 

Loyped,  583 

Mason,  609 

Matthews,  495,  942 

Miller,  617 

Mixtc-r.  716 

NiMNO,  583 

North.  942 

Noxon,  620 

Patterson.  32,  73,  98,  142,  145, 

203 

Perk,  523 

Pepom,  577 

Poisart.  562 

Porter  Township.  866 

Railway  Co..  605 

Richards,  655 

Russell,  753,  754 

Savery,  583 

Schaumburg,  583 

Srhrauck,  1117 

Schreiner,  640 

Schuler.  t>45 

Sherburne,  514 

Simpson,  514 

Smith.  5:55.  600,  617 

South  Iladloy.  114 

Strauffer.  527 

Stover,  5:55 

Sullivan.  504 

T<  nnessee.  1101 

Walker,  736 

Wallace.  690 

Wasson,  1084 

Wen  as,  523 

Weil,  659 

Whittle,  1084,  1112 

Wiegand.  562 

\Villinms.  629 

Winchester.  227 

Wulfekuhler,  241,  1117 

Alexandria  v.  Sanders.  508 

America  v.  Indiana  Bkg.  Co., 

656,  657 


contains  pp.  1-707;  vol.  II,  pp.  70&-lft07.] 

Bank  of  America  v.  McNeil. 

Hank  of  Attica   v.   Pott-cr  &  Stymus 

Mfg.  Co..  151.  1 .1.;,  197 
Bank  of  Auburn  v.  Putnam,  I 
Hank  nl"   AuiruMa  v.  Ivtrle    '.).">, 
Bank  of  Bat  a  via  v.  New  York.  L.  K.  A 

W.  R.  R.  Co..  14'.».  '.m 

Bank  of  Hennington  v.  Raymond,  7<M) 
Bank   of    British    N'.»rth    America  v. 

M  ivli-nrV    N-it.    Hank    of    New 

1'oik.  LI-; 

Bank  of  Carlisle  v.  (Jraham.  866 
Bank  of  Chillicothe  v.  Chilli<-othe,  :>. 

6.  1112 

Bank  of  Chillicothe  v.  Swayne,  90,  529 
Bank  of  Columbia  v.  McKVnney,  691 
Bank  of  Columbus  v.  Bruce.  76 
Bank  of  Commerce  v.  Hart,  517.  577 
Bank    Conns,    v.     Hank    of   Bulfalo. 

550 
Bankof  (Ji-nesee  v.    I'atchin,   78,   173, 

:!i;<>,  405,  508 
Bank  of  llealdsburg  v.  Hnilliarke,  174, 

579 

Bank  of  Hoi!  v   S'<.-j,,.rS  v.    I'in^on,  525 
Bank  of  Huntsville  v    Hill,  5xo 
Hank  of   Ireland   v.   K  vans'  Charities, 

344 
Bank  of  Kentucky  v.  Schuylkill  Hank. 

233,  338,  339,  1079 
Bank  of  Lindsbor^  v.  Obci- 
Bank  of  Louisiana  v.  tttrusburjr.  ."i'27 
Bank  of  I^ouisiana  v.  Slerlin-r.  .VJ? 
Bank  of  Marj'land  v.  Ruff,  158 
Bank  of  Metropolis  v.  Guttschlir.k,  146 
Bank  of  Metropolis  v.  Jones,  ">?i> 
Bank  of  the 'Metropolis  v.  First  Nat. 

Bank  of  Jersey  City,  706 
Bank  of  Middlebury  v."  Bin^ham,  52M 
liank  of  Middlebury  v.  Ed^crton.  471 
Bank  of  Middlebury  v.  Rutland  R.  R. 

Co..  144,  195 

Bank  of  Mobile  v.  Hug«rins,  681 
Bank  of  Montreal  v.  Dewar,  627 
Bank  of  Montreal  v.  J.  E.  Potts  Salt 

&  Lumber  Co.,  252.    1071.   1081, 

1115 

Bank  of  Montreal  v.  White,  644 
Hank  Mutual  Redemption  v.  Hill,  551 
Bank  of  New  Hanover  v.   Kenan.  01(7 
Hank  of  New  York  v.  American  Dock 

&  Trust  Co.,  157 
Bank  of  New  York  v.  Bank  of  Ohio. 

m 

Bank  of  North   America  v.  T;»mblvn, 

506 

Bank  of  Pennsylvania's  Estate.  718 
Bank  of  Peru  v.  Karnswnrtli.  ti'JT 
Bank  of  Pittxlmrirh  v.  Ncal.  980 
Bank   of  Poughkeepsie    v. 

880 
Bask  of  Republic  v.  Baiter,  631 


\X.\1V 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.1 


Bank  of  the  Republic  v.  Millard,  597, 

645,  651,  662,  664 
Hunk  of  Home  v.  Village  of  Rome,  49, 

9a=i,  1007 
Bunk  of  St.  Albans  v.  Farmers'  Bank, 

670 

Bank  of  Mary's  v.  Calder,  563 
Bank  of  St.  Marys  v.    St.   John,  241, 

249,  302 

Bank  of  San   Luis  Obispo  v.  Wicker- 
sham,  295 
Bank    of    Springfield    v.    First    Nat. 

Bank  of  Springfield,  652 
Bank  of  U.    S.   v.  Bank  of  Georgia, 

673,  677 
Bank  of  United  States  v.  Dandridge, 

32.  146,  204,  340 
Hank  of  U.  8.  v.  Davis,  361 
Bank  of  United  States  v.  Lane,  686 
Bank  of  the  United  States  v.  Macales- 

tcr,  603 
1'ank  of  the  University  v.  Hamilton, 

363 

Bank  of  Utica  v.  Smailey,  763 
Bank  of  Vergennes  v.  AA  arren,  154 
Hank  of  Washington   v.    Triplett  & 

Neale,  681 

Hank  of  Yolo  v.  Weaver,  151 
Hanks  v.  New  York  Club.  157 
Bannock  County  v.  Bunting,  13 
Banque  Franco-Egvptieune  v.  Brown, 

1016,  1017 

Barber  v.  City  of  Saginaw,  112 
Barbour  v.  Bayon,  644,  656 
Barb  Wire  Co.  v.  Chicago  B.,  etc.,  Ry., 

890 

Barcalow  v.  Totten,  1140 
Barclay  v.  Culver,  1289 
Barcus  v.  Hannibal,  Rolls  County  & 

P.  P.  R.  Co.,  180 
Bareno  v.  Hannibal,  Rollo  Co.  &  P.  R. 

R.  Co.,  180 

Hard  v.  City  of  Augusta.  45,  952 
Hard  v.  Manufacturing  Co.,  495 
Bardstown  &  Louisville  R.  R.  Co.  v. 

Metcalfe,  1054,  1096,  1169 
Barker  v.  Chesterfield,  134 
Barker  v.  Mechanics'  Ins.  Co.,  97,  101 
Barker  v.  Rochester  Nat.  Bank,  528 
Barlow  v.  Planters'  Bank,  688 
Barnard  v.  Knox  County,  67 
Barnert  v.  Mayor,  etc.,  62 
Barnes  v.   Brown,   242,  260,  268,  278. 

282,  286,  309 
Barnes  v.  Chicago,  Milwaukee,  etc., 

Ry.  Co.,  1163 

Barnes  v.  Gas  Light  Co.,  569,  570,  583 
Barnes  v.  Korneguy,  1283,  1284 
Barnes  v.  Ontario  Bank,  75,  102 
Barnes  v.  Suddard,  494 
Barnes  v.   Town   of  Lacon,  852,  941, 

973,  1004 


Barnet  v.  National  Bank,  527,  528,  531 

Barnet  v.  Smith,  657 

Barnett  v.  Denison,  872 

Barney  v.  Dewey,  294 

Barnum  v.  Board  of  Supervisors  of 

Sullivan  County,  997 
Barnum  v.  Okolona,  1COO 
Barr  v.  New  York,  L.  E.  &  W.  R.  R. 

Co.,  257,  268,  27S.  1023 
Barr  v.   Pittsburgh  Plate  Glass  Co., 

252,  260 
Barry  v.   Merchants'  Exchange  Co., 

1289 

Barrett  v.  City  of  East  St.  Louis,  851 
Barrick  v.  Austin,  573 
Barrow  v.  N.  &  C.  T.  Co.,  494 
Barry  v.  Merchants'  Exchange  Co.,  73, 

75,  85,  102,  153,  1269 
Barry  v.  Missouri,  Kansas,  etc.,  Ry. 

Co.,  1045 

Bartemeyer  v.  Rohefs,  900,  906,  953 
Bartholomew  v.  Bentley,  248,  369 
Bartlett  v.  Drew,  1133 
Bartlett  v.  Remington,  617 
Bartlett  v.  Kinsley,  790 
Barton  v.  Barbour,  1223 
Barton  v.   P.  J.  &  U.  F.  Plank  Road 

Co.,  75,  1117 
Barton  v.  Swepston,  445 
Bash  v.  Culver  Gold  Mine  Co.,  300 
Bason  v.  King's  Mining  Co. .  1075 
Bassett  v.  City  of  El  Paso,  1262 
Bassett  v.  St.  Albans  Hotel  Co.,  388 
Bateman  v.  City  of  Covington,  438 
Bates  v.   Androscoggin   River  R.    R. 

Co.,  485 
Bates  v.  Boston  &N.  Y.  Central  R.  R. 

Co.,  1014 
Bates  v.  Independent  School  District, 

879 

Bates  v.  Iron  Co.,  147,  227 
Bates  v.  Short,  520 
Bates  v.  State  Bank,  459 
Bates  County  v.  Winter,  446,  935 
Bath  County  v.  Amy,  944 
Butler  v.  Brandywihe,  135 
Battle  v.  North  Western  Cement  Co., 

263 

Battle  v.  Corporation  of  Mobile,  48 
Bauer  v.  Franklin  County,  129,  437 
Bauer  v.  Platt,  379,  380 
Baumgartner  v.  Hasty,  38 
Bay  City  Bridge  Co.  v.  Van  Etten,  312 
Bayless  v.  Orne,  305 
Bay  or  v.  Schaffner    &    Co.'s  Estate, 

1145 

Bay  View  Homestead  Assn.  v.   Wil- 
liams, 353 
Beach    v.    Inhabitants    of     Conway, 

133 

Beach  v.  Miller,  239,  253,  1087 
Beal  v.  City  of  Somerville,  611 


TAIU.I:  OK  CASES. 


\  X  X  V 


[The  references  are  to  page*:  v-.i.  I  ,-.. mains  pp.  1-707;  vol.  n,  pp.  708-1807.) 


Bcal  v.  National   Exchange   Hunk   of 

Dallas.  Tin 

H.-al  v.  liailroad  Co..  348,  1183 
Heal  v.  St.  Cn.ix  County,  182 
Bcaman  v.  Lrake  Downy,  U20 
Beman  v.  Kufford,  471 

v.  Township.  135 
Isley  v.  Ontario  Bank,  1096 
Beattic  v.  Del  ,  L.  &  W.  Railroad  Co., 

-,>:« 

Beaty  v.  Li -KSI-C  of  Knowler,  50,  478 
Beaver  v.  Armstrong,  940 

IT  Dam  v.  F rings,  138 
Beck  v.  Kantorowic/.,  298 
Beck  with    v.   Windsor  Manufir.    Co.. 

1  I-', 
Bedford  R.  R.  Co.  v.  Bowser,  1<>I>.  «:*. 

471 

Heche  v.  Board,  etc.,  57 
Bret)'*    v.    Kichni'ind    Light,    Heat    i 

Power  Co.,  1006 
Beecher  v.  D;iey,  92 
Beechcr  v.  Rolling  Mill  Company, 

1024,  1069 

Beeehrr  v.  SchicflVlin,  809.  310 
Bcckman  v.  Saratoga  &  Schenectady 

R  R.  Co.,  917,  958 
Beeman  v.  Black,  1012 
Beenev,  County  Treasurer,  v.  Irwin,  I 

110 

Beers  v.  Bridgeport  Spring  Co.,  816 
Beers  v.  New  York  Life  Ins.  Co.,  263 
Beers  v.  Phoenix  Glass  Co.,  73,  102, 

153 

BcM.-n  v.  Burke,  263.  1057 
Belknap  v.  Davis,  218.  865 
Belknap  v.  North  American  Bank, 

868 
Bell  v.  Chicago.  St.  L.  &  N.  O.  R.  R. 

Co..  964,  1055 

Hell  v.  Ha-erstown  Hank,  686 
Hell  v.  Hanover  National  Bank,  525, 

564 

Hell  v.  Live  Stock  Co.,  430 
Hell  v.  Mali.  287 

Bell  v.  Montgomery  Light  Co.,  318 
Hell  v.  PUttevtlle,  42 
Belleville  Savings  Bank  v.  Winslow, 

198 

Bell's  Gap  Railroad  Co.  v.  Pennsylva- 
nia, rj'.n 

Belmont  v.  Krie  Ry.  Co..  1043 
Heinent  v.  Plattsburg  &  Montreal  It. 

R.  Co..  1077,  1082 
Benedict  v.  Construction  Companv, 

1122 

Benedict  v.  Lansing,  98,  150,  152,  172 
Benedict  v.  Rose,  090 
Benefit  Assn.  v.  Blue,  496 
Benjamin  v.  Elmira,  Jefferson  A.  <    : 

andaigun  R.  R.  Co.,  1014 
Benjamin  v.  Wheeler,  19 


Bennett  v.  Glenn,  Trustee,  1138 
Bennett  v.  Great  Western   Ti  N-graph 

Co.,  1140 

Benoit  v.  Inhabitants  of  Con  way,  134 
Benseik  v.  Thomas.  491 

•i  \     lit  -at  horn,  242 
Benson  v.  Waukcsha.  42 
Hentley  v.  Columbia  Ins.  Co. ,842 
IJeiiti.ii     v.     German-American    Nat. 

Bank 

Bergen  v.  Fi^hinir  Company,  1086 
Berks  County  v.  I'll.-.  i:;J 
Berlin  v.  New  Britain,  790 
Berlin  Iron  Bridge  Co.  v.  City  of  San 

Antonio.  429 

Bernard's  Township  v.  Stebbins.  991 
Herrv,  Recr,  v.  Yates,  478 
Barton  v.  Walten.  250 

Meveritl^'e  v.  Railroad  Co.,  476 

Heverley  v.  Lincoln  Gas  Co.,  98,  234 

Be/on,  t'omr.,  v.  Pike,  89 

Hibby  v.  Hall.  ',':{ I 

Biekford  v.  Fir>t  Nat.  Bank  of  Chi- 
cago, 357.  645,  652.  697 

Bicknell  v.  Widner  School  Township, 
20,  133.  427 

liid.lle  v.  City  of  Terrell,  429 

Bien  v.  Bear  River  «fc  Auburn  W.  & 
M.  Co..  174,  190 

Biggs  v.  Pennsylvania  &  New  Eng- 
land R.  R.  Co..  1034 

Bill  v.  National  Park  Bank,  653 

Bill  v.  Western  Union  Tel.  Co.,  316, 
823 

Bingham  v.  Stewart,  358 

Binney's  Case,  72 

Bird  v.  Daggett,  152,  210.  227 

Bird  Coal  &  Iron  Co.  v.  Humes,  242 

Birdsall  v.  Clark,  59 

Hischoffsheim  v.  Brown,  1016 

Bishop  v.  Houghton.  812 

Bishop  v.  Moorman,  874 

Bi-Spool  Sewing  Machine  Co.  v. 
Acme  Mfg.  Co..  156 

Bishop  v.  City  of  Jeffersonville,  897 

Bissell  v.  City  of  Kankakee,  567,  852, 
949 

Bissell  v.  Mich.  So.  &  No.  Ind.  R.  R. 
Co.,  106,  153,  809,  822,  453,  469, 
471,  491,  546 

Bisscll,  Receiver,  v.  Heath,  761 

Black  v.  Delaware,  etc..  Canal  Co., 
471 

Black  v.  Skreeve,  1051 

Hlaeklcy  v.  Andrew,  658 

Hlaekman  v    Li-hman.  11,  952 

Blackshire  v.  Iowa  Homestead  Co., 
805,  1071 

Blain  v.  Airar,  294 

Blaine  v.  Brown,  708 

Blair  v.  Coming  County.  917.  947.  948 

Blair  v.  Perpetual  Ins.'Co  .  4C,:{ 


XXXVI 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Blair  v.  Lewis,  Hannibal,  etc.,  R.  R. 

Co.,  1172,  1198,  1194,  1221,  1238 
Blake  v.  Buffalo  Creek  R.  R.  Co.,  251, 

280,  282 

Blake  v.  Griswold,  412 
Blake  v.  Holley,  155.  173 
Blanchard  v.  Kuull,  850 
Blanchard's  Gun-Stock  Turning  Fac- 
tory v.  Warner,  74 
Bland  v.  Commercial  &  Railroad  Bank, 

638 

Blanding  v.  Burr,  49,  923 
Blanding  v.  Davenport,  I.   &  D.  R. 

Co.,  151 
Blanton  v.  Board  of  County  Comrs., 

907 

Blasdcl  v.  Locke,  617 
Blatchford  v.  Ross,  248,  260 
Bletz  v.  Columbia  Nat.  Bank,  554 
Bliss  v.  Anderson,  463 
Bliss  v.   Kaweah  Canal  &  Irrigation 

Co.,  192,  204 

Bliss  v.  Matteson,  260,  282 
Block  v.  Commissioners,  955 
Blodgctt  v.  Gardiner,  522 
Blood  v.  Marcuse,  180 
Bloodgood  v.  Mohawk  &  Hudson  R. 

R.  R.  Co.,  958 
Bloomington  v.  Chicago  &  Alton  R. 

R.  Co.,  1268 
Blount  v.  Windley,  718 
Bloxham  v.  Florida  Central  &  P.  R. 

R.  Co.,  1305 
Blum  v.  Looney,  831 
Board  v.  Senn,  1272 
Board,  etc.,  v.  Applewhite,  121 
Board,  etc.,  v.  Arrghi,  801 
Board,  etc.,  v.  Boyle,  122 
Board,  etc.,  v.  Boynton,  31 
Board,  etc.,  v.  Bradford,  122 
Board,  etc.,  v.  Brown,  825 
Board,  etc.,  v.  City  of  Lincoln,  793 
Board,  etc.,  v.  Cole,  57,  123 
Board,  etc.,  v.  Crook  County,  67 
Board,  etc.,  v.  Everett,  29 
Board,  etc.,  v.  Gregory,  122 
Board,  etc.,  v.  Hill,  22,  874 
Board,  etc.,  v.  flon,  31 
Board,  etc.,  v.  Jennings,  31 
Board,  etc.,  v.  La  Fayette,  M.  &  B. 

R.  R.  Co.,  470.  471 
Board,  etc.,  v.  Lomax,  121 
Board,  etc.,  v.  McClintock,  17 
Board,  etc.,  v.  Nelson,  376 
Board,  etc.,  v.  O'Connor,  123 
Board,  etc.,  v.  People  ex  rel.,  800 
Board,  etc.,  v.  Roenner,  126 
Board,  etc.,  v.  Reynolds,  471 
Board,  etc.,  v.  Richardson,  122 
Board,  etc.,  v.  Seaton,  31 
Board,  etc. ,  v.  Taylor,  63,  64 
Board,  etc.,  v.  Verburg,  121 


Board,  etc.,  v.  Ward,  122 
Board,  etc.,  v.  Webb,  126,  442 
Board,  etc.,  v.  Weider,  826 
Board  of  Coinrs.  v.  Bright,  949 
Board  of  Commissioners  v.  State,  971 
Board  of  Comrs.  of  Gilson  County  v. 

Ticheuor.  ?H3 
Board  Comrs.    Hamilton    County   v. 

State,  !»:i5 
Board  of  Comrs.  of  Kingman  County 

v.  Cornell  University,  942 
Board  of  Education  v.  Fonda,  990 
Board  of  £}ducntion  v.  Fowler,  882 
Board  of  Education  v.  Martin,  882 
Board  of  Supervisors  v.  Deyoe,  380 
Board  of    Supervisors,    etc.,   v.   Ed- 
wards, 120 
Board    of    Supervisors    of    Madison 

County  v.  Brown,  913 
Board  of  Supervisors  v.  Weider,  1004 
Board     of     Supervisors     of    Mercer 

County  v.  Hubbard,  899,  910,  918, 

945 

Board  of  Trustees  v.  Smith,  100 
Board    of    Trustees    of    Augusta    v. 

Maysville  &  B.  8.  R.  R.  Co.  ,969 
Boehm  v.  Rail,  1086 
Bohan  v.  Township,  135 
Bohm    v.    V.     Loewer's     Gambrinus 

Brewery  Co.,  103,  172 
Bohn  v.  Brown,  415 
Bohn  Mfg.  Co.  v.  Lewis,  961 
Bolles  v.  Brimfield,  939 
Bolles  v.  Town  of  Amboy,  976 
Bolton  v.  Board  of  Education,  879 
Bolton  v.  Richard,  600 
Bommer  v.  S.  S.  Co.,  234 
Bonaparte  v.  Tax  Court,  1277 
Bond  v.  Manufg.  Co.,  490,  495 
Bond  v.  Terrell  Cotton  &  Woolen  Mfg. 

Co.,  821 

Bonesteel  v.  City  of  New  York,  113 
Bonnell  v.  County  of  Nuckolls,  67 
Bonnell  v.  Griswold,  393,  412 
Booe  v.  Junction  R.  R.  Co.,  471 
Book  Company  v.  De  Golyer,  1118 
Boom  v.  Utica,  5,  114 
Booth  v.  Bank,  183,  190,  321 
Booth  v.  Robinson,  76,  97,  102,  282 
Booth  v.  Welles,  755 
Brock  v.  Perkins,  720 
Borough  of  Henderson  v.  County   of 

Sibley,  895 

Borough  of  York  v.  Forscht,  125 
Borup  v.  Nininger,  682 
Bosler's  Admr.  v.  Bank,  712 
Boston  &  Albany  Railroad  v.  Richard- 
son, 335,  336 
Boston  &  P.  R.  R.  Co.  v.  New  York 

&N.  E.  R.  Co.,  278 
Boston,  etc.,  R.  R.   Corp.  v.  Salem, 

etc.,  R.  R.  Co.,  471 


TAIM.I     OP  C  \-l  8. 


\\.\V11 


[The  references  are  to  page*:  vol.  I  contains  pp.  I  TilT:  vol.  II.  pp.  708-1307.  j 


Boston,   C.    A:  M.  H.  R.  Co.   v.   State, 

1300 
Boston  &Roxbury  Mill  Corporation  v. 

Newman,  U17 

Boston  Safe  Deposit  Trust  Co.  v. 
Adrian,  Mich.,  Water  Works, 
1183 

Boston  Safe  I>c|.o>it  vv  Tru-t  Co.  v. 
Bankers  «fc  Merchants'  Telegraph 
Co.,  lOiW 

Bothwcll  v.  Millikan.  127-' 
Botsford  v.  New  H;ivcn.  Middlctown, 

etc..  K.  H.  Co  .  r.M'.t 
Bottomley  v.  Fisher. 
Boaghtoo  v.  otis.  884,  :::H) 
Bound    v.    South   Carolina    Rv.    Co.. 
lio:?.  ni;o.  HOT.  1171.  1184,  ll*."), 
121<.».  1211.  I  . 
Bound  v.  South  Carolina  Ry.  Co.,  Ex 

parte.  Mitchell.  12*1 
Bound  v.  South  Carolina  If.  R.  Co., 
Ex  parti-  Walker;  Ex  parte  Cal- 
der,  1184 
Bound    v.    South    Carolina  Kv.    Co. 

(Maytield.  Intel  -verier),  1172 
Bound    v.    Soiitli    Carolina    Ry.    Co. 

(Quintard.  Intervener),  1260 
Bouitleaux  v.  Cognard,  438 
BowdcH  v.  Johnson,  764,  767 
Bowen  v.  Morris,  its 
Bowers  v.  Evans.  7.">:{ 
Bowen  v.  Newell.  Ii56 
Bowles  v.  Lambert ,  359 
Bowles  v.  Stai. 

Bowman  Dairy  Co.  v.  Mooney,  820 
Bowyer  v.  Camden,  1086 
Boyce   v.  Montnuk  Coal  &   Gas  Co., 

1069 

Boyce  v.  Tahh,  !'--' 
Boyd  v.  Beck.  .">»;* 
Boy. I  v.  Kmiiiei-son.  601,  698 
Boyd  v.  Mr\i< •  »  Southern  Bank,  650 
Boyd  v.  Sims.  :Uti 
Boyden   v.  Hank  of  Cape  Fear,  597, 

'  888 

Boydston  v   l{o<  kwall  County,  117 
Boyer  v.  Boyer.  12!»7 
Boyin^ton  v.  Wilson  Sewing  Machine 

Co.,  in:, 

Boyle  v.  Thurbcr,  413 
Boy nt on  v.  Match.  166 
Bracket!  v.  (Jriswokl,  393,  413 
Bnidbury  v.  lioston  Canoe  Co.,  85 
Bradlee'v.     Warren    Savings    Bank, 

179 
Bradley  v.  Italian!,  75,  102,  107,  153 

489,  496,  1M2 
Bradley  v.  Farwell.  1108 
Bradley  v.  l'....lc,  291 
Brady  v.  Mayor,  etc.,  995 
Bradv  v.  Supervisors.  et« 
Brady  v.  Mayor,  etc..  of  Brooklyn,  379 


Brady  v.  Mayor,  etc.,  :,.  20.  K»:J 

Brady  \.  May  or  of  NYw  York,  444 

BiBdj  v.  Mayor,  etc.  S21 

Brahm  \.  A.ikins,  .VJH,  600,  604,  649 

Bnan-inl  v.  New   York  &  Harlem  H. 

H.  Co..  U.V.,  1014 
Uraiin-rd  v.  New    York  Central  H.  R. 

Bnnch  v.  Jessup.  93.  473.  1096 
Branch  Bank  at  Huntsville  v.  St«cl<-. 
688 

Brand)  Bank  at  Mobile  v.  Collins, 
549 

Branch   Bank  at  Mobile  v.   Scott.  549 

Branch  Bank  at  Montgomery  v.  Har- 
rison. .V.N 

Branch  Bank  at  Montgomery  v.  Kiiox, 

r.i.y  «;M.  699,  700 

Branch   Bank  at  Mobile  v.  Strother. 

B88 
Bninch,    Sons  &  Co.    v.   Atlantic    A 

Gulf  R.  R.  Co..  1077 
Brandt  v.  Goodwin,  897,  411 
Brandao  v.  Barrett,  524 
Bras! in  v.  Somcrville  Horse  R.  R.  Co., 

465 
Breckenridge  County  v.  McCracken, 

920,  931,  946,  947,  948 
Breene  v.  Bank,  726 
Breitung  v.  Lindauer,  416 
Bremen     Savings     Bank    v.     Branch 

Crookes  Law  Co..  361    • 
Brenham  v.  German-American  Bank, 

12,  14,  864,  884.  1000 
Brennan  v.  Mississippi  Home  Ins.  Co., 

1307 

Brennan  v.  Titusville,  1267 
Brent   v.  Bank  of  Washington,   525, 

526 
Brewer   v.  Boston  Theatre,   306,   317, 

324.  325 

Brewer  v.  Otoe  County,  788,  804 
Brewster  v.  Hatch,  260 
Brewster  v.  Hyde,  857 
Brewster  v.  Stretmnn,  271 
Brideubecker  v.  Lowell,  170,  574 
Bridgeport  v.  Railroad.  979 
Bridgeport  Bank  v.  Dyer,  658 
Bridgeport  City  Bank  v.  Empire  Stone 

Dressing  Co..  78,  152,  405 
Briggs  v.  Bank.  692 
Briggs  v.  Partridge,  360 
Brigps  v.   Spaulding.  303,  347,   351, 

:,:,:; 

Briggs  v.  Whipple,  62 
Bright  v.  Banking  Co.,  506 
Bright  v.  MeCullough,  870 
Bright  v.    Metairie  Cemetery    Assn., 

181 

Brinckerhoff  v.  Marvin,  1058 
Brinkerhoff  v.  Bostwick,  848.  555,  556, 

560 


XXXV111 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-18or.l 


Brinkman  v.  Hunter,  654 

Brinkmeyer  v.  City  of  Eransville,  19 

Briiikwortli  v.  Grable,  969 

Briscoc  v.  Allison,  929 

Bristol  v.  Scrantpn,  259 

British  &  American  Mortgage  Co.  v. 

Tibballs,  687 
British  Coml.  Life  Ins.  Co.  v.  Comrs. 

of  Taxes,  1287 
Britou  v.  Mayor,  etc.,  29 
Brockert  v.    Central  Iowa  Ry.    Co., 

1227 

Brockman  v.  Metcalf,  154 
Brockway   v.  Allen,  359 
Erode  v.  Firemen's  Ins.  Co.,  13,  100 
Broadhead  v.  Milwaukee,  49,  957 
Brodie  v.  McCabe,  827 
Brome  v.  Cuming  County,  57 
Bronson  v.  Railroad  Company,  1042 
Brooke  v.  Railroad  Company,  1079 
Brooklyn  v.  Breslin,  59 
Brooklyn  v.  Insurance  Company,  965 
Brooklyn       Gravel       Ro&d    Co.     v. 

Slaughter,  182 
Boughton      v.       Manchester     Water 

Works,  73,  90,  98 
Broughton  v.  Pensacola,  844 
Brouwer  v.  Appleby,  193 
Brouwer  v.  Harbeck,  111,  1117 
Browser  v.  Brooklyn  Trust  Co.,  234 
Brower  v.  Haight,  527 
Brown  v.*  Bank,  536 
Brown  v.  Board,  etc.,  15 
Brown  v.  Bon  Homme  County,  857 
Brown  v.  District  of  Columbia,  111 
Brown  v.  Donnell,  173,  494 
Brown  v.  Duluth  M.  &  N.  Ry.   Co., 

287,  495,  1030 

Brown  v.  Grand  Rapids  Parlor  Furni- 
ture Co.,    144,    251,    1071,    1081, 

1082,  1085,  1120 
Brown  v.  Houston,  1293 
Brown  v.  Leckie,  645,  648,  652 
Brown  v.  McElroy,  605 
Brown  v.  Montgomery,  624 
Brown  v.  Pierce,  645 
Brown  v.  Point  Pleasant,  1004 
Brown  v.  Spofford,  980 
Brown    v.    Supply    Company,    1057, 

1075 

Brown  v.  Maryland,  1013,  1267 
Brown  v.  Toledo,  P.  &  W.  R.  R.  Co., 

1199,  1202 

Brown  v.  Weymouth,  180 
Brown  v.  Winnisimmet,  92 
Brown  v.  Wright,  197,  239 
Browne  v.    National    Color  Printing 

Co.,  299 
Brovnell  v.  Town  of  Greenwich,  983, 

984,  993 

Brownlie  v.  Campbell.  293 
Bruce  v.  Platt,  394,  398,  399 


Bruff  v.  Mali,  286,  287 
Brunswick-Balke-Collender     Co.     v. 

Boutell,  358 

Brush  v.  City  of  Carbondale,  121 
Bryan  v.  Page,  446 
Buchanan  v.   Litchfield,  66,  839,  855, 

897,  929,  968 
Buck  v.  Barder.  390 
Buck  v.  Memphis  &  Little  Rock  R.  R. 

Co.,  1096 

Buck  v.  Seymour,  1096 
Buckeye  Engine  Co.  v.  Donran  Brew- 
ing Co.,  1125 
Buckeye  Marble  &  Freestone  Co.  v. 

Harvey,  470 
Buckley  v.  Briggs,  455 
Budd  v.  Budd,  429 
Buell  v.  Buckingham,  285,  1074,  1084, 

1108,1112 

Buffalo  v.  Bettinger,  996 
Buffalo  &  Allegany  Railroad  Co.  v. 

Carey,  390 
Buffalo,  etc.,  R.  R.  Co.  v.  Board,  etc., 

871 
Buffalo,  etc.,  R.  R.  Co.  v.  Lainpson, 

250 
Buffit  v.  Troy  &  Boston  R.   R.   Co., 

153 
Buford  v.    Keokuk  L.    Packet  Co., 

278 
Building  Fund  Trustees  v.  Bossieux, 

554 

Bull  v.  Bank  of  Kasson,  645,  655,  657 
Bullard  v.  Randall,  664 
Bullene  v.  Coates,  601 
Buller  v.  Harrison,  616 
Bullock  v.  Curry,  46,  908 
Bunch's  Exr.    v.   Fluvanna  County, 

954 
Buncombe  Turnpike  Co.  v.  McCarson, 

145 

Bundy  v.  Jackson,  263 
Bunting  v.  Camden  &  Atlantic  R.  R. 

Co.,  1043 

Burbank  v.  Dennis,  300 
Burch  v.  Paper  Company,  144 
Burdon  v.  Association,  1118 
Burger  v.  Burger,  608 
Burges  v.  Mabih,  906 
Burgess  v.  Pue,  143,  144 
Burgess  v.  Seligman,  988 
Burke  v.  Smith,  258 
Burkhaltcr  v.  Second  National  Bank, 

648 

Burkinshaw  v.  Nicolls,  328 
Burley  v.  Marsh,  260 
B.  G.  &  M.  R.  R.  Co.  v.  Warren,  126 
Burlington  Water  Co.  v.  Woodward, 

68,  69 

Burnes  v.  Atchison,  952 
Burns  v.  Mayor  of  N.  Y.,  114 
Burnett  v.  Abbott,  27,  121,  437 


TABLE  OF  CASES. 


X  \  X 1  \ 


[The  reference*  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1907.] 

Caldwell     v.    Nat.     Mohawk     Valley 

Bank,  .171 
Caledonia   A:    Dmnb.irtonville    Ry.    v. 

Magistrates  of  Helensburgh,  4.r*0 
Calboun  v.  .Memphis  A:  I'aducnh  R   R 

Co.,  1096 
California  Safe   Deposit   A:  Trust  Co. 

v.   Cheney    Kicctrie    Light.     <. 

phone  &  Power  Co..  1 14i> 
California    State     Telegraph    Co.    v. 

Alia  Teleirraph  Co.,  Ml 
Callanan  v.  Brown,  s-Jl 
Callaway    M.    A:    M.    Co.  v    Hat 

819 
Calumet  Paper  Co.  v.   Siotts   I 

ment  Co.,  1140 

Calvert  v.  Idaho  Stage  Company,  144 
Cambridge    Water    Works  v.    Somer- 

ville  Dyeiiiir  A:  Blea<-liitiir  Oo 
Camden  v.  Stuart,  l<»-_»x 
C'amden  «te  Atlantic  R.  R.  Co.  v.  May's 

Landing   A:    Kirg   Harbor  City  R. 

R.  Co.. 

Cameron  v.  First  Nat.  Bank,  470 
Cameron  v.  Seaman.  391,  : 
Campbell   v.    American  Zylouite  Co., 

485 
Campbell  v.  Argenta  Gold  A  Silver 

Mining  Co..  K.M 
Campbell   v.   Merchants  &    Fanners' 

Ins.  Co.,  158 
Campbell  v.  Mississippi  Union  Bank, 

505 

Campbell  v.  Morgan,  810 
Campbell  v.  Paris  A:  Decatur  R.   R. 

Co.,  971,  973 

Campbell  v.  Pope,  15s,  £«.  -,>:{} 
Campbell  v.  Texas  &  N.  I).  R.  R.  Co., 

1054 
Canada  Southern  R.   R.   Co.   v.  C-h- 

hard,  1080 

Canal  Bridge  v.  Gordon,  263 
Cantillon  v.  Dubuque  &  N.  W.  R.  R. 

Co.,  976 

Capitol  State  Bank  v.  Lane,  688 
Carey  v.  Giles,  98,  173 
Carey   v.   Houston   &  Texas  Central 

Ry.  Co..  1147,  1165 
Carley  v.  Graves,  749 
Calling's  Case.  299 
Carman  v.  Prest.,  etc..  Franklin  Bank 

of  Baltimore.  509 
Carpenter  v.  Briggs.  152,  180 
Carpenter  v.  Buena  Vista  County. 
Carpenter  v.  Farnsworth.  Hid 
Carpenter  v.  Union,  4  Hi 
Carr  v.  Hamilton.  718 
Carr  v.  Lc  Fevre,  1014 
Carr  v.  Risher.  390 
Carr  v.  State,  1146 

Carrigan  v.  Port,  Crescent  Imp.  Com- 
pany, 155 


Burnlmm  v.   Bowen,   1220,  122',', 

Burnham  v.  Strafford,  187 

Burnham  v.  Webster.  .171,  6H1 

Burr  v.  City  of  Carbondale,  37,  70, 
850 

Burr  v    Mi-I>mmld.  7.1.  1108 

Burn-ill  v.  Bushwic  k   R.  H.   Co..  Ix'H'J 

Burrill  v.  Nuhaut  Bank,  671,  1074, 
107.1 

Burrill  v.  Boston,  440 

Burroughs  v.   Richmond  ('.unity.  !Hti 

Burroughs  &  Springs  v.  Commission- 
ers, 1047 

Burrow  v.  Zapp,  525 

Burrows  v.  Bangs,  680 

Burt  v.  Railroad  Co.,  880 

Burt  v.  Rattle,  «.t|.  1055 

Burton  v.  Norwich.  138 

Bush  v.  Sprague.  547 

Burnett  v.  First  Nnt.  Bank,  609 

Bush  v.  Wolf.  11<> 

Bushnell  v.  Beloit,  4*.  I'.' 

Bushwick.  etc.,  Turnpike  Co.  v.  Eb- 
betts,  ;!ls 

Busscy  v.  Gil  more.  21 

Butchers',  etc..  Bank  v.  Hubbell,    744 

Butler  v.  Cornwall  Iron  Co.,  262 

Butler  v.  Dunham,  953 

Butler  v.  Eaton,  519,  756 

Butler  v.  Passaic,  890,  1270 

Butler  v.  Poole,  772 

Butler  v.  Rahm,  1096 

Butler  v.  Smalley,  891,  392,  413 

Butler  v.  Sullivan  County,  57 

Huttc  Hardware  Co.  v.  Schwab,  470 

Hutti-  County  v.  Morgan,  374 

Butternut  v.  O'Malley,  138 

Butts  v.  Little.  67 

Butts  v.  Wood.  242,  247,  250,  279,  280, 
282,  283,  809,  365,  556 

Butts  v.  Cuthbertson,  142 

Butz  v.  City  of  Muscatine,  982 

Byer  v.  Rollins,  316 


c. 

Cabaniss  v.  Hill,  67 

Cable  v.  Gaty.  3*9,  415 

Cable  v.  McCime,  389,  415 

Cady  v.  Sanford,  417 

Cady  v.  Watertown,  139 

Cngwin  v.  Town  of  Hancock.  985.  986 

Cagswell  v.  Ball,  311 

Cahill  v.  Kal.  Mut.  Ins.  Co.,  144,161 

( airo  v.  Vane,  893.  966 

Cairo  &  St.  Ixmis  R.  R.  Co.  v.  City  of 

Sparta,  954 
Cairo.  V.  &  C.   Ry.  C'o.  v.  Matbews, 

1804 

Cake  v   Bouck.  562 
Caldwell  v.  Justices.  «>l  Burke,  49 


xl 


TABLE  <)F  (  AH  3. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Carroll  v.  Siebenhaler,  118 

Carroll  County  v.  Smith,  911,  912,  957 

Carson  City  Sav.  Bk.  v.  Carson  City 

Elevator  Co.,  470,  489,  49f> 
<  'nrter  v.  City  of  Dubuqxie,  56 
Carter  v.  City  of  New  Orleans,  1177 
Carter  v.  Ford,  etc.,  Co.,  315 
Carter  v.  Glass  Co.,  5»5<) 
Carter  v.  Hightower,  1129 
Carter  v.  Palmer,  2ol 
Carter  County  v.  Slaton,  946 
Cartwright  v.  Dickinson,  1132 
Carver  v.  Braintree  Manufg.  Co.,  414 
Cary-  Holiday    Lumber  Co.    v.    Cain, 

809 

Cary,  Assignee,  v.  McDougald,  573 
Caryl  v,  McElratb,  191 
Casco  Nat.  Bank  of  Portland  v.  Clark, 

359 

Casev.  Bank,  226,567,  729 
Case  v.  Beauregard,  750,  1140 
Case  v.  Hawkins,  191 
Case  v.  Morris,  657 
Case  v.  Wresler,  800 
Case  of  Bowton,  615 
Case  of  Sargeant,  615 
Casey  v.  Galli,  772 
Casey  v.  People,  954,  976 
Casey,  Receiver,  v.  Societe  de  Credit 

Mobilier,  733 

Cash  v.  Auditor  of  Clark  County.  26 
Cass  v.  Dillon,  49 
Cass  County  v.  Chicago,  B.  &  Q.  R. 

R.  Co.,  1302 

Cass  County  v.  Johnston,  803,  957 
Castle  v.  Belfast  Foundry  Company. 

154 

Castle  v.  Lewis,  234 
Cate  v.  Patterson.  631 
Cates  v.  Allen.  1139 
Catlett  v.  Starr,  809 
Catlin  v.  Eagle  Bank,  1108 
Catron  v.  La  Fayette  County,  14 
Cave  v.  Cave,  338 
Cavin  v.  Gleason,  751 
Caylus  v.  New  York,  K.   &  S.   R.  R. 

Co.,  1042,1043 

Cazeaux  v.  Mali,  287,  291,  309 
0.,  B.  U.  P.  R.  R.  Co.  v.  Smith,  899, 

903 
( 'ecder  v.  H.  M.  Loud  &  Sons  Lumber 

Co.,  198,  210,  232 
Central  Bank  v.  Empire  Stone  Dress 

ing  Co.,  78,  152,  465 
Central  Bank  v.  Pratt,  529 
Central  Bank  v.  St.  John,  528 
Central   Building  &  Loan    Assn.    v 

Lampson,  491 
Central   Gold    Mining    Co.    v.    Platt, 

1054 
Central   Nat.    Bank   v.   North   River 

Bank,  667 


Central  Nat.   Bank  v.  Valentine,  616 
Central  R.  R.  Co.  v.  Collins,  517 
Central  Railroad  v.  Georgia,  1282 
Central  R.  R.  Co.  v.  Pennsylvania  R. 

R.  Co.,  517 
Central   Railroad   v.    State   Board    of 

Assessors,  1300,  1301 
Central  R.  R.  &  Bkg.  Co.  of  Georgia 

v.  Farmers'  Loan  &  Trust  Co.  of 

New  York,  1196,  1206 
Central  Transportation    Co.    v.  Pull- 
man's Palace  Car  Co.,  473,   477, 

488,  1178 
Central  Trust    Co.    v.    Bridges,    260, 

1091,  1096 
Central  Trust  Co.  v.  Condon,  1075 
Central  Trust  Co.  v.  Florida  Ry.  & 

Nav.  Co.  (Hawkins,   Intervener), 

1164 

Central  Trust  Co.  v.  Kneeland,  1095 
Central  Trust   Co.  v.   N.   Y.  City  & 

Northern  R.  R.  Co.,  264,  1162 
Central  Trust  Co.  v.  Ohio  Central  R. 

R.  Co.,  1179 
Central  Trust  Co.  v.  Richmond,  N.  I. 

&B.  R.  R.  Co.,  1249,  1251 
Central  Trust  Co.  v.   St.  Louis,  A.  & 

T.  Ry.  Co..  1194 
Central  Trust  Co.  v.  W abash,  St.  L.  & 

Pac.    Ry.    Co.,   1185,  1202,    1206, 

1222,  1225.  1233,  1236 

Central  Trust  Co.  v.  Wabash,  St.  L.  & 

Pac.  Ry.  Co.  (Swayne,  Intervener), 

1219 
Central  Trust   Co.  of   New  York  v. 

Bridges,  1238,  1253,  1254 
Central  Trust   Co.  of  New   York  v. 

Chattanooga,  Rome  &  Columbus 

R.  R.  Co.  ,^1195 
Central  Trust   Co.    of  New  York  v. 

Chicago,  K.  &  T.  Ry.  Co.  (Holton- 

Warren  Lumber  Co.,  Intervener), 

1179 
Central  Trust   Co.   of  New  York  v. 

Cincinnati,  J.  &  M.  Ry.  Co.  1243 
Central  Trust  of  New  1  ork  v.  East 

Tennessee,  Va.  &  Ga.  R.  R.  Co., 

1223,  1225 

Central   Trust  Co.  of    New  York  v. 

Marietta  &  Nor.  Ga.   R.  R.  Co., 

1158 
Central  Trust  Co.  v.  Marietta  &  North 

Ga.  Ry.  Co.  (Blue  Ridge  Marble 

Co.,  Interveners),  1204 
Central  Trust    Co.  of   New  York  v. 

Marietta    &   No.    Ga.    Ry.    Co. 

(Groome,   Intervener),  1216,  1218 
Central  Trust  Co.    of  New  York  v. 

Marietta  &  No.  Ga.  Ry.  Co.  (Hia- 

wassee  Co.,  Intervener),  1216 
Central  Trust  Co.   of  New   York  v. 

Marietta  &  No.    Ga.    R.    R.    Co. 


TAUI.K  OF  CASES. 


Xli 


[The  reference*  are  to  page*:  vol.  I  contain*  pp.  1-707;  vol.  II,  pp.  708-1307.] 


(Jackson  &  Slurp  ( '<•. ,  Intervencn. 

1.M7 
Cent  ml    Trust   ('<>.   of   New    York    v. 

Marietta  A:  N...  <J.i.  Ry.  CD.  (.Jack- 

son   &    Word  in    Mfg.    Co.,  Inter- 

venen.  12  Hi.  1218 
Central    Trust    Co.    of    New    York  v. 

Port    K>,  ..I   A;    Wisti-rn   Citruliim 

R.  H.  CD"..  1093 
Central  Trust  Co.  of  New  York  v.  St. 

Louis.  A.  &T.  Ry.  Co.,  1230 
Central    Trust    CD.  of    Nc\v    York    v. 

Shclliel'l  &  Birmingham  Coal,  Iron 

&  Rv.  Co..  11  To 

Central  Trust  Co.  v.  Sheffield  A:  Birm- 
ingham   Coal.     Iron    A:    Ry.    Co. 

(Anniston  Loan  &  Trust  Co.,  Inter- 

vener).  1211 
Central    Trusi    C.i.    of   New    York   v. 

Valley  Kv.  C  ...  1234.  12:r> 
Central   Trust    Co.    of   New    York  v. 

Wabnsh.  St.    L.   A:  !':.•-.    Hy.  Co. 

(St.  Louis.  K.  A:  N.  W.   Ry.  Co., 

Intervener).  1208 
Central  Trust   Co.    of    New   York  v. 

United  States  Rolling  Sto(  k  Co., 

1188 

Centre  Township  v.  Board,  etc.,  935 
('liable  v.  NicamuguaCnnnl  Construc- 
tion Co..  1197 
Chaffee  v.  Fort,  019,  624 
Chaffey    County   v.   Potter,  828,  885, 

836,  837.  842.  897.  972 
Clmffin  v.  Cummincrs,  756 
Challis  v.  Parker.  871 
Chamberlain  v.  lioard  of  Education  of 

Cranberry  Township,  etc.,  12fi3 
Chamber!  lin  v.  City  of  Burlington,  46 
Chamberlain    v.    Monmouth     Mining 

Company,  203 

Chambers  v."  Falkner.  477,  497 
Chambers  v.  Miller.  600 
Chambers  v.  St.  Louis,  493,  494 
Chambers  County  v.  Clews,  830 
(Jhambliss  v.  Robertson,  530 
Champion  v.  Gordon.  057 
Chandler  v.  Hoag,  390 
Chandler,  Receiver,  v.  Bacon,  299 
Chapin  v.  Dike.  979 
Chapin  v.    Vermont  A:    Ma^saehu-eit> 

Riilnud,  1000,  1014.  1043 
Chapman  v.  Comstock.  897 
Chapman    v.   County  of  Douglas.  87, 

786,  788,860 
Chapman  v.  Derby,  720 
Chapman  v.  McCrca,  686 
Chapman  v.  While,  598,  66-1 
Charles  v.  Hoboken,  112 
Charles  River  Bridge  v.  Warren  Bridge 

MB 
Clmrlotte  Building  &  Loan  Assn.   v. 

Board  Comrs.,  etc.,  1300 

vi 


Charter  (Jas  Engine  Co.    v.   Charter. 

MO 
Chase  v.  Cannon.  716 

4ir, 

(  in-     •.     ll-.ihorn.  'J(»7 
Chaska  Company  v.  lioard  of  Super 

\  i-n-.s  .,i  '  iiiit\  .  7 ! 

ChattahoDchee  Nat.    Bank  v.  Scbley, 

888 
Chattanooga.   R.   A:   C.   R.  R.  Co.    v. 

Evans.  1111 
Clmutauqiui  County  Bank  v.  Risley. 

309 

Cheanev  v.  Hn«is<'r,  49 
Cheeney  v.  Brooktield.  448 
C'heeney  v.  La  Fayette,   B.   A:  \V.  Ry. 

( '<•:.  -,'Tlt.  :r,6  ' 
Chemical    Nat.    Bank   v.    Armstrong. 

729,  730 
Chemical  Nat.  Bank  v.    Kohncr,    154, 

170,  571.  579 
Chemical   National  Bank    v.  Wagner. 

151 
Chemical    Nat.    Bank  of  Chicago  v. 

City  Bank  of  Portage,  519,  574 
Chemung  Canal  Bank  v.   Supervisors 

of  Cbemong,  130,  131.  995 
Cheney  v.  Libby.  690 
Chesapeake  Bank  v.  Swain,  034 
Chesapeake  &  Ohio  Canal  Co.  v.  Blair. 

1047 
C.  &  0.  R.  R.  Co.  v.  Barren  County 

Court,  908 

Chesapeake  A:  Ohio  Railroad  v.  Vir- 
ginia. 1282 

Chester  County  v.  Barber.  434 
Chester  Glass  Co.  v.  Dewey,  460,  494. 

756 

Chestnut  Hill,  etc.,  Co.  v.  Rutter,  1075) 
Chctlain   v.  Republic   Life   Ins.    Co.. 

302,  460 

Chew  v.  Ellingwood.  596.  1111,   1112 
Chewacla  Lime  Works  v.  Dismukes,  82 
Chicago  v.  Sheldon,  29 
Chicago  v.    Shober,   etc.,    Co.,    445. 

801 
Chicago  &   Atl.    R.    Co..   v.    Derke*. 

493 
Chicago  &  A.  R.   R.  Co.  v.   I.amkin 

1302 
Chicago  &  A.   R.    R.  Co.  v.    People. 

1263.  1264.  1302 
Chicago  Building  Society  v.  Crowell. 

153 
Chicago.  B.  &  K.  C.  R.  R.  Co.  v.  Guf 

le\,    1280 

Chica-ro,  B.  &  Q.  R.  R.  Co.  v.  Lewis. 

Chicago.  B.  &  Q.  R.  R.  Co.  v.  School 

Dist.  No.  1.  1302 
Chicago.  D.  &  V.  R.  K  Co.  v.  Coyer, 


xlii 


TAIJLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Chicago,  D.  &  V.  R.  R.  Co.  v.  Fos- 

dick,  1080,  1151,  1153,  1156 
Chicago,  D.  &  V.  R.  R.  Co.  v.  Smith, 

70,  964    . 
Chicago  Deposit  Vault  Co.    v.    Mc- 

Nulta,  1200 
Chicago  &  Eastern  111.   K.  R.  Co.   v. 

Hay,  357 
Chicago  F.  &  M.  Ins.  Co.  v.  Keiron, 

627 
Chicago  Gas  Light  Co.   v.   People's 

Gas  Light  Co.,  503,  1178 
Chicaeo  &  Grand  Trunk  Ry.  Co.  v. 

Turner,  1047 
Chicago  &  Iowa  R.  R.  Co.  v.  Pyne, 

1015 
Chicago,  K.  &  W.  Ry.  Co.  v.  Comrs., 

974 
Chicago,  K.  &  W.  R.  R.  Co.  v.  Comrs., 

911 
Chicago,  K.  &  W.  R.  R.  Co.  v.  Ozark 

Township,  51 
Chicago  M.  &F.  Ins.  Co.  v.  Carpenter, 

627 
Chicago  F.  M.  Ins.  Co.  v.  Stanford, 

645,  660 
Chicago,   M.   &  St.  Paul  R.    Co.  v. 

Hartshorn,  900 
Chicago,  M.  &  St.  P.  Ry.  Co.  v.  Wa- 

bash,  St.  L.  &  Pac.'Ry.  Co.,  1177, 

1178 
Chicago  &  N.  W.  R.  R.  Co.  v.  James, 

167 
Chicago,  Pekin  &  S.  W.  R.  R.  Co.  v. 

Prest.,  etc.,  Town  of  Marseilles, 

455,  503 
Chicago,  R.  I.  &  P.  R.  Co.  v.  Union 

Pac.  Ry.  Co.,  82 

Chicago,  etc.,  v.  Boone County,  210 
Chicago,  etc.,  R.  R.  Co.  v.  Coleman, 

210 
Chicago,  etc.,  R.  R.  Co.  v.  President, 

etc.,  460 
Chicago,  St.  Paul,  M.  &  O.  Ry.  Co.  v. 

Bayfield  County,  1305,  1306 
Child  v.   Boston  &    Fairhaven    Iron 

Works,  414,  415 
Childs  v.  Alexander,  529 
Childs  v.  Brown  Township,  136 
Childs  v.  City  of  Anacosta,  68 
Chilton  v.  People,  1014 
Chipman  v.  Foster,  810 
Chittenden  v.  Thaunhauser,  414 
Choisser  v.  People,  934,  940,  966,  967 
Chouteau  v.  Allen,  241,  245,  1098 
Chouteau  v.  Rowse,  647,  660 
Christian  County  Court  v.  Smith,  907, 

911 
Christopher  v.  Mayor  of  New  York, 

445 

Chrystie  v.  Foster,  567 
Chubb  v.  Upton,  762,  1028 


Church  v.  Imp.  Gas  Light  Co.,  98 
Church  v.  Sterling,  235 
Cincinnati,  etc.,  Co.  v.   Clarkson,  144 
Cincinnati  R.  R.  Co.  v.  Clinton  County, 

49 
Citizens'  Bank  v.  City  of  Terrell,  K*>, 

833,  834 
Citizens'  Bank  of  Baltimore  v.  llo\v- 

ell,  686 

Citizens'  Bank  of  Louisiana  v.  Board 
of  Assessors  for  the  Parish  of  Or- 
leans, 1285,  128C 

Citizens'  Bank  of  Steubenville  v.  Car- 
son, 640 
Citizens'  B.  L.  &  S.  Assn.  v.  Coricll, 

347,  553 

Citizens'  Loan  Assn.  v.  Lyon,  366 
Citizens'  Nat.  Bank  of  Cincinnati  v. 
Cincinnati,   N.   O.  &    T.  R.   Ry. 
Co.,  287 

Citizens'  Nat.  Bank  of  Davenport  v. 
Importers',  etc.,  Nat.  Bank  of  New 
York,  648 

Citizens'  Pass.    Ry.    Co.   v.   Philadel- 
phia, 104 
Citizens'  Savings  &  Loan  Association 

v.  Topeka,  27,  930,  932 
Citizens'  Savings  Bank  v.  Person.  Cir- 
cuit Judge,  726 
Citizens'  Sav.  &  Loan  Assn.  v.  Perry 

County,  948 

City  v.  Commonwealth,  954 
City  v.  Lamson,  1047 
City  of  Aberdeen  v.  Honey,  438 
City  of  Alma  v.    Guaranty  Saviusrs 

Bank,  861 
City  of  Aurora  v.  West,  49,  864,  949, 

951 

City  of  Austin  v.  Nallo,  857 
City  of  Beatrice  v.  Brethren  Church. 

1280 

City  of  Brazil  v.  McBride,  27 
City  of  Bridgeport  v.  Housatonuc  R. 

R.  Co.,  16,  45,  49 
City  of  Bryan  v.  Page,  430 
City  of  Buffalo  v.  Balcorn,  445 
City  of  Buffalo  v.  Holloway,  294 
City  of  Cardillac  v.  Woodsocket  Insti- 
tution, 14,  827 

City  of  Cairo  v.  Campbell,  795 
City  of  Carlylc  v.  County  of  Clinton, 

1270 
City  of  Champaign  v.  Harmon,  5,  437, 

438 

City  of  Chicago  v.  Blair,  1270 
City    of    Chicago    v.    Cameron,    316, 

1015 

City  of  Chicago  v.  Gage,  232 
City  of  Chicago  v.  Hasley,  795 
City  of  Chicago  v.  The  People,  fi.') 
City  of  Cleburne  v.  Brown,  44 
City  of  Columbus  v.  Dennison,  969 


TABU 


xliii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  TO).  II,  pp.  706-1907.] 


City  of  Council  Bluffs  v.  Stewart,  66 
Citv    of    Corpus    Christi    v.    Central 

Wharf  &  Warehouse  Co..  441 
City  of  Corpus  Christi  v.  Woessner, 

429 
City  of  Crawfordsville  v.  H-iys.  39 

t  Delphi  v.  Bowen,  1271 
City  of  Detroit  v.  Dean,  316 
City  of  Detroit  v.  Whittemore,  62 
City  of  East  St.  Louis  v.  Albrecht, 


City  of  East  8t  Louis  v.  East  St. 
Louis  Gas,  Light  .&  Coke  Co., 
487 


City  of  Savannah  v.  Kelly,  56 
City  of  Selma  v.  Mullen,  :w 
City  of  Sherman  v.  Williams.  433 
City  of  Shreveport  v.  Flournoy,  13 
City  of  Somerville  v    He.d,  611.624 
City   of  Springliuld  v.    Kd  wards,  40, 

66.  SOI 

City  of  Tacoma  v.  Lillis,  798.  799 
1  City  of  Terrell  v.  Dcssaint,  1JO 
City  of  Valparaiso  v.  Gardner,  80,  69, 

874 

City' of  Vincennes  v.  Callender,  69 
City    of    WillianiHport    v.    Common 
"  wealth,  20 


City  of  East  St.  Louis  v.  Maxwell.  13    City  Hank  v.  Butemn 


City  of  East  St.  Louis  v.  Thomas,  59 
•  f  East  St.  Louis  v.  Wehrung,  59 
City  of  Ellsworth  v.  Rochester,  442 
City  of  Eufaula  v.  McXab,  43 
Citv  of  Kvansville  v.  Woodbury,  12 
City  of  Findlay  v.  Pert/,  113 
City  of  Galena  v.  Corwith,  20,  121 
City  of  Geneseo  v.  Geneseo  Natural 
^    Gas,  Coal  Oil,  Salt  &  Mineral  Co., 

MQ 

City   of  Grand  Rapids   v.  Hydraulic- 
Co.,  70 

City  of  Greenrnstle  v.  Hazlett,  19 
City  of  Indianola  v.  Jones,  108 
City  of  Indianapolis  v.  Ely,  29 
City  of  Indianapolis  v.   Indianapolis, 

etc.,  Co..  28,  30,  69 
City  of  Indianapolis  v.  Miller,  39 
City  of  La  Fayette  v.  Cox,  5,  20,  952 
City  of  Learned  v.  Jordan,  1145 
City  of  Lexington  v.  Butler,  IOC,  55  j, 

897 
City    of    Lexington    v.    McQuillan's 

Heirs,  946 

City  of  Logansport  v.  Dykeman,  59 
City  of  Macou  v.  East  Tenn.,  V.  & 

G.  Ry.  Co.,  953 
City  of  Madison  v.  Smith,  850 
City  of  Mt.  Vernon   v.  Hovey,  949, 

"  !.:,.. 

City  of  Muscatine  v.  Chicago,  R.  I.  & 

•  P.  Ry.  Co..  1301 
City  of  Nashville  v.  Sutherland,  438 
City  of  Oakland  v.  Carpenter,  29 
City  of  Paris  v.  Cracraft,  795 
City  <>f  I'aterson  v.  Board  of  Chosen 

"  Freeholders,  117 
City  of  Pekin  v.  Reynolds.  950 
City  of  Poughkecpsic  v.  Quintanl,  s5:> 
Citv  of  Quincy  v.  Steel,  316,  820 
City  of   Quite;    v.  Warfield,  8~><>.  D'J'.t 
City  of    Richmond  v.  McfJirr.  !'.».    *JV> 
City  of   Richmond    v.    Richmond    A: 

Danville  R.  R.  Co..  1 -.•:;» 
City  of  Rochester  v.  Quintard.  s.17 
Citv  of   St.  Louis    v.    Alexander,    -19. 

'  1114 


Citv  Hank  v.  Hnice,  ?ii,  455 

Citv  Hank  v.  Cutter,  685 

City  Bunk  v.  FirM  Nat.  Rank,  661 

City  Bunk  v.  Girord  Bank,  657 

City  Bank  of  Baltimore  v.  Batenian, 

"  14--, 
City   Bank  of  Hartford  v.  Press  Co. 

(Lira.),  809 
City  Bank  of  New  Haven  v.  Perkins. 

572 

City  Hank  of  Sherman  v.  Weiss.  711 
Citv  Council    of  Montgomery  v.  We- 

tumpka  Plank  Road  Co..  50,   74, 

480 
City  &  County  of  St.  Louis  v.  Ale.x- 

"  ander.  •>•;' 

City  Nat.  Bank  v.  Burnes.  600 
Clallin  v.  Farmers  &  Citizens'  Bank. 

250.  334.  342 

Claflin  v.  Houseman.  554 
Claflin-v.  South  Carolina  R.  R.   Co.. 

171 
Claiborne  County  v.  Brooks.  K> 

1000 
Clap    v.    Interstate    Street    Ry.  Co., 

1192 

Clapp  v.  City  of  Spokane,  1044 
Clapp   v.  Co'unty  of  Cedar.  115,  8:52, 

941 

Clapp  v.  Peterson,  455;  1117 
Clark  v.  American  Coal  Co.,  '2m,  2«7 
Clark  v.  Bever,  1028 
Clark  v.  Central  R.  R.  &  Hkir.  Co   ..f 

Georgia,  1222 
Clark  v.  City  of  Janesville,  4*.    •'!!• 

958.  1047 

Clark  v.  Citv  of  South  Hen.l.  :<* 
Clark  v.  Columbus,  67 
Clark  v.  Davenport,  4 
Clark  v.  DCS  Moines.  •_>--.  111.  4:57 
Clark  v.  Kdirnr.  'J)s 
Clark   v.   FarnuT-'  Woolen    Mfir.  ('<>., 

169 

Clark  v.  Farrinirton.  74.  463 
(lark  N.  Flint  A:  Pen    .M:ir,|iiett,- R.  R. 

Co..  -.TO 

Clark  v.  Iowa  Citv.  1047 


xliv 


TA15I.K  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1&07.] 


Clark  v.  Polk  County,  446 

Clark  v.  Saline  County,  788,  860 

Clark  v.  Sheldon,  995,  997 

Chirk  v.  Stackhouse,  650 

( 'lark  v.  Titcomb.  75,  102,  188 

Clark  v.  Town  of  Nobleville,  22,  878 


Coffin  v.  City  of  Indianapolis,  13,  856, 

863 

Coffin  v.  Henshaw,  638 
Coffin  v.  Nantuckct,  111 
Cogan  v.  Mayor,  etc.,  of  New  York, 

131 


Clark  v.  Nat.  Metropolitan  Bank,  659  ,  Coggeshall  v.  City  of  Des  Moines,  66, 
Clark   Nat.    Bank  v.  Bank  of  Albia, 

575 

Clarke  v.  City  of  Rochester,  69,  1007. 
Clarke  v.  Hawkins,  712 
Clarke  v.  School  District,  41 
Clarke    v.    Supervisors    of    Hancock 

County,  898,  1004 
Clarke  v.  White,  323 
Clauser  v.  Stone,  655 
Claussen  v.  United  States,  778 
Clay  v.  Towle,  244 
Clay  v.  Wright,  137 
Clearwatcr  v.  Meredith,  325,  499 
Clement  v.  Everest,  880 


Clements  v.  Empire  Lumber  Co.,  1233 


67 
Coghlan  v.  South  Carolina  R.  R.  Co., 

1020,  1103 
Cogswell     v.     Rockinghaiu    Savings 

Bank,  617 
Cohea  v.  Hui\t,  fi91 
Coit  v.  Gold  Amalgamating  Co.,  1029 
Coit  v.  Noble,  681 
Colby  v.  Copp,  1108 
Cole  v.  Northwestern  Bank,  539 
Coleman  v.  Coleman,  371 
Coleman  v.  Ewing,  641 
Coleman  v.  Second  Avenue  R.  R.  Co., 

260,  279 
Colcr  v.  Cleburne,  872 


Clerks'  Savings  Bank  v.  Thomas,  549  !  Coler  v.  School  Township.  880 
Cleveland  v.  Amy,  140  |  Coles  v.  Cleburne,  857 

Cleveland  v.  State  Bank  of  Ohio,  445  I  Collector  v.  Day,  1276 
Cleveland,    C.    &    S.    R.    R.   Co.  v.    Collen  v.  Wright,  372 

Knickerbocker  Trust  Co.,  1222 
Cleveland    Rolling  Mill  Co.  v.  Joliet 

Enterprise  Co.,  1129 
(lews  v.  Bank  of  New  York,  595 
Clinch  v.  Financial  Corporation,  325 

Clinton  Company  v.  Kernan,  176,  527  i  Colman  v.  Riches,  294 
C.,  W.  &  Z.   R.  R.   Co.  v.  Comrs.  of   Colman  v.  Eaves,  828 


Colling  wood  v.  Merchants'  Bank,  696 
Collins  v.  Gilbert,  980 
Collins  v.  Hatch,  5 
Colman  v.  Eastern  Counties  Ry.,  84, 
95.  451,  471 


Clinton  County,  53 
Clough  v.  Hart,  57 
Clow  v.  Brown,  415 
Clvde  v.  Richmond  &  Danville  R.  R. 

"  Co.,  1157,  1222,  1223,  1236 
Coal  Company  v.  Lotspeich,  296 
Coates  v.  Preston,  645 
Coatesville    Gas    Co.    v.    County    of 

Chester,  1266 
Coates  v.  Donnell,  565 
Cocheco  Nat.  Bank  v,  Haskell,  571, 

575,  579 
Cochran  v.  Anglo-American  Dry  Dock 

&  Warehouse  Co.,  1018 
Cockerell  v.  Cholmeley.  991 
Coddington  v.  Gilbert,  984 
Codman  v.  Vermont  &  Canada  R.  R. 

Co.,  1052 

Cody  v.  City  Nat.  Bank,  682 
Coe  v.  Columbus,  Piqua  &  Ind.  R.  R. 

Co.,  1013,  1021,  1054,  1077 
Coe  v.  East  &  West  R.  R.  Co.  of  Ala., 

1020,  1029,  1031,  1034,  1035,  1040. 

1041 

Coe  v.  Errol,  1294 
Coe  v.  New  Jersey  Midland  Ry.  Co., 

1055,  1198,  1258 
Coffin  v.  Anderson,  634 
Coffin  v.  City  Council,  69 


Colorado  C.  R.  R.  Co.  v.  Lea,  46 
Colusa  County  v.  De  Jarnett,  118 
Colt  v.  Barnes,  952 
Colt  v.  Brown,  720 
j  Colt  v.  Wollaston,  294 
Colter  v.  Frese,  1250 
Columbia  Bank  v.  Gospel  Tabernacle 

Church,  218 
Columbia  &  P.  S.  R.  R.  Co.  v.  Chil- 

berg,  1305 

Columbia  Electric  Co.  v.  Dixon,  821 
Columbia    Finance    &    Trust    Co.  v. 

Kentucky  Union  Ry.    Co.,    1050, 

1095,  1168 

Columbian  Bank's  Estate,  752 
Columbian  Southern  Railway  Co.  v. 

Wright,  1304 

Colwell  v.  Keystone  Iron  Co.,  233 
Coman  v.  Lakey,  1068 
Coman  v.  State  ex  rel.  Armstrong,  123 
Comanche  County  v.   Lewis,  12,  844 
Combination  Trust  Co.  v.  Weed,  102. 

307 

Combs  v.  Scott,  172 
Commercial  Bank  v.  Newport  Mfg. 

Co.,  102 

Commercial  Bank  v.  Union  Bank,  695 
Commercial      Bank      of    Albany    v. 

Hughes,  598,  637 


TAi:i.K  <>K  CASES. 


riv 


[The  references  are  to  pages:  vol.  I  contain*  pp.  1  707:  vol.  II,  pp.  708-1907.) 


Commercial  Bank  of  Buffalo  v.  Kurt- 

right,  ;«•:{ 
Commercial    Bank    of    Danville     v. 

Burgwyn,  570 
Commercial  Bunk  of  Erie  v.  Norton, 

Coinim T<  i:il    Ifcmk    of    Kentucky    v. 

Vanillin.  >'<^1 
Commercial   Bank   of    Manchester   v 

BOIHHT,  648 
Commercial   Bank  of  Manchester  v. 

Nolan,  530 
Commercial  Bank  of  Pennsylvania  v. 

Armstrong.  744,  745,  I'M 
Commercial  &  Farmers'  Nat.  Bunk  v. 

First  Nat.  Bank,  668,671 
Commercial  Fire  Ins.  Co.  v.  Board  of 

Revenue  of  Montgomery  County, 

01 

Commercial  Nat.  Bank  v.  lola,  27 
Commercial    Nat.    Bank    v.    Proctor, 

808,648 
Commercial  Nat.   Bank  of  Cincinnati 

v.    Hamilton    Nat.   Bank  of   Ft. 

Wayne.  706 
Commercial     &     Railroad     Bank    v. 

1  lamer,  691 

Commissioner  v.  Winkley,  803 
Commissioners    v.    Bolle's,    897.    982, 

1002 
Commisiouers  v.  Clark,  353,  897,  965, 

980 
Comrs.  v.  January,  328,  888,  897,  965, 

868 

Commissioners  v.  Kelley.  437 
Commissioners  v.  Lee,  116 
Commissioners  v.  Thayer,  915 
Comrs.,  etc.,  v.  Holman.  31 
Comrs.  of  Cra\cn  County  v.  Atlantic 

•fc  N.  C.  R.  R.  Co.,  97 
Comre.  of  Highways  v.  Newell,  16 
Comrs.  of  Knox  County  v.  Aspinwall, 

71,  328.  897,  913,  956,  980 
Comrs.  of  Knox  County  v.  Wallace, 

49 
Comrs.    of    Leavcnworth  County   v. 

Brewer,  1 1'.' 
Comrs.    of    Li-avcnworth     County  v. 

Miller.  :,:, 
Comrs.    ex    rel.    Thomas    v.    C.mirs. 

Allegheny  County,  49 
Comrs.  Court  of  Limestone  County  v. 

Rather,  943 
Common    Council   of  City    of    Mus- 

kc.iron  v.  Gore,  852 
Commonwealth  v.  American  Life  Ins. 

Co..  1-.".i'J 
Commonwealth  v.  American  Machine 

Co.,  1292 

Commonwealth  v.  Bank,  884 
Commonwealth  v.  R.  R.  Co.,  1806 
Commonwealth  v.  Canal  Co.,  1293 


Commonwealth   v.    Comrs.    of    Alle- 

gheny,  954,  1000 
Commonwealth   v.  Commission 

Philadelphia.  i:i'J 
Commonwealth  v.    East  Baugor  Con 

solidated  Slate  Co..  1280 
Commonwealth  v.  Kdgerton  Coal  Co  . 

l  >'?!».  1292 
Commonwealth   v.  Erie  &  Northeast 

Railroad.  1097 
Commonwealth   v.    Essex    Company. 

917 
Commonwealth   v.   Fall   Brook 

Co.,  1279 

Commonwealth  v.  Franklin  Insurance- 
Co.,  1203 
Commonwealth  v.    J.    B.    Lippincott 

Co.,  1280 
Commonwealth    v.    Judge,    etc.,     <•! 

Lebanon  County,  t* 
Commonweulth  v.  Juniuta  Coke  Co., 

1280 

Commonwealth    v.   Keystone  Bridge- 
Co.,  12WO 
Commonwealth  v.  Lehigh  Avenue  Ry. 

Co.,  104 
Commonwealth    v.    Lehigh    Coal    & 

Navigation  Co.,  1279 
Commonwealth    v.  Lehigh  Valley  R. 

R.  Co.,  1302 
Commonwealth     v.     Louisville,     Si. 

Louis  &K.  Ry.  Co.,  1305 
Commonwealth  v!  Lowell  Gas  Light 

Co.,  1064 
Commonwealth  v.  McWilliams,  48,  49, 

901 
Commonwealth  v.  Miners villc  Water 

Co.,  1279 
Commonwealth  v.  Pennsylvania  Coal 

Co..  1292 
Commonwealth  v.  Penn.  Gas  Coal  Co., 

1292 
Commonwealth    v.  Pittsburgh   A:  \V. 

R  Co.,  1279 

Commonwealth  v.  Painter,  48 
Commonwealth  v.  Philadelphia  iV  K 

R.  R.  Co..  1279 

Commonwealth  v.  Pittsburgh,  954,  955 
Commonwealth  v.  Pittsburgh  Bridsre 

Co..  1280 
Commonwealth  v.   Pottsvillc  Iron  »k 

Steel  Co.,  1280 

Commonwealth  v.  Railway  Co.,  I:><H; 
Commonwealth  v.  Savage  Fire  Brick 

Co.,  1280 
Commonwealth    v.    Sharon  Coal   (k». 

(Lim.).  1292 
Commonwealth  v.  Smith,  98,  97,  10R 

1063 

Common  wealth  v.  Sponster.  1146 
Commonwealth  v.  Standard  Oil  Co., 

1292 


xivi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  706-1307.] 


Commonwealth  v.  Suffolk  Trust  Co., 

462 
Commonwealth     v.     Supervisors    of 

Colley,  136 
Commonwealth  v.  Thackara  Mfg.  Co., 

1280 
Commonwealth     v.    Western     Union 

Telegraph  Co.,  1292 
Commonwealth  v.  Williamstown,  1000 
Commonwealth     v.    Wilkesbarre     & 

Scranton  Railway  Co.,  1290 
Commonwealth  v.  Wilmington  &  N. 

R.  R.  Co.,  1104 
Commonwealth    v.    Wm.   Mann   Co., 

1280 
Commonwealth  ex  rel.  Armstrong  v. 

Perkins  et  al.,    Comrs.   of  Alle- 

ghany  County,  46 
Commonwealth   ex  rel.    Reiuboth  v. 

Councils  of  Pittsburgh,  17 
Comptou  v.  Jesup,  1055 
Conaut  v.  Seneca  County  Bank,  525 
Concord  v.  Robinson,  17,  872 
Cone  v.  City  of  Hartford,  42 
Conine  v.  J.  &  B.  R.  R.  Co.,  805 
Conklin  v.  School  District,  40 
Couley  v.  Directors  of  West  Deer,  138 
Connecticut  Mut.  L.  Ins.  Co.  v.  Cleve- 
land, Col.   &  Cin.  R.  R.  Co.,  79, 

955,  1014 

Conner  v.  Drake,  1152 
Connett  v.  City  of  Chicago,  236 
Conovcr  v.  Insurance  Companv,  183. 

226 

Conrad  v.  Trustees  of  Ithaca,  121 
Conro  v.  Port  Henry  Iron  Co.,  250 
Conshohocken  Tube  Co.   v.  Iron  Car 

Equipment  Co.,  104S 
Consolidated  Tank  Line  Co.  v.  Kansas 

City  Varnish  Co.,  254 
Consolidated  Trust  Co.  of  New  York 

v.  Toledo,  St.  L.  &  K.  C.  R.  R, 

Co.,  1208 
Continental  Nat.  Bank  v.  Nat.   Bank 

of  the  Commonwealth,  595 
Continental  Nat.  Bank  of  New   York 

v.  Weems,  731,  739,  741,  742,  743 
Conway  v.  Halsey.  311 
Cook  v.  Berlin  Woolen  M.  Co.,  250 
Cook  v.  City  of  Burlington,  1298 
Cook  v.  Deerfield,  135 
Cook  v.   East  Trenton  Pottery   Co., 

1124 

Cook  v.  Pennsylvania,  1293 
Cook  v.  Putnam  County,  130 
Cook  v.  State  Bank  of  Boston,  651,  653 
Cook  v.  Tullis,  748 
Cook  County  v.  McCrea,  4,  5,  432 
Cook  Mfg.  Co.  v.  Randall,  455 
Cooke  v.  State  Nat.  Bank  of  Boston, 

554,  655 
Cooke  v.  United  States,  674,  677 


Coolidge  v.  Brookline,  35 

Coons  v.  Tome,  250 

Coons  &  Braine  v.  Torne,  1108 

Cooper  v.  Corbin,  1082,  1096 

Cooper  v.  Dele  van.  58 

C'ooper  v.  Frederick,  76 

Cooper  v.  Lampcter  Township,  135 

Coote  &  Jones  v.  Bank  U.  8.,  638 

Coots  v.  McConnell,  638 

Copeland  v.  Copeland,  1169 

Copeland  v.  Johnson  Mfg.  Co.,  263, 
278 

Copes  v.  Charleston,  49,  964 

Coppin  v.  Greenlces,  1116 

Coquard  v.  St.  Louis  Cotton  Com- 
press Co.,  811 

Corbit  v.  Bank  of  Smyrna,  598,  600 

Corbit  v.  Nicoll,  188    "  . 

Corcoran  v.  Snow  Cattle  Co.,  227,  571 

Corey  v.  Morrill,  418 

Corey  v.  Wadsworth,  1111,  1124 

Cork  v.  Bacon,  646 

Corn  Exchange  Bank  v.  American 
Dock  &  Trust  Co.,  235 

Cornell  v.  Clark,  273 

Cornell  v.  Guilford.  445 

Cornell  v.  Corbin,  300 

Cornell  v.  Roach,  396 

Cornell  University  v.  Maumee,  969 

Corning  v.  Cullogh,  400 

Corning  v.  Mohawk  Valley  Ins.  Co., 
1141 

Corning  v.  Walker,  210 

Cornwell  v.  Kinney,  524,  608 

Corporation  of  Bluffton  v.  Studabaker, 
37 

Corrugating  Co.  v.  Thacher,  1124 

Corsex  v.  Paul,  574 

Cory  v.  Board,  113 

Cothran  v.  City  of  Rome,  19 

Cotton  v.  Comrs.  of  Leon,  49 

Cotton  Mills  v.  C.  C.  Randleman  Cot- 
ton Mills,  1123 

Coulson  v.  City  of  Portland,  68,  69 

County  v.  Barker,  132 

County  Comrs.  v.  Beal,  893 

C'ounty  Comrs.  v.  Chandler,  55 

County  Comrs.  of  Lucas  County  v. 
Hunt,  112 

County  Court  v.  Baltimore  &  Ohio  R. 
K.  Co  ,  263,  820,  1071 

C'ounty  Court  of  Macoupin  County  v. 
People  ex  rel.,  etc.,  903 

County  Judge  v.  Shelby  R.  R.  Co., 
871,  946 

County  of  Bates  v.  Winters,  935 

County  of  Beaver  v.  Armstrong,  1047 

County  of  Cass  v.  Johnston,  911 

County  of  Clay  v.  Society  for  Savings, 
948 

County  of  Cook  v.  Lowe,  £ftl,  802 

County  of  Crawford  v.  Spenney,  125 


TAI1I.K  OF  CASES. 


xlvii 


[The  reference*  are  to  pages:  ml.  I  •-., mains  pp.  1-707:  vol.  II,  pp.  708-1307.] 


County    of     Krie    v     Western    Trans- 

portntioii  Co..  1260 
County  of  Cre.-ne  v.  Daniel,  s; 

94':t 
<'ountv    nl    11,-inlin    \     McF:irl:in.    10. 

un 

<'ount\    ol    llennepin    \    St.  I'aul.    .M. 

AM    i.'y .  i  <-  .  I:;<M) 

County  ol  Jackson  v.  Hull,  Mil 
County  uf  Jackson  v.  Rcndleman.  10. 

County  i>!  .lolin-on  \.  Wood,  129 
Count  v  of  Lancaster  v.  Cherrau  A:  C. 

K.  It    Co.,  900 
County  of  Lancaster  v.  Fulton 


CramptoM  v    /at.riskie,  788 

Crane  v    1  learn. 

Crane  v.  Pa.-iiic  Bank,  1121 

Crane  v.  Railway  Co.,  920 

Craven  \     Atlantic  A:  North  Carolina 

It    It    Co.  Hli:i.  |  II-..M 
Craw    v     Ban-Tor   Home   Proprietary. 

108 

Craw  v.  Village  of  Toledo.  1268 
Crawford    v.    Louisiana   State-    Bank. 

681 

Crawfordv.  Ross,  1191 
Crawford  v.  Spencer,  362 
Crawford  v.  West  Side  Bank.  653,65? 
Crawsbaw  v.  City  of  Roxbury,  125 


County  of  Mtu'on  v.  Slion--.  !M»:{.  <M-J    (ray  cm  ft  v.  Salvage,  445 


County  of  .Morgan  v.  Allen,  lids 
Comity  of  Moult ric  v.  RoddBgham 

Ti-n  C.-nt  Sa%\  Bank,  HUT,  989 
County  of  I'ickcns  v.  Daniel.  {»:?:$.  !M:* 
County  of  I'ikcr  v.  Ilosfoni.  !»'• 


Credit  Company  v.  Arkansas  Central 

H.  It.  Co..  il.V' 
(  rod  nt  Citv  15n-u  ini'  Co.  v.  Flanncr, 

•J7-J  - 
<  n^w.-ll  \.   Lanahan.  21 


County  of  Rails  v.   Douglas.  b80,  94"  Crist  v.  Brownsxille  Township,  133 

County  of  San  Joaquin  v.  .Jones.    I  ID  Crittenden  County  Court  v.  Shanks,  5 

County  of  Scotland    v.   Thomas,  !>:{5.  Cromwell  v.  County  of  Sac,  840.  886, 

»:JH  <)46.  980,  1041 

County  of  Stevens  v.  St.  Paul,   M.  A:  Cromwell  \.  Ixivctt.  048 

M.  Ry.  Co..  1282 
County     of    Tipton 


v.     Locomotive 
Works.  '.»:{.-).  937.  938 
County  of  Warren  v.  Marcv,  328,  897. 

Coxcrl  v.  Rhodes.  <M>3,  004 
Covert  v.  Rogers,  1112 
Covey    v.    Pittsburir.    Ft.    Wayne  & 
Chicago  R.  It.  Co.,  ior>4 

Covington  A:    Lexington  R.  R.  Co.  v. 

Bowler,  271 
Covington  v.  C.,  etc..  Bridge  Co.,  73, 

c    A-  L.  It.  It.  Co.  v.  Ken  ton  County 

Court.   10 

C    &  N.  R.  R.  Co.  v.  .lames,  150 
i  .   A  <).    R.  R.  Co. 

Court.  40 
Cowdrey  \    (Jalveston,  Houston,  etc 

Railroad.  1200.  12:52 
Cowen  v.  WeKt  Troy.  114.  446 
Cowgill  v.  I»ng,  I(i06 
Cowra  v.  \Im  -  i  County.  845 
Cox  v.  Batteinan.  025 


Co\  \.  Midland   Counties   Ry.  Co.,  Its 

( 'ov  v.  ( 'it  v  Council.  69 

Craft  v.  So'utli  Boston  It.  It.    Co..  227. 

2:10,  2:15.  338 
Craig  v.  Gregg,  5<M» 
Craig  v.  Town  of  Andes,  !'^  . 
Craig    Medicine     Co.    v.      .Merchants' 

Bank  of  Rochester,  215 
Cragil  v.  Hadley,  621.  623.  624,  62(1 
Crain  v.  National  Bank,  572 
Cram  v.    Bangor  House  I*roprietarv, 

158 


Crocker  v.  Nat.  Bank  of  Chetopa,  529. 
330.  5:51 

Crocket  v.  Young,  57:5 

Crook  v.  Jewett.  309 

Crosby  v.    New    London,  etc.,    R.  R. 
Co.,  1047 

Crosby  v.  Wyatt,  602 
I  Cross    v.    Anglo- American     Ban  kin  i: 

Company,  155,  175 
!  Cross  v.  North  Carolina,  778 

Cross  v.  Itowe,  574 

Cross  v.  Sackett,  291.  302,  309 

Crow  v.  Mechanics'  Bank,  691 

Crowinshield  v.  Supervisors,  995,  997 

Crowlev  v.  Genesee  Mining  Company , 

154*.  174,  195,  206 
Barren  County    Crown  Point  Nat.  Bank  v.  Richmond 

National  Bank,  744 

1  Crumlish's  Admr.  v.  Shenandoah  Val- 
ley It.  R.  Co.,  1232 

Crump  v.  United  States  Mining  Com- 
pany, 155 

('rum's  Appeal,  100 

Crutcher  v.  Kentucky,  1267,  1293 


Culbertson  v.  City  of  Fulton,  70 
Cullen  v.  Town  of  Carthage,  62 
Culver  v.  Aver)',  294 


150, 


Culver  v.  Reno  Real  Estate  Co  . 
466 

Cumberland  Coal  «k  Iron  Co.  v  Par- 
ish. 241.  243,  250 

Cumberland  Coal  A:  Iron  Co.  v.  Slier 
man,  241.  251.  200.  263.  27I"  :5n2. 
:ur, 

Cumming  v.  Brooklyn,  65 

Cummings  v.  Bank,  1273,  12H7 


xlviii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Cummins  v.  City  of  Seymour,  427 
Cummins  v.  District  of  Doon,  896 
Cunliffe  v.  Manchester  &  Bolton  Canal 

Co..  300 
Cunningham  v.   Massena  Springs  & 

Ft.  C.  R.  Co.,  821 
Cunningham  v.  Pell,  302 
Curnan    v.    Delaware  &  O.  K.  Com- 
pany, 151 

Curnen  v.  Mayor,  793 
Curran  v.  Arkansas,  1108,  1113 
Currie  v.  Bowman,  235,  1081 
Currier  v.  Slate  Company,  1116 
Curry  v.  Woodward,  357 
Curson  v.  African  Co.,  720 
Curtis  v.  Gokey.  1089 
Curtis  v.  Leavitt,  19,  65,  75,  85.  93, 

101,  102,  484,  534 
Curtis  v.  Piedmont  Lumber  &  Mining 

Co.,  806 

Gushing  v.  Gove,  660 
Cushing  v.  Stoughton.  35 
Cushman  v.  Carver,  647 
Cushman  v.  Illinois  Starch  Co.,  627 
Cutler  v.  Madison  County,  913 
Cutler  v.  Reynolds.  656 
Cutting  v.  Florida  Ry.  &  Nuv.  Co.  j 

(Mallory  et  al.,  Interveners),  1204  ; 
Cutting  v.  Florida  Ry.  &  Nav.  Co.  j 

(Wilson,  Intervener),  1162 
Cutting  v.  Marlor,  538,  553 
Cutting  v.  Tavares.  O.  &  A.  R.  R.  Co. 

(Florida  Central  &  P.  R.  R.  Co., 

Interveuer),  1175,  1180,  1246 

D. 

Dabney  v.  Stevens,  172 

Dabree  v.  Eastwood,  693 

Daggett  v.  Whiting,  658 

Daily  v.  City  of  Columbus,  20,  849 

Dallas  v.  Columbia  Iron  &  Steel  Co., 

239 

Dallas  County  v.  Huidekoper,  903 
Daly  v.  Nat. 'Life  Ins.  Co.,  457 
Daman  v.  Granby,  111 
Dana  v.  Bank  of  United   Sta'tes,  97, 

1013,  1108,  1111,  1112 
Dana  v.  Boston  Third  Nat.  Bank,  649 
Dana  v.  Brown,  526 
Dane  v.  Dane  Manufg.  Co.,  769 
Danforth  v.  National   State   Bank  of 

Elizabeth,  535 
Danforth  v.  Schoharie  &  Duanesburgh 

Turnpike  Road,  32 

Daniel  v.  Mayor,  etc.,  of  Memphis,  63 
Danielly  v.  Cabaniss,  23,  882 
Daniels  v.  Burford,  799 
Daniels  v.  Davison,  1108 
Daniels  v.  Kyle,  659,  705 
Danvemeyer  v.  Coleman,  316 
Danville  Seminary  v.  Mott,  809 


Da  Ponte  v.  No.  Pac.  R.  R.  Co.,  1013, 

1055 

Darling  v.  St.  Paul,  59 
Darst  v.  Gale,  489 

Dartmouth  College  v.  Woodword,  487 
Dauchy  v.  Brown,  92 
Davenport  v.  Dodge  County,  947 
Davenport  v.  Inhabitants  of  Hallowell, 

29 

Davenport  v.  Johnson,  137 
Davenport  v.  Kleinschmidt,  68 
Davenport  v.  Railroad  Co.,  1231 
Davenport  v.  Tilton,  1118 
Davenport  Gas  Light  &  Coke  Co.  v. 

City  of  Davenport,  29 
Davidson  v.  Bridgeport,  806 
Davidson  v.  Mexican  National  R.  Co. . 

284 
Davidson  v.  Westchester  Gas  Light 

Co.,  160,  1063 
Daviess  County  v.  Dickinson,  446,  842, 

927 
Daviess  Countv  v.   Huidekoper,  830, 

957 

Daviess  Co.  Sav.  Assn.  v.  Sailor,  575 
Davis  v.  American  Organ  Co.,  464 
Davis  v.  Bank,  600 
Davis  v.  Board  of  Supervisors  of  On- 

tonagon  County,  127 
Davis  v.  Gemiuell,  316,  809 
Davis  v.  Gray,  1105,  1223 
Davis  v.  Jenney,  1071 
Davis  v.  Lee  Camp  No.   1,  C.  V.,  155 
Davis  v.    Lenawee    Countv    Savings 

Bank,  617 

Davis  v.  Litchfield,  1268 
Davis  v.  Manufacturing  Co.,  1144 
Davis  v.  Mining  Co.,  263 
Davis  v.  Old  Colony  R.  R.  Co.,  80,  82, 

93,  451,  464,  465,  466,  818 
Davis  v.  Power  Company,  1123 
Davis  v. Proprietors  of  Meeting  House, 

75,484 

Davis  v.  Randall,  529 
Davis  v.  Rock  Creek  L.  F.  &  M.  Co., 

196 
Davis  v.  United  States  Electric  Power 

&  Light  Co.,  1123 
Davis  v.  Wells,  545 
Davis    v.    West    Saratoga    Buildings 

Union,  99 
Davis  v.  Yuba.  946 
Davue  v.  Fanning,  264,  1039 
Daws  v.  North  River  Insurance  Co., 

182 

Dawson  v.  Real  Estate  Bank,  637 
Dawson   County    v.    McNamara,    55, 

917 

Day  v.  Green,  111 
Day  v.    Ogdensburg  &  Lake  Cham- 

'  plain  R.  R.  Co.,  1043 
Day  v.  Otis,  134 


l.\l;i.K  OF  CASES. 


xlix 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1807.] 


Day   v.   Spiral   Springs  Buggy   Co., 

489,  496,  497 
Dean  v.  Biggs,  1096 
Dearborn  v.  Brookline,  20 
up  v.  Alward,  1111 
Drratur  Nut.   B.-tnk   v.   Murphy,  638, 

•96 

Decker  v.  G.,  etc.,  Co.,  234 
Dicker  v.  Hughes,  898.  975 
Drillmm  Inst.  for  Savings  v.  Slack, 

IT--'.  179,238 
Deere  v.  Mareden,  362 
Deering  v.  Thorn,  358 
Deg  v.  Deg,  625 
De  Graff  v.  American  Linen  Thread 

Co.,  490  . 

Dehen  v.  City  of  Havana,  67 
De  Kay  v.  Water  Co..  583 
Delancld  v.  State  of  Illinois,  111 
Delund  v.  Platte  County,  922 
Delano  v.  Butler,  519 
Delano  v.  Case,  553 
Delaware  &  Hudson    Canal    Co.    T. 

Commonwealth,  1802 
Delaware.  L.  &  VV.  R.  R.  Co.  v.  Ox- 
ford Iron  Co.,  1252 
Delaware   Railroad  Tax    Case,   1282, 

1294,  1304 
Deller  v.  Staten  Island  Athletic  Club, 

212 

Delooch  v.  Jones,  505 
Delta  Lumber  Co.    v.   Williams,  209, 

216 
De  Mattos  v.  City  of  New  Whatcom, 

857 

Deming  v.  State  ex  rel.,  792 
Demmon  v.  Boylston  Bank,  640 
Denike    v.   New  York  &  Rosendale 

Lime  &  Cement  Co.,  1125 
Denison  v.  Mayor,  etc.,  of  City  of  Co- 
lumbus, IM;."I 
Dennie  v.  Walker.  641 
Denncy    v.  Cleveland  &  Pittsburg  R. 

R.  Co.,  1043 
Denny  v.  Denny,  874 
Denny  Hotel  Co.  v.  Schram.  76,  470 
Densmore  Oil  Co.   v.  Densmore,  298, 

M 

Denton  v.  Davis,  742 
Denver  &  Ki<>   Grande  R.   R.  Co.  v. 

United    States    Trust  Co.,    1017, 

1023 
Deringcr's  Admr.  v.  Deriuger's  Admr., 

BOB 

Derrv  v.  Feck,  293 
De  Ruvigne's  Case,  800 
Des  Moines  Gas  Co.  v.  West,  98,  489 
Desmond  v.  Jefferson,  18 
Despatch  Line  of  Packets  v.  Bellamy 

Manufg.   Co.,   99,   150,   157,  158, 

172,  1074,  1100 
Detroit  Sav.  Bank  v.  Truesdale.  506 

vii 


Devaynes  v.  Noble,  676 

Devlin  v.  Mayor,  etc.,  City  of  New- 
York,  2»  " 

De  Voss  v.  Richmond,  111 

Dewar  v.  Bank  of  Montreal,  629 

Di-ucv  v.  K'ln-rs.  690 

Dewey  v.  Railway  Co.,  470,  821 

Dewing  v.  IVnliearies,  811,  560 

De  Witt  v.  Walton,  860 

Day  v.  .li T--.-V  ( 'itv,  112 

Diamond  Wa'ich  (V  v.  Roeber,  822 

Dibble  v.  Town  of  New  Haven,  789 

Dickerson  v.  Cass  County,  1126 

Dickinson  Hardware  Co.  v.  Pulaski 
County,  56 

Dickinson  v.  Inhabitants  of  Conway, 
133 

Dickinson  Township  v.  Linn,  139 

Dill  v.  Wareham,  446 

Dillingham  v.  Kelly,  1228 

Dillon  v.  Insurance  Co.,  589 

Dimpfel  v.  Ohio  &  Miss.  Ry.  Co.,  316 

Dinsmore  v.  Duncan,  1014 

District  Township  of  Walnut  v.  Ran- 
kin,  879 

Ditch  v.  Western  Nat.  Bank  of  Balti- 
more, 616 

Ditch  Company  v.  Zellerbach,  942 

Dively  v.  City  of  Cedar  Falls,  69 

Dix  v.  Dummerston.  137,  879 

Dixon  County  v.  Field,  832,  883,  835, 
836.  839,  842,  843,  869,  885,  897, 
925 

Dobbins  v.  Commissioners,  1276 

Dodd  v.  Wilkinson,  356 

Dodge  v.  City  of  Memphis,  1004 

Dodge  v.  County  of  Platte,  111 

Dodge  v.  Minnesota  Plastic  Slate 
Roofing  Co.,  388 

Dodge  v.  National  Exchange  Bank, 
646.  671 

Dodge  v.  Woobry,  300,  306,  811,  313, 
314.  348.  1273 

Doe  v.  Northwest  Coal  &  Transporta- 
tion Co.,  1124 

Dolan  v.  Joint  School  District,  etc., 
140 

Dolan  v.  Mayor,  796 

Dolsen  v.  Brown,  665 

Donaldson  v.  Haldane,  848 

Donnell  v.  Lewis  County  Sav.  Bank. 
504.  572 

Donohugh  v.  Philadelphia  Library 
Co..  1266 

Donovan  v.  Mayor,  etc.,  of  New  York, 
446 

Doon  Township  v.  Cummins,  896 

Dorian  v.  City  of  Shreveport,  867 

Dorsey  v.  Abrams,  iil~ 

Dorsey  County  v.  Whitehead,  445 

D«.ty  v.  Bates,  187 

Doty  v.  Ellsbree,  125,  844 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Doud  v.  Nat.-  Park  Bank  of  New 
York,  545 

Doud  v.  Wisconsin  P.  &  8.  Ry.  Co., 
316 

Dougherty  v.  Hunter,  191,  198,  210 

Douglass  v.  City  of  Anniston,  1262 

Douglass  v.  Ireland,  164 

Douglass  v.  Mayor,  etc.,  of  Placer- 
ville,  5,  25,  43 

Douglass  v.  Mayor,  etc.,  of  Virginia, 
121 

Douglass  v.  Pike  County,  957,  1037 

Dow  v.  Beidleman,  1176 

Dow  v.  Memphis  &  Little  Rock  R.  R. 
Co.,  1103,  1186,  1231 

Dowd  v.  Stephenson,  193 

Downes  v.  Phoenix  Bank,  604 

Downer  v.  Zanesville  Bank,  525 

Downing  v.  Dunlap  Coal,  Iron  &  Ry. 
Co.,  1123 

Downing  v.  Mount  Washington  Road 
Co.,  145 

Drake  v.  Flewellen,  350 

Drake  v.  Phillips,  795 

Dresser  v.  Missouri,  etc.,  Construc- 
tion Co.,  615 

Driesbach  v.  National  Bank,  528,  531 

Driftwood  Valley  Turnpike  Co.  v. 
Board,  etc.,  Bartholomew  County, 
26,  427,  437,  442 

Drovers'  Nat.  Bank  v.  Anglo-Ameri- 
can P.  &  Provision  Co. ,  653,  682, 
692,  696,  697,  705 

Drovers'  Nat.  Bank  v.  O'Hare,  607 

Drown  v.  Pawtucket  Bank,  689 

Drury  v.  Cross.  242,  243,  1108 

Druse  v.  Wheeler,  144 

Dubuque  College  v.  Dubuque,  236 

Dubuque  County  v.  D.  &  P.  R.  R. 
Co.,  49 

Duffleld  v.  Wire  &  Iron  Works,  761 

Duggan  v.  Pacific  Boom  Co.,  154,  239 

Duke  v.  Markham,  1069,  1077 

Dull  v.  Ridgway,  135 

Duncan  v.  Board  of  Comrs.  of  Law- 
rence County,  123 

Duncan  v.  Brennan,  524 

Duncan  v.  Jaudon,  539,  583 

Duncan  v.  Maryland  Sav.  Institution, 
528,  535 

Duncan  v.  Mobile  &  Ohio  R.  R.  Co., 
1047 

Duncan  v.  Watson,  688 

Duncotnb  v.  New  York,  H.  &  N.  R. 
R  Co.,  260,  270,  278,  282,  308, 
1024,  1039,  1055,  1084,  1112 

Duncombe  v.  City  of  Fort  Dodge,  108 

Dunham  v.  Cincinnati,  P.,  etc.,  R.  R. 
Co..  1095 

Dunham  v.  Isett,  1054 

Dunham  v.  Village  of  Hyde  Park, 
1268 


Dunn  v.  Weston,  207 

Dunphy  v. Traveller  Newspaper  Assn., 

316 

Durant  v.  Iowa  County,  972 
Durfee  v.  Old  Colony  &  F.  R.  Co.,  322 
Durkee  v.  City  Bank,  527,  528 
Durnford  v.  Patterson,  681 
Dustin  &  Musick  v.  Hodgen,  601 
Dwight  v.  Lumber  Company,  209 
Dwight  v.  Smith,  1045 
Dwyer  v.  Rathbone,  Sard  &  Co.,  809 
Dykers  v.  Bank.  664 

E. 

Earle  v.  Seattle,  Lake  Shore  &  Eastern 

Ry.  Co.,  318,  474 

East  Anglian  Ry.  Co.  v.  Eastern  Coun- 
ties Ry.  Co.,  95,  449,  471 
Easterly  v.  Barber,  398,  402 
Eastern  Counties  Ry.  Co.  v.  Hawkes, 

448,  491 
Eastern  Delaware  Bridge  Co.  v.  Metz, 

Collector,  1295 
Eastern  Townships  Bank  v.  Vermont, 

National  Bank,  729 
Eastman  v.  Coos  Bank,  145,  574 
Easton  v.  Railroad  Co.,  1234 
East  New  York,  etc.,  R.  R.  Co.    v. 

Lighthall,  183 
East  New  York  &  Jamaica  R.  R.  Co. 

v.  Elmore,  260 

East  Nissouri  v.  Horseman,  799 
East  Oakland  v.  Skinner,  446 
East  River  Bank  v.  Gedney,  702 
East  River  Nat.  Bank  v.  Gore,  596 
East  Rome  Town  Co.  v.  Brower,  156 
Eaot  St.  Louis  v.  East  St.  Louis,  etc., 

Co.,  69 

East  St.  Louis  v.  People,  66 
East  St.  Louis  Gas  Light  &  Coke  Co. 

v.  City  of  East  St.  Louis,  438 
East  Tennessee,  Va.  &  Ga.  R.  R.  Co. 

v.  Atlanta  &  Florida  R.  R.  Co., 

1195 

Eaton  v.  Robinson,  318 
Eaton  &  Hamilton  R.  R.  Co.  v.  Hunt, 

471 
Eaton  v.  Union  County  Nat.  Bank, 

1300 
Ebough  v.  German  Reformed  Church, 

169 
E.  Carver  Co.  v.  Manufacturers'  Ins. 

Co.,  193,  217 
Eccles  v.  Drovers  &  Mechanics'  Nat. 

Bank,  608 
Ecker  v.   First    Nat.   Bank   of  New 

Windsor,  575 

Eddy  v.  La  Fayette,  1230,  1231 
Eddy  v.  People,  954,  962 
Eddy  v.  Wallace,  1225 
Edey  v.  City  of  Shreveport,  13 


TAKI.i. 


li 


[The  references  are  to  pageu:  vol.  I  contain*  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Edison  v.  Edison  L'nitt-il  I'lionograph 

Co.,  1121 

Edison  General  Electric  Co.   v.   Bar- 
ker, 811 

Kilsi.ii  v.  Angcll,  702 
Edwards  v.  Aheravron   Ins.  Society, 

1152 
Edwards  v.   Carson  Water  Co.,  157, 

IT','.  809 
Edwards  v.  Grand  Junction  Ry.  Co., 

198,  491 
Edwards  v.  Kearney.  -".» 

.rds  v.  Iftarcv.  1000, 1014 
Edwards  v.  People,  !TI 
Egbert  v.  Payne.  608 

lan  v.  Blanke,  401 
Ehle  v.  Chiltenaniro  Bank,  521 
Elilcniian  v.  St.  Louis  Nut.  Bank,  640 
Eirhelberger  v.  Finley,  568,  596 
Eidinan  v.  Bowman.  171 
Einsphar  et  al.,  Trust  era  First  German 

Lutheran  Zion  Church  of  Adams 

Co.,  v.  Wagner.  260 
Einstein  v.  Rosen  fold,  1121 
Elder  v.  State,  870 
Elderkin  v.  Peterson,  1136 
El  Dorado  Co.  v.  Elstner,  118 
El  Dorado  Co.  v.  Reed,  119 
Eldridge  v.  Smith,  471,  1096 
Electric  Traction  &  Mfg.  Co.  v.  City 

of  New  Orleans,  1280 
EK-vator  Co.  v.  Clark,  752 
Elkins  v.  Camden  <fc  Atlantic  R.  R. 

Co.,  1089 
Ellermaii  v.  Chicago  Junction  Rys.  & 

Union  Stock  Yards  Co..  456,  502, 

1122 

Ellicott  v.  Barnes,  570,  622,  747 
Ellicott  Machine  Co.  v.  Speed,  1119 
Elliot  v.  Abbot,  574 
Elliott  T.  Gammon,  25 
Ellis  v.   Boston,   H.   &  E.  Railroad, 

1055 
Ellis  v.  Commercial  Bank  of  Natchez, 

886 

Ellis  v.  Howe  Machine  Co.,  218 
Ellis  v.  Northern  Pacific  R.  R.  Co., 

900 

Ellis  v.  Ward,  356 
Ellis  v.  Wheeler,  660 
Ellisworth  v.  St.  Louis,  Alton  &T.  H. 

K.  R.  Co.,  101.  nu-J 
Ellsworth    Woolen   Manufg.   Co.    v. 

Fa  1 1  nee.  193 
Ellysville  Manufg.  Co.  v.  Okisko  Co., 

77,  197 
Elmira  Savings  Bank  v.  Davis,  732, 

788 

Elmore  v.  Naugatuck  R.    R.  Co.,  469 
Elser  v.  City  of  Port  Worth,  482 
Elwell  v.  Dodge.  142,  154,  188,  207 
Elwell  v.  Fosdick,  1162 


Elwdl  v.  Grand  Street  ANewtowu  R. 

R.  Co.,  1090 
El  well  v.  Puget  Sound,  etc.,  R,  Co., 

BOO 

Ely  v.  Sprague,  521 
Emerson  v.  Prov.  Hat.  Mfg.  Co.,  147, 

1  :••.• 

Em. TV  v.  Hobson,  660 
Emery  v.  Parrott,  299 
Emma  Silver  .Mining  Company  v. 

Grunt.  298,  299 

Empire  v.  Darlington,  9:«.  988 
Emporium  Real  EM  ate  A;  Mfg.  Co.  v. 

Emrie.  279 
Englar  v.  Offutt.  7-V.i 
English  v.  Chicot  County,  45 
English  v.  City  of  Danville,  1268 
English  v.  Smotk,  122,  824 
Enos  v.  Springfield,  1268 
Eppright  v.  Nickerson,  1112 
Equitable   Life  Ins.   Co.  v.    Board  of 

Equalization,  1298,  1806 
Erie  Railway  v.  Pennsylvania,  1304 
Erlanger  v.  New  Lambrero  Phosphate 

Co..  260,  297 

Erskiue  v.  Steele  County.  4&5,  486 
Ervin  v.  Oregon  Rv.  &Nav.  Co.,  324, 

326,  327 
Erwin  v.  St.  Joseph  Board  of  Public 

Schools,  23 

Esmond  v.  Billiard.  394,  415 
Espin  v.  Pembertou,  338 
Espuela  Land  &  Cattle  Co.  v.  Bindle, 

1122 
Espy  v.  Bank  of  Cincinnati,  651,  655, 

661 

Estep  v.  Keokuk  County,  446 
Estowah  Mining  Co.  v.  Wills  Valley 

Mining  &  Mfg.  Co.,  1192 
Etting  v.  Bank,  546 
Etting  v.  Commercial  Bank,  671 
Eureka  Company  v.  Bailey  Company, 

143,  236,  806 
Eureka  Iron  &  Steel  Works  v.  Bres- 

nahan.  155,  205,  209,  489 
European  &  North  American  Ry.  Co. 

v.  Poor.  242,  258,  263,  471 
Evans  v.  Boston  Heating  Company, 

1063.  1072 
Evansville,  etc.,  R.  R.  Co.  v.  Evans- 

ville.  12,  16,  19,  29,  39,  485,  950, 

951,  952 
Evening  Journal  Assn.  v.  State  Board 

of  Assessors,  1295 
Everett  v.   United  States,   142,    176, 

578 
Evertson  v.    National  Bank  of  New 

York.  1047 
Ewen  v.  Davis,  598 
Excel-ior    Water    &    Mining  Co.    v. 

Pierre.  818,815 
Exchange  Co.  v.  Boyce,  528 


lii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  ppx.  708-1307.] 


Exchange  Nat.  Bank  of  Spokane  v. 
Bank  of  Little  Rock,  593 

Exeter  Bank  v.  Gordon,  702 

K\-'. Mission  Land  &  Water  Co.  v. 
Flash,  298,  300 

Ex  parte  Brown,  1231 

Ex  parte  Chamberlain.  1236 

Ex  parte  Chippendale,  489 

Ex  parte  Conway,  1112 

Ex  parte  Fay,  19 

Ex  parte  Hardcastle  (In  re  Manson), 
751 

Ex  parte  Powell,  1223 

Ex  parte  Richdalo,  613 

Ex  parte  Selma,  etc.,  R.  R.  Co.,  49, 
901,  902,  909 

Ex  parte  Willcocks,  158 

Express  Co.  v.  Patterson,  92 

Express  Company  v.  Railroad  Com- 
pany, 1198,  1205 

Eyster  v.  Centennial  Board  of  Finance.. 
1292 

F. 

Fabeus  v.  Mercantile  Bank,  682 

Fagan  v.  City  of  Chicago,  1268 

Fairfield  Savings  Bank  v.   Chase,  549 

Falconer  v.  Buffalo  &  J.  R.  R.  Co., 
962 

Faley  v.  Talbee,  1131 

Fall  River  Iron  Works  Co.  v.  Old  Col- 
ony, etc.,  R.  R.  Co.,  471 

Fall  River  Union  Bank  v.  Sturtevant, 
583 

Falk  v.  Moebs,  186 

Falkland  v.  St.  Nicholas  Nat.  Bank  of 
New  York,  524 

Fanning  v.  Gregoire,  146 

Fareira  v.  RiterT  279 

Fargo  v.  Michigan,  1293 

Fargo  &  S.  W.  R.  R.  Co.  v.  Brewer, 
1306 

Farmers'  Bank  v.  Burchard,  520 

Farmers'  Bank  v.  McKee,  155,  181, 
210 

Farmers'  Bank  v.  Owen,  699 

Farmers'  Bank  of  Maryland  v.  Duvall, 
641,  690 

Farmers'  Bank  of  Maryland  v.  Ingle- 
hart,  527 

Farmers  &  Citizens'  Bank  v.  Sherman, 
234 

Farmers'  Co-operative  Mfg.  Co.  v. 
Drake,  1172 

Farmers',  etc.,  Bank  v.  Payne,  361 

Farmers',  etc.,  Bank  v.  Troy  City 
Bank,  574 

Farmers'  Loan  &  Trust  Co.  v.  Cape 
Fear  &  V.  Val.  R.  R.  Co.  (North 
State  Imp.  Co.,  Intervener),  1190 

Farmers'  Loan  &  Trust  Co.  v.  Central 
Railroad  of  Iowa,  1232 


Farmers'  Loan  &  Trust  Co.  v.  Chi- 
cago &  Atlantic  Ry.  Co.,  1076, 
1173,  1176,  1218 

Farmers'  Loan  &  Trust  Co.  v.  Chicago 
&  Northern  Pac  R.  R.  Co.,  1153 

Farmers'  Loan  &  Trust  Co.  v.  Clowes, 
459 

Farmers'  Loan  &  Trust  Co.  v.  Com- 
mercial Bank,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Com- 
mercial Bank  of  Racine,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Fisher, 
1095,  1096 

Farmers'  Loan  &  Trust  Co.  v.  Green 
Bay,  W.  &  St.  P.  Ry.  Co. 
(Frunck,  Intervener),  1244 

Farmers'  Loan  &  Trust  Co.  v.  Hen- 
dricKson,  1036 

Farmers'  Loan  &  Trust  Co.  v.  Kansas 
City,  W.  &  tf.  W.  R.  Co.,  1158, 
1194 

Farmers'  Loan  &  Trust  Co.  v.  North- 
ern Pac.  R.  R.  Co.,  1192 

Farmers'  Loan  &  Trust  Co.  v.  North- 
ern Pac.  R.  R.  Co.  (Wisconsin 
Central  R.  R.  Co.,  Interveners), 
1200,  1218 

Farmers'  Loan  &  Trust  Co.  v.  Oregon 
&  W.  T.  R.  R.  Co.  (Congdon,  In- 
tervener), 1044 

Farmers'  Loan  &  Trust  Co.  v.  Perry, 
450 

Farmers'  Loan  &  Trust  Co.  v.  Postal 
Telegraph  Co.,  1161 

Farmers"  Loan  &  Trust  Co.  v.  Rock- 
away  Valley  R.  R.  Co.,  1018 

Farmers'  Loan  &  Tn  st  Co.  v.  San 
Diego  Street  Car  Co.,  1025,  1167 

Farmers'  Loan  &  Trust  Co.  v.  Toledo, 
A.  A.  &  N.  M.  Ry.  Co.,  491 

Farmers'  Loan  &  Trust  Co.  v.  Toledo 
&  S.  H.  R.  R.  Co.,  1024,  1025, 
1037,  1242 

Farmers'  Loan  &  Trust  Co.  v.  Vicks- 
burgh,  etc.,  R.  R.  Co.,  1193,  1257 

Farmers'  Loan  &  Trust  Co.  v.  Winona 
&  S.  W.  Ry.  Co.,  1153, 1155,  1187 

Farmers  &  Mechanics'  Bank  v.  Bald- 
win, 512,  515 

Farmers  &  Mechanics'  Bank  v.  Butch- 
ers &  Drovers'  Bank,  78,  187,  322, 
595,  653 

Farmers  &  Mechanics'  Bank  v.  Dear- 
ing,  529,  533 

Farmers  &  Mechanics'  Bank  v.  Empire 
Stone  Dressing  Co.,  78,  465 

Farmers  &  Mechanics'  Bank  v.  Plant- 
ers' Bank,  605 

Farmers  &  Mechanics'  Bank  of  Sav- 
ings v.  Colby,  196 

Farmers'  &  Mechanics'  Bank  of  Los 
Angeles  v.  Downey,  262 


TABLE  OF  CASES. 


liii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  706-130?.] 


Farmers  &  Mechanics'  State  Bank  v. 

Armstrong,  717 
Farmers'  National  Bank  of  Valparaiso, 

Ind.,  v.  Button  Mfg.  Co.,  157 
Farmers  &  Traders'  Bank  v.  Harrison, 

530 

Farmers  &  Traders'  Nat.  Bank  v.  Hoff- 
mann. 1299 

Farmington  v.  Jones,  135 
Farnum     v.    Blackstone    Canal    Co., 

478 

Farrar  v.  Oilman,  206.  571 
Farrington  v.  South  Boston  R.  R.  Co., 

342 

Farrington  v.  Tennessee,  1807 
Farwell  v.  Curtis,  692,  705 
Fawcett  v.  New  Haven  Organ  Co., 

157 

Fay  v.  Noble,  75,  85,  205,  209,  226,  227 
Fear  v.  Bartlett,  1111 
Featherstone  v.  Cooke,  1121 
Fegley  v.  McDonald,  523 
Feibefman  v.  Packard,  720 
Felker  v.  Standard  Yarn  Company, 

386 
Fells  Point  Savings  Inst.  of  Baltimore 

v.  Weedon,  030,  631 
Fenn  v.  Curtis,  288 
I'Yntou  v.  Blair.  67,  117 
Ferguson  v.  Gill.  407 
F  --v  v.  McKerna,  608 
F  icklen  v.  Shelby  County,  1267 
Fidelity,    etc.,    Company     v.    West 

Pennsylvania,    etc.,    R.    R.   Co., 

1046 
Fidelity  Ins.,  Trust  &  Safe  Deposit 

Co.  v.  Ghenandoah  Valley  R.  Co., 

809,  1289,  1257 
Fidelity  Trust  &  Safety  Vault  Co.  v. 

Mobile  Street  Ry.  Co.,  1164,1177, 

1195 

Fidtler  v.  M.  &  E.  R.  R.  Co.,  47,  902 
Fiftli  Avenue  Bank  of  New  York  v. 

Forty -second  St.    &    Grand    St. 

Ferry  R.  R.  Co.,  832.  841 
Fifth  National  Bank  v.  Navassa  Phos- 
phate Co.,  196,  228 
Fifth  Ward   Savings    Bank  v.  First 

National  Bank,  87,  179 
Filor  v.  Miller  Brewing  Co.,  820 
Finance     Co.      of     Pennsylvania     v. 

Charleston.C.  &  C.  R.  R.  Co.,  1191, 

1221,  1245 
Finance     Co.    of     Pennsylvania     v. 

Charleston,  C.  &  C.  R.  R.  Co.  (Ex 

parte  Hudson),  1245 
Finance     Co.     of    Pennsylvania     v. 

Charleston,    C.    &  C.    Ry.    Co. 

(Moore.  Intervener),  1259 
Finance     Co.     of     Pennsylvania    v. 

Charleston.  C.  &  0  R.  Co.  (Shrand 

et  al.,  Intervenen)  1259 


Finance  Co.  of  Pennsylvania  v.  Char- 
lotte,  C.  &  C.    R.  R.   Co.  (Poca- 

hontas  Coal  Co.,  Intervener),  1242 
Finlayson  v.  Vaughn,  972 
Pitmen  v.  Sandford.  757 
Fire  Ins.  Co.  v.  Parker.  1808 
Firemen's  Insurance  Co.  v.  8t urges,  90 
First  Municipality  v.  Orleans  Theatre 

Co.,  77 

First  Municipality  v.  Cutting,  890 
First  National    Bank   v.   Armstrong, 

754 

First  National  Bank  v.  Bailey,  1800 
First  National  Bank  v.  Bennett,  193, 

508 

First  National  Bank  v.  Chapman,  1299 
First  Nat.  Bank  v.  Drake,  550,  580 
First  Nat.  Bank  v.  Elmore.  511 
First  National  Bank  v.  First  National 

Bunk,  699 
First  Nat.  Bank  v.  Fricke,  236 
First  Nat.  Bank  v.  Frickie,  233 
First  National  Bank  v.  Gifford,  250 
First  Nat.  Bank  v.  Gillilan,  494 
First  Nat.  Bank  v.  Gondy,  597 
First  Nat.  Bank  v.  Haire,  510 
First  Nat.  Bank  v.  Harris.  515.  658 
First  Nat.  Bank  v.  Hingham  Mfg.  Co., 

:5S7 
First  Nat.  Bank  v.  Kimberlands,  182, 

198 

First  Nat.  Bank  v.  Lucas,  193 
First  National  Bankv.  National  Bank, 

510 
First  Nat.  Bank  v.  National  Exchange 

Bank,  516,  527 
First  Nat.   Bank  v.   North  Missouri 

Coal  Co.,  172,  184 

First  Nat.  Bank  v.  Ocean  Bank,  348 
First  Nat.  Bank  v.  Reed,  193,  563 
First    Nat.    Bank    v.  Salem    Capital 

Flour  Mills  Co.,  809 
First  Nat.  Bank  v.  Sherburne,  527,  562 
First  Nat.  Bank  v.  Strang,  821 
First  Nat.  Bank  v.  Tappan,  644 
First    Nat.    Bank    v.    Union    School 

Township,  133 
First  National  Bank  of  Albia  v.  City 

Council  of  Albia,  1297,  1298 
First  Nat.  Bank  of  Carlisle  v.  Graham, 

636 
First  Nat.  Bank  of  Charlotte  v.  Nat. 

Exchange  Bank  of  Baltimore,  516 
First    Nat.    Bank    of    Cleveland    v. 

Miedd,  1162.  1172 
First    Nat.    Bank  of    Evansville    v. 

Fourth  Nat.  Bank  of  Louisville, 

8B8 
First  Nat.   Bank  of  Jersey  City   v. 

i  .  i.-ii.  or>8 
First  Nat.  Bank  of  Lyons  v.  Ocean 

Nat.  IJjuik,  841 


liv 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


First    Nat.     Bank    of    Meadville    v. 

Fourth  Nat.  Bank,  687 
First  Nat.  Bank  of  Memphis  v.  Kidd, 

507,  511 
First  Net.    Bank  of    Middletown   v. 

Council  Bluffs  City  Water  Works 

Co.,  229 

First  Nat.  Bank  of  Monmouth  v.  Dun- 
bar,  636 
First  Nat.  Bank  of  Omaha  v.  Hasten 

Bank, 713 

First  Nat.  Bank  of  Peoria  v.  Commer- 
cial Nat.  Bank  of  Peoria,  1144 
First  Nat.  Bank  of  Quincy  v.  Ricker, 

668,  669 
First  Nat.  Bank  of  Chicago  v.  Bank, 

706 

First  Nat.  Bank  of  Rochester  v   Pier- 
son,  513,  515,  516 
First  Nat.   Bank  of  Rock  Island,  111., 

v.  Leyshed,  157 
First  Nat.  Bank  of  Salem  v.  Anderson, 

1096 
First  Nat.  Bank  of  Sheffield  v.  Tomp- 

kins,  568 

First  Nat.  Bank  v.   Sioux  City  Ter- 
minal R.  R.   &  Warehouse   Co., 

1070 
First  Nat.    Bank    of    Springfield    v. 

Coleman,  603 
First    Nat.    Bank    of    Evansville    v. 

Fourth  Nat.  Bank  of  Louisville, 

705 
First  Nat.  Bank  of  Texarkana  v.  De 

Morse,  523 
First  Nat.  Bank  of  Trinidad  v.  First 

Nat.  Bank  of  Denver,  700,  701 
First  Nat.  Bank  of  Walla  Walla  v. 

Hungate,  1297 
First  Nat.    Bank  of   Washington  v. 

Whitman,  651,  652 
First  Nat.   Bank  of  Whitehall  v.  Tis- 

dale,  175,  562 
First  Nat.  Bank  of  Winona  v.  Winona 

Plow  Co.,  1134 
First  Nat.  Bank  of  Wymore  v.  Miller, 

707 

Fisher  v.  Attleborough,  111 
Fisher  v.  Board  of  Directors,  etc.,  56 
Fisher  v.  Concord  Railroad,  265 
Fisher  v.  Evansville,  etc.,  R.  R.  Co., 

471 

Fisher  v.  Gas  Company,  163,  181 
Fisher  v.  Harrisburg,  42 
Fisher  v.  Knight,  721,  731 
Fisher  v.  Murdock,  583 
Fisk  v.  C.,  R.  I.  &  P.  R.  Co.,  166 
Fisk  v.  Potter,  1096 
Fiske  v.  Eldridge,  359 
Fister  v.  La  Rue,  198 
Fitch  v.  Constantine  Hydraulic  Co., 

205 


Fitch  v.  Lewiston  Steam  Mill  Co.,  143, 

144,  234,  1053,  1073,  1078 
Fitchett  v.  North  Pennsylvania  R.  R. 

Co.,  1047 

Fitzgerald  v.  Barker,  362 
Fitzgerald  v.  Evans,  1181 
Fitzgerald  v.  Fitzgerald  &  Mallory 

Constr.  Co.,  318,  319,  320 
Fitzgerald    &    Mallory   Construction 

Co.  v.  Fitzgerald,  198,  210,  21 :: 
Fitzhugh  v.  Bank  of  Shepherdsville, 

526 
Fitzhugh  v.  Land  Company,  172,  193, 

198 

Fitzsimmons  v.  Express  Co.,  233 
Flagg  v.  Railroad  Co.,  262,  283 
Flagg  v.  School  District  No.  70,  894 
Flagler  Engraving    Machine    Co.   v. 

Flagler,  807 

Flannigan  v.  California  Nat.  Bank,  588 
Flannery  v.  Coates,  601 
Flash  v.  Conn,  398,  413,  769 
Fleckner  v.  U.  S.  Bank,  142,  146,  176, 

494,  513,  527,  577,  759 
Flemming  v.  Denny,  660 
Fletcher  v.  Osborn,  617 
Fletcher  v.  Sharpe,  710 
Flint  v.  Pierce,  164 
Flint  v.  Roger,  641 
Flint  &  Pei  e  Marquette  Ry .    Co.   v. 

Dewey,  242 
Flint  Road  Cart  Co.  v.  Stephens,  711, 

712 

Flitcroft's  Case,  347,  352 
Florence  M.  Co.  v.  Brown,  646 
Florer,    Treasurer,  v.  McAffee,  1271, 

1272 
Florida  Land  &  Imp.  Co.  v.  Merrill, 

287 

Floyd  v.  Perrin,  1008 
Fluker  v.  Railway  Company,  1123 
Fluty  v.  School  District,  446 
Fogarties  v.  State  Bank,  660,  662 
Fogg  v.  Blair,  1028,  1110.   1113,  1114, 

1242 

Fogg  v.  Supreme  Lodge,  1131 
Foley  v.  Hill,  597 
Folger  v.  Chase,  206,  573 
Folger  v.  Insurance  Company,  1118 
Follansbe  v.  Kilbreth,  168 
Foot  v.  Rutland  &  Whitehall  R.  R. 

Co.,  145,  157 
Foote  v.  Glenn,  1138 
Foote  v.  City  of  Salem,  18,  19,  65 
Foote  v.  Mining  Co.,  316 
Foote  v.  Mt.  Pleasant.  919 
Forbes  v.  San  Rafael  Tr.  Co.,  154 
Forbes    v.    East    Hampton    Rubber 

Thread  Co.,  811,  816 
Forbes  v.  Whitlock,  348 
Ford  v.  Kansas  City  &  I.  S.  L.  R.  R 

Co.,  1122 


TA1M.1 


Iv 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  706-1807.] 


Ford  v.  MrClun. 

Ford  v.  .Mitch.-ll,  628 

Ford  v.  Plaiikinton  Bank,  1110,  1125, 

1127 

Fordyce  v.  Du  Host-,  l-J-J'J 
Foreman  v.  Murphy.  46 

Foresjnan   v.   Cli:i-r.    1271 

Forniquet  v.  \V.>i  FcliciuuaR.  R.  Co., 

Forster  v.  Clements,  637 

Fortier  v.   New  Orleans  Nat.   Bank, 

BOO 
Fort  Payne  Coal  &  Iron  Co.  v.  Sayles. 

1122 
Fort  Payne  Furnace- Co  v.  Fort  Payne 

Ood  A:  Iro.i  Co.,  1123 
Fort  Worth  City  Co.  v.  Smith  Bridge 

Co.,  89 

Fosdick  v.  Sohall,  1187.  1190,  1193. 
1194,  1220,  1221,  1222,  1239,  1245, 
1260 

Fosdick  v.  Sturges,  166 
Foss  v.  City  of  Chicago,  59 
Foss  v.  Harbottle,  294.  298,  306 
Foster  v.   Belcher's    Sugar  Refining 

Co.,  260 

Foster  v.  Coleman,  117,  436 
Foster  v.  Essex  Bank.  193,  636 
Foster  v.  Kenosha,  49 
Foster  v.  Mansfield,  C.  &  L.  M.  Ry. 

Co.,  101 6,  i!37 
Foster  v.  Ohio-Colorado  Reduction  & 

.Mining  Co.,  219 
Foster  v.  Oxford,  W.  &  W.  Ry.  Co., 

242 

Foster  v.  Paulk,  645,  350 
Foster  v.  Planing  Mill  Co.,  1114,  1118 
Foster  v.  Railway  Co.,  282 
Fougeray  v.  Cord,  281 
Fouke  v.  Jackson  County,  57 
Fourth  Nat.  Bank  v.  City  Nat.  Bank, 

743 

Fourth  Nat.  Bank  v,  Francklyn,  887 
Fourth  Nat.  Bank  of  Chicago  v.  City 

Nat.  Bank  of  Grand  Rapids,  649 
Fourth  Street  Nat.  Bank  v.  Yardsk-y, 

645 
Fowler    v.   Jarvis-Conklin  Mortgage 

Trust  Co.,  1192 
Fowler  v.  Scully.  509,  510 
Fowler  v.  Trust  Co.,  1234 
Fox  v.  Bank  of  Kansas  City,  601 
Fox  v.  New  Orleans,  446 
Fractional  School  Dist.  No.  1  v.  Joint 

Board  of  School  Inspectors,  880 
Francis  v.  Evans,  747,  753 
Francis  v.  Howard  County,  14, 888,  842 
Frank   v.  Chemical  Nat.  Bank,  639, 

668,  679 

Frank  v.  Hicks,  234 
Frankfort  Bank  v.  Johnson,  159,  167, 
MB 


Frankland  v.  Johnson,  858 

Franklin   Avenue  (irrman   Sav.   Inst. 

v.  Board  of  Education.  494 
Franklin  Bunk  v.  Bvram.  • 
Franklin  Bank  v.  Commercial  Bunk, 

.-,17 

Franklin  Bank  v.  Cooper,  580 
Franklin  Hank  v.  Freeman.  660 
Franklin  hunk  v   Stevens,  580 
Franklin  Company   v.  Lcwiston 

for  Savings,  478.  479,  493,  508,  517 
Franklin  County  v.  layman,  58 
Franklin  County  v.  Nashville.  Chat- 
tanooga, etc.,  Railway.   1304 
Franklin  Count  v  Court   v.  Louisville 

A:  Nashville  K.  It.  Co.,  1801 
Franklin  County  Nat.  Bank  v.  Beal, 

Receiver,  750 
Franklin    Insurance   Co.   v.   Jenkins, 

248,  347.  849,  :».v,> 

Fray  lor  v.  Sonora  Mining  Co.,  283 
Frazer  v.  Tunis,  895 
Fra/ier  v.  Bank,  721 
Fra/icr  v.  East  Tennessee,  Va.  &  Ga. 

R.  R.  Co.,  1057,  1246 
Frederick  v.  City  Council  of  Augusta, 

23,  70 

Freehill  v.  Chamberlain,  846 
Freeman  v.  Plaindealer  Co.,  203 
Freeman  v.  Stine,  279 
Freeman's    Bank  v.   National    Tube 

Works,  744 
Freeman's  Nat.  Bank  v.  Lavery,  587 
Freiberg  v.  Cody,  660 
Frelinghuysen  v.  Baldwin,  715 
Frelinghuysen  v.  Nugent,  626,  737 
French  v.  Andrews,  1124 
French  v.  City  of  Burlington,  66,  886 
French  v.  Dunn  County,  132 
French  v.  Gifford,  1233 
French  v.  O'Brien,  172 
French  v.  Ouincy,  35,  41 
French  v.  Teschemaker.  44 
Freund  v.  Importers  ,  etc.,  Nat.  Bunk, 

652.  655 

Fridley  v.  Bowen,  510 
Friend  v.  City.  955 
Friend  v.  Gifbert,  20 
Frost  v.  Belmont,  33,  571 
Frost  v.  St.  Paul  Banking  &  Invest- 
ment Co.,  1182 

Frost  Manufg.  Co.  v.  Foster,  347 
Fry,  Collector,  v.  Chicot  County,  63 
Frye  v.  Tucker,  206 
Fugitt  v.  Nixon,  702 
Fuld  v.  Burr  Brewing  Co.,  457 
Fuller  v.  Bennett,  681 
Fuller  v.  City  of  Chicago,  66 
Fuller  v.  Hooper,  810 
Fuller  v.  Inhabitants  of  Groton,  85.  61 
Fullerton  v.  School  District  of  Lin- 
coln, 883 


Ivi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70&-1307.] 


Fullerton  v.  Sturges.  608 
Fulton  v.  Town  of  Riverton,  942 
Fulton     County     v.     Mississippi     & 

Wabash  Railroad,  898,  904 
Furnald  v.  Glenn,  1137,  1140 
Furniss  v.  Gilchrist,  97,  206 

G. 

Gaar  v.  First  Nat.  Bank  of  Centralia, 

510 
Gaddies  v.  Richland  County,  904,  939, 

971 

Gale  v.  South  Berwick,  125 
Gale  v.  Village  of  Kalamazoo,  29 
Galena  Insurance  Co.  v.  Kupfer,  627, 

648 
Galena  &  Chicago  N.  R.  R.  Co.  v. 

Menzies,  1096 

Gall  v.  City  of  Cincinnatti,  29 
Gallagher  v.  Brunei,  294 
Galveston   R.  R.    Co.    v.    Cowdrey, 

1095 
Gamble  v.  Queens  County  Water  Co., 

73 

Gane  v.  Losemo  Printing  Co.,  809 
Gans  v.  Swituer,  417 
Gansevoort  v.  Williams,  187 
Gardiner  v.  Pollard,  309 
Gardiner  v.  Tyler,  1232 
Gardner  v.  B.  &  M.  R.  R.  Co.,  211 
Gardner  v.  Butler,  214,  241,  242,  250, 

263,  264 

Gardner  v.  Graham,  1058 
Gardner  v.  National  City  Bank,  665 
Gardner  v.  Ogden,  251,  326 
Gnrham  v.  Mutual  Aid  Society,  1118, 
Garland  v.  Board  of  Revenue,  25 
Garrard  County  Court  v.  McKee,  126, 

127 

Garrett  v.  May,  1013 
Garrett  v.  Plow  Company,  1074,  1084, 

1112 
Garrettson  v.  North  Atchison   Bank, 

655 
Garrison  v.  Howe,  69,  380,  390,  393, 

398 
Gas  Company  v.  San  Francisco,  233, 

890 

Gashwaler  v.  Willis,  174,  180 
Gas  Light  Co.  v.  Nashville,  1307 
Gates  v.  Railroad  Co.,  1080 
Gause  v.  City  of  Clarksville,  23,  102, 

857 
Gay  Manufacturing   Co.  v.  Gittings, 

1244 

Gazette  v.  Bolton,  136 
Gebhard  v.  Eastman,  99.  760,  1134 
Geisenheimer  v.  Dodge,  394 
Gelpcke  v.  City  of  Dubuque,  19,  49, 

825,  850,  909,  924,  955,  956,  957, 

964,  1047 


Genesee    County    Savings   Bank    v. 

Michigan   Barge   Company,   157, 

209 
Geneva   Nat.    Bank   v.    Independent 

School  District,  879 
Genoa  v.  Woodruff,  946 
George  v.  Central  R.  R.  &  Bkg.  Co., 

318 
George  v.  Nevada  Central  R.  R.  Co., 

93 

George  v.  Oxford  Township,  877 
George  v.  St.  Louis  Cable  &  Western 

Ry.  Co..  1180 
George  v.  Wabash  Western  Ry.  Co., 

1174 
Georgia  v.  Atlantic  &  Gulf  R.  R.  Co., 

1236 

Georgia  Company  v.  Castleberry,  183 
Georgia  Pac.  Ry.  Co.  v.  Gaines,  397 
Georgia  Seed  Co.  v.  Talmadge,  1146 
Gere  v.  Supervisors  of  Cayuga  County, 

131 

Gerhard  v.  Baley,  294 
German  Exchange  Bank  v.  Comrs.  of 

Excise,  610 
German     Sav.      Bank    v.     Franklin 

County,  920,  948,  968 
German  Savings  Bank  v.  Wulfekahler, 

563,  564 

German  Sav.  Inst.  v.  Adal,  662 
Germantown  F.  M.  Ins.  Co.  v.  Dhein, 

454 

Gernsheim  v.  Olcott,  1147 
Gerry  v.  Stoneham,  33 
Getty  v.   C.   R.  Barnes  Milling  Co., 

156,  235 

Getty  v.  Devlin,  299 
Gibbons  v.  Mobile  &  Great  Northern 

R.  R.  Co.,  47,  49,  958 
Gibbs  v.  Gas  Company,  1178 
Gilbert  v.  Washington  City,  Va.  Midi. 

&  Great  Southern  R.  R.  Co.,  1047 
Giblin  v.  McMullen,  348 
Gibson  v.  Cookp,  685 
Gibson  v.  Furniture  Company,  1111 
Gibson  v.  Goldthwaite,  174,  175 
Gibson  v.  Joyce,  326 
Gibson  v.  Poor  District,  24 
Gibson  v.  School  District,  40 
Gilbert  v.  Manchester  Iron  Co. ,  763 
Gilbough  v.  New  York  &  P.  R.  R. 

Co.,  1047 
Gilchrist  v.  Helena,  H.  S.  &  8.  R.  Co., 

1076,  1077 

Gildersleeve  v.  Lester,  246 
Giles  v.  Merritt,  617 
Gilkey  v.  Paine,  811 
Gill  v.  Balis,  1117 
Gillespie  v.  Broas,  57,  121 
Gillespie  v.   Davidge  Fertilizer  Co. , 

470,  489 
Gillespie  v.  Palmer,  803 


TABLE  OF  CASES. 


Mi 


[The  references  are  to  page*:  vol.  I  contains  pp.  1-707;  vol.  II.  pp.  7X18-1307.] 


Gillett  v.    Board  of  Supervisors    of 

Logan  County,  120 
Gillett  v.  Campbell,  98,  154.  173 
Giilett  v.  Moody,  70,  550,  1087 
Gillis  v.  Bailey,  I'M 
Gilmim  v.  City  of  Sheboygan,  1264 
Gilinun  v.  Milwaukee,  42 
Oilman  v.  Telegraph  Co.,  1186,   1222 
Gilman,  etc.,  R.  R.  Co.  v.  Kellv,  •„>»:!. 

263 

Gilman  v.  N.  O.  &  8.  R.  R.  Co..  952 
Gilson  v.  Board  of  Comrs.  of  Rush 

County,  8«9,  871 
Gilson  v.  Town  of  Daytou.  974 
Girard  Life  Ins.  Annuity  &  Trust  Co. 

v.  Cooper,  1206 
Gist  v.  Drakely,  92 
Githere  v.  Clarke,  882 
Gladstone  Exchange  Bank  v.  Keating, 

606 

Glasier  v.  Rolles.  294 
Glass  v.  Ferd  Heim  Brewing  Co.,  470 
Glenn  v.  Liggett,  1188 
Glenn  v.  McAllister's  Execrs.,  772 
Glenn  v.  Marbury,  1138 
Glenn  v.  Noble.  656 
Glenn  v.  Orr,  772 
Glenn  v.  Springs,  772 
Glenn,  Trustee,  v.  Williams,  1137 
Glidden  v.  Unity.  145 
Glines  v.  Supreme  Sitting,  Order  of 

Iron  Hall,  1128 
Globe  Works  v.  Wright,  193 
Gloninger  v.  Pittsburgh  &  Conuells- 

ville  R.  R.  Co.,  1019,  1057,  1087 
Gloucester  Bank  v.  Salem  Bank,  673, 

677 

GloTer  v.  Lee,  151 
Godbold  v.   Branch  Bank  of  Mobile, 

348,  549 
Godin  v.  Bank  of  the  Commonwealth, 

602,  650 

Goddard  v.  Bank,  670 
Goddin  v.  Crump,  48.  49,  901,  964 
Goetz  v.  Bank  of  Kansas  City,  696 
Goff  v.  Rehoboth,  134 
Go  forth  v.  Rutherford  Ry.  Construc- 
tion Company,  907 
Gold  v.  Clyne.  397 
Goldbeck  v.  Bank,  236 
Gold f rank  v.  Young,  1129 
Gold  Mining  Co.  v.  Anglo-California 

Bank,  169,  222,  226,  236,  520,  806, 

942 

Goldsmith  v.  Stetson.  753 
Goldsmith  v.  Stewart,  802 
Goodell  v.  Buck,  752 
Goodin  v.  Cincinnati,  etc.,  Canal  Co., 

282,  306 

Goodin  v.  Canal  Company,  1108 
Goodloe  v.  Godly.  088 
Goodman  v.  Simonds,  1001 

viii 


Goodmar  v.  Oakley,  805 

Goodrich  v.   Reynolds,  Wilder  &  Co., 

206 
Goodrich  v.  Winchester,  etc.,  T.  P. 

Co.,  870 

Goodwin  T.  Union  Screw  Co.,  158, 195 
Goodyear    Dental    Vulcanite  Co.    v. 

Caduc,  858.  354 
Goodyear  Rubber  Co.  v.  George  D. 

Scott  Company,  1111 
Gorder  v.  Plattsmouth  Canning  Co., 

1071,  1086,  1089 
Gordon  v.  Board  of  Comrs.  Dearborn 

County,  121 

Gordon  v.  Newman,  1166 
Gordon  v.  Preston,  1055,  1084 
Gordon  &  Gomila  v.  Muchler,  647 
Gorman  v.  Boise  County,  798 
Gough  v.  Staats,  707 
Gould  v.  Cayuga  County  Nat.  Bank, 

562 
Gould  v.  Little  Rock,  M.  R.  &  T.  Ry. 

Co.,  1083,  1084.  1112 
Gould  v.  Town  of  Oneonta,  988 
Gould  v.  Town  of  Sterling,  111,  993 
Govers'  Case,  298 
Grafins  v.  Land  Company,  210 
Grafton  Bank  v.  Woodward,  583 
Graham  v.  Morstadt.  660 
Graham  v.  Norton,  944 
Graham   v.    Railroad  Co.,  254,  1028, 

1042.  1113,  1137 
Grammel  v.  Cnrmer,  664,  665 
Grand  Chute  v.  Winegar,  328,  897.  956 
Grand  Gulf  Bank  v.  Archer,  494,  530 
Grand  Lodge  v.  Waddill,  74 
Grand  Rapids  &  Indiana  R.  R.  Co.  v. 

Sanders,  1043,  1048 
Grand  Rapids  Safety  Deposit  Co.  v. 

Cincinnati  Safe  &  Lock  Co.,  197, 

253 

Grand  Rapids  Savings  Bank  v.  War- 
ren, 761 
Granniss  v.    Cherokee  Township    of 

York  County,  1010 
Grajt  v.  City  of  Davenport.  68,  69 
Grant  v.  East  &  West  R.   R.  C'o.  of 

Ala.,  1020,  1027,   1034,  1040,  1057, 

1075 

Grant  v.  Fiol,  597 

Grant  v.  Spokane  Nat.  Bank,  720,  734 
Grant  v.  Taylor,  523 
Grant  v.  Walsh,  619.  620.  1146 
Grape  Sugar  Manufg.  Co.  v.  Small, 

197 

Graves  v.  Mono  Lake  Hydraulic  Min- 
ing Co..  267 
Gray  v.  Coffin,  769 
Gray  v.  New  York  &  Virginia  St.  Ship 

Co..  250,309 
Great    Falls    Bank    v.    Fariuington, 

145 


Iviii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Great  Luxembourg  Ry.  Co.  v.  Mag- 
nay,  242,  471 

Great  Western  Telegraph  Co.  v.  Loew- 
euthal,  1140 

Greaves  v.  Gouge,  300,  317,  556 

Greeley  v.  Thurston,  G41 

Green  v.  Barrett.  '294 

Green  v.  City  of  C'ape  May,  39 

Green  v.  Easton.  394.  3U5 

Green  v.  Hugo,  246 

Green  v.  Odd  Fellows'  Sav.  &  Com- 
mercial Bank,  599 

Green  v.  Walkill  Nat.  Bank,  555 

Green  B-iy  v.  Braune,  800 

Green  Bay  &  Minnesota  R.  Co.  v. 
Union  Steamboat  Co.,  89,  94,  473, 
819 

Green  County  v.  Conness,  1282 

Greenlaw  v.  King,  326 

Greenleaf  v.  Norfolk  Southern  Ry., 
236 

Greenpoint  Sugar  Co.  v.  Whitin,  1060, 
1066.  1068 

Greensburg,  Milford  &  Hope  Turn- 
pike Co.  v.  McCormick,  456 

Gregg  v.  George,  704 

Gregg  v.  Union  County  Nat.  Bank, 
628 

Gregory  v.  City  of  Bridgeport,  790 

Gregory  v.  Patchell,  324 

Greig  v.  Riordau,  155 

Grenada  County  Supervisors  v.  Brog- 
den,  939 

Grew  v.  Breed,  769 

Gribble  v.  Columbus  Brewing  Co., 
236 

Gridley  v.  La  Fayette.  B.  &  Missis- 
sippi Ry.  Co.,  246,  279,  356 

Griffin  v.  Chase,  747 

Griffin  v.  Goff,  641 

Griffith  v.  Burden,  824 

Griffith  v.  Chicago,  B.  &  P.  R.  Co.,  156 

Grill  v.  S.  C.  Co.,  348 

Griswold  v.  City  of  East  St.  Louis, 
438 

Griswold  v.  Haven,  333 

Grover  &  Baker  Sewing  Machine  Co. 
v.  Polhemus,  152 

Grusenmeyer  v.  City  of  Logansport, 
122 

Guaranty  Trust  &  Safe  Deposit  Co.  v. 
Green  Cove  Springs  &  Melrose  R. 
R.  Co.,  1151,  1152,  1153 

Guelich  v.  National  State  Bank,  682 

Guernsey  v.  Burlington  Township,  55, 
1011 

Guild  v.  Bank,  535 

Guild  v.  Parker,  244,  264,  278,  354 

Guilford  v.  Minneapolis,  S.  Ste.  M.  & 
A.  Ry.  Co.,  1080 

Gulf,  C.  "&  S.  F.  R.  R.  Co.  v.  State, 
1178 


Gulf    Railroad    Company    v.    Miami 

County,  44,  905 
Gunther  v.  Mayer,  1018 
Guthrie  v.  Reid,  527 
Gutta  Percha  <fc  Rubber  Manufg.  Co. 

v.  Village  of  Ogalalla,  113,  114 
Guyette  v.  Bolton,  136 
Gypsum    Plaster    &     Stucco    Co.   v. 

Adsit,  1192 


H. 


Haacke  v.  Knit 


eke  v.  Knights  of  Liberty  Social  & 

Literary  Club,  351 
Hackensack  Water  Co.  v.  City  of  IIo- 

boken,  70 
Hackensack    Water  Co.    v.    De  Kay, 

200,  1079 

Hackett  v.  Ottawa,  70,  828,  872,  895 
Hackettstown  v.  Swackhamer,  102 
Hade  v.  McVay,  712 
Hadsell   v.    Inhabitants  of  Hancock, 

35,  61 

Hagan  v.  City  of  Brooklyn,  798 
Hagar  v.  Union  National   Bank,   523, 

526 

Hagen  v.  Bowery  National  Bank,  654 
Hagenbeck  v.  Hagenbeck  Zoological 

Arena  Co.,  1124 
Haeer  v.  Rice,  359 
Hague  v.    City  of  Philadelphia,  444, 

821 

Haile  v.  Peirce,  359 
Haines  v.  Detrick,  236 
Haines  v.  McFerren,  637 
Halbert  v.  State  ex  iel.,  etc.,  123 
Halbut  v.  Forest  City,  446 
Hale  v.  Bridge  Co.,  358 
Hale  v.  Frost,  1239 
Hale  v.    Nashua  &  Lowell  R.  R.  Co., 

1239 

Hale  v.  Rawallie.  635 
Hale  v.  Walker,  757 
Hale-Berry  Co.  v.  Diamond  State  Iron 

Co.,  1123 
Hall  v.  Auburn  Turnpike  Co.,  78,  173, 

196,  466 

Hall  v.  Baker,  940 
Hall  v.  Bank,  536 
Hall  v.  Cordell,  1021 
Hall  v.  Crandall,  350 
Hall  v.  Jackson  County,  16,  120 
Hallam    v.    Hotel    Company,     1084, 

1112 
Hallowell  &  Augusta  Bank  v.  Hamlin, 

155,  175,  180 

Halsey  v.  Ackerman,  553 
Halstead    v.    Board,     etc.,    of    Lake 

County,  39 

Halstead  v.  Dodge,  393 
Halstead  v.  Mayor,  etc.,  5,  20,  64,  114, 

438 


TABLE  OF  CASES. 


llX 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Hambright  v.  Cleveland  Nat.  Bank, 

529 

Hamilton  v.  Bates,  -J::i 
Hamilton  v.  City..)"  Sli<-ll)yville,  488 
Hamilton  v.  Cunningham.  tl^I 
Hamilton  v.  MeLauirhlin.  inTl 
Hamilton  v.   New  Castle  &  D.  R.  R. 

( '.. ..  7.-).  102,  144,  146 
Hamilton  v.  Savannah,  F.  &  W.  Ry. 

474 
Hamilton  v.  Winona  Salt  &  Lumber 

Co.,  692 

Hamilton  Co.  v.  Massachusetts,  1274 
Hamm  v.  Drew,  151 
Hammock  v.  Tmst  Company.  1168 
Hammond   v.  Michigan  State  Bank, 

UB 

Hancock  v.  Chicot  County,  45 
Hancock  v.  llolbrook,  268,  278 
Hancock  v.  Railroad  Company,  946 
Hand  v.  Savannah  A:  Charleston  R.  R. 

Co.,  1047.  1234.  1200 
Handley  v.  Stutz,  1028,  1140 
Haner  v.  Town  of  Polk.  188 
Hankins  v.  Shoup,  146 
llanley  v.  Balch.  1094 
Hannerty   v.   Standard   Theater  Co., 

246.  264 
Hannibal    &    St.  Jos.   R.  R.   Co.   v. 

Marion  County,  110 
Hannon  v.  Williams,  366 
Hanson  v.  Tatc,  :55i 
Hardee  v.  Sunset  Oil  Co..  1125 
Hardia  v.  Construction  Co.,  220 
Harding  v.    Rockford,   R.   I.    &    St. 

Louis  R.  R.  Co.,  971 
Hardy  v.  Merri  weather,  20 
Hardy  v.  Metropolitan  Land  Co.,  326 
Hardy  v.  Pilchcr,  359 
Hardy  v.  Waltham,  85,  68 
Hardy  &  Bros.  v.  Chesapeake  Bank, 

597,  672.  673,  680 
Hare  v.  Henty,  658 
Hargadine  v  'Henderson.  1114 
Harkness  v.  Russell,  1102 
Harlan  v.  Rand.  1250 
Harlem  Gas  Light  Co.  v.  Mayor,  etc., 

of  New  York.  29 

Harman    v.    Auditor    of    Public  Ac- 
counts, 975 

Harms  v.  Fitzgerald,  121 
Harney  v.   Indianapolis,  etc.,   R   R. 

Co.,  487 

Harper  v.  Calhoun,  548,  573 
Harper  v.  Carroll,  1140 
Harrigan  v.  Quay,  1120 
Harriman  v.  Baptist  Church,  497 
Harrington    v.    First    Nat.    Bank    of 

Chittenango,  l'::."i 
Harris  v.  Elliott.  1101 
Harris  v.  N.  D.  Railroad  Co.,  258 
Harris  v.  Runnels,  520 


Harrisburg  City  v.  Pennsylvania  Tele- 
phone Co.,  1262 
Harrison  v.  Crowder,  688,  691 
llarrisiiii  v.  .Mexican  Kv..  484 
Harris  MI  v.  Smith.  042,  731 
Harrison  v.  1'nioii  I'ac.  Ry.  Co.,  1044 
Harrison  v.  Waterberry,  1118 
Harrison  v.  Wriirht.  644,  648 
Harry  v.  Wood,  657 
Harshnmn  v.  Hates  County,  446,  985 
llar-litnan  v.  K  n ox  County,  872 
Hart  v.  Brockway,  246 
Hart  v.  Frontino,  etc.,  Co.,  838 
Hart  v.  Lam.ian.  1081 
Hart  v.  Salisbury,  371 
Harter  v.  Kernochan,  935 
Hartford  Hank  v.  Harry,  573 
Hartford  Iron  Mining  Co.  v.  Cambria 

Mining  Co.,  165 
Hartridge  v.  Rockwell,  76,  285 
Hnrts  v.  Brown,  214,  250,  263,  269, 

1084,  1112 
Harvey  v.  Indianapolis,  C.  &  D.  R.  R. 

Co.,  17 
Harward  v.  The  St.  Clair  &  Monroe 

Levee  Drainage  Co.,  1005 
Harwood  v.  Humes,  350 
Harwood  v.  Railroad  Co.,  168 
Hasbrouck  v.  Milwaukee,  902,  957 
Hascall  v.  Life  Association  of  America, 

211 

Hase  v.  Warren  County,  128 
Hass  v.  bank,  1146 
Hassan  v.  City  of  Rochester,  36 
Hastings  v.  Brooklyn  Life  Ins.  Co., 

is:! 

Hastings  v.  Drew,  1108 
Hatch  v.  Attrill,  409 
hatch  v.  Coddington,  147 
Hatch  v.  Dana,  1132 
Hatfield  v.  Cummings,  1128 
Hanson  v.  Vernon,  44 
Havemeyer  v.  Iowa  City,  957 
Haven  v.  Adams,  1000,  1073 
Haven  v.   Grand  Junction  R.   R  & 

Depot  Co.,  1047 
Havens  v.  Lathene,  853 
Hawes  v.  Oakland,  806,  809,  813,  817, 

1273 

Hawk  v.  Marion  County,  124 
Hawkins  v.  Carroll  County,  911,  920 
Hawkins  v.  Glenn.  1028,  1110,  1138 
Hawtayne  v.  Bourne,  98,  150,  152 
Hayden  v.  Wheeler &Tappan  Co.,  236 
Hayes  v.  Bank,  1111 
Hayes  v.  Heardsley,  682 
Haves  v.  Holly  Springs,  872 
I  Lives  v.  Orr,  712 
Haynes  v.  Cape  May,  1086 
Haynes  v.  Covington,  446 
Haynes.  Liquidator,  v.  Succession  of 

Beckman,  176 


Ix 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Hay's  Case,  423 

Hays  v.  Galion  Gas  Light  &  Coal  Co., 

91,  93,  98,  1054 
Hayward   v.   Board    of   Trustees    of 

Town  of  Redcliff,  438 
Hayward  v.  Davidson,  121,  494 
Hayward  v.  Pilgrim  Society,  219 
Haywood  v.  Lumber  Company,  1087, 

1111 

Hazelett  v.  Bank,  682 
Hazelhurst  v.  Sav.,  G.  &  N.  A.  R.  R. 

Co.,  484,  517 

Hazleton  v.  Bank  of  Columbus.  629 
Head  v.   Cleburne  Building  &  Loan 

Assn.,  470 

Head  v.  Providence  Insurance  Co.,  95 
Heal  v.  Jefferson,  Township  of,  Grant 

County,  133 
Heanley  v.  State,  870 
Heath  v.  Erie  Railway  Co.,  315,  495, 

556 
Heath  v.  Portsmouth  Savings  Bank, 

617 

Heath  v.  Second  Nat.  Bank,  512 
Hedges  v.  Dixon  County,  897,  924 
Hegeman  v.  Passaic,  1270 
Heims  Brewing  Co.  v.  Flannery,  470, 

490,  821 

Hemphill  v.  Yorkes,  608 
Hendee  v.  Pinkerton,  1014,  1074 
Hendee  v.  Railroad  Co.,  716 
Henkle  v.  Town  of  Keota,  1298 
Henley  v.  Clover,  129 
Henderson  Bridge  Co.   v.   Common- 
wealth, 1300 

Hennessy  v.  City  of  St.  Paul,  509 
Henry  v.  Martin,  1145 
Henry  v.  North  Bank  of  Alabama,  599 
Henry  v.  Rutland  &  B.  R.  R.  Co.,  279 
Henry  v.  Syracuse,  G.  &  C.  R.  R.  Co., 

1021 

Hentig  v.  Sweet,  258 
Hequembourg  v.  City  of  Dunkirk,  37 
Herbert  v.  Bait.  &  Phil.   R.  R.  Co., 

1301,  1304 
Herring  v.  New  York,  L.  E.,  etc.,  R. 

R.  Co.,  1172 

Hersey  v.  Veazie,  312,  495 
Hervey  v.  Illinois  Midland  Ry.  Co., 

1020,  1076 
Hessler  v.   Drainage  Commissioners, 

1005 
Hewitt  v.  Board  of  Education,  878, 

971 

Hewitt  v.  Goodrich,  644 
Hewitt  v.  Railroad  Company,  1236 
Hewitt  v.  Town  of  Grand  Chute,  138 
Hewitt  v.  Wheeler,  235 
Heycock  v.  Sherman,  415 
Hibernia  Building  Assn.  v.  McGrath, 

366 
Hichens  v.  Congreve,  294,  298,  556 


Hicks  v.  Cheyenne  Land  &Live  Stock 

Co.,  1100 
Hight    v.    Board,    etc.,    of    Monroe 

County,  121,  122 
Hightower  v.  Thornton,  357 
Higley  v.  First  Nat.  Bank  of  Beverly, 

536 
Hill  v.  C.  F.  Jewett  Publishing  Co., 

344 
Hill  v.  City  of  Memphis,  17,  952,  954, 

1004 

Hill  v.  Frazier,  243 
Hill  v.  Nisbet,  2«3 

Hill  v.  Rich  Hill  Coal  Mining  Co.,  260 
Hill  v.  Todd,  655 
Hill  v.  Trust  Co.,  652 
Hills  v.  Bannister,  360 
Hills  v.   Furniture    Company,    1071. 

1116 

Hills  v.  Parker,  1118 
Hilly er  v.  Overman  Silver  Mining  Co., 

172 

Hinckley  v.  Pfister,  1123 
Hinckley  v.  Union  Pac.  R.  R.  Co., 

1047 

Hinds  v.  Marmolejo,  535 
Hintrager  v.  Richter,  438 
Hirschmann  v.  Iron  Range  &  Huron 

Bay  R.  R.  Co.,  232 
Hirsch  v.  Jones.  311 
Hitchcock  v.    Galveston,   29,   37,    65, 

110,  787,  860,  1004 
Hitchings  v.   St.  Louis,  N.   O.  &  O. 

Canal  Transp.  Co.,  236 
Hitt  v.  Allen,  603 
Hoag  v.  Lamont,  234 
Hobart  v.  Johnson,  769 
Hobart  v.  Supervisors,  49 
Hobbs  v.  McLean,  1184 
Hockaday  v.  Commissioners,  67 
Hodder  v.  Kentucky  &  Great  Eastern 

Ry.  Co.,  1014,  1020.  1093 
Hodge  v.   First  National  Bank,  182, 

193 
Hodges  v.  City  of  Buffalo,  5,  33,  114, 

438,  439,  445 
Hodges  v.  New  England  Screw  Co., 

301,  305,  306,  364,  456,  553,  556 
Hodges  v.  Planters'  Bank,  526 
Hodges  v.  Shuler,  1014 
Hodgin  v.  Bryant,  547 
Hodgkinson  v.  National   Live  Stock 

Ins.  Co.,  324 
Hodgman  v.  Chicago  &  St.  Paul  Ry. 

Co.,  962 

Hodsdon  v.  Capeland,  312 
Hoetzel  v.  East  Orange,  1086 
Hoey  v.  Gilroy,  854 
Hoffman  v.  Board,  etc.,  123 
Hoffman   v.    Comrs.    of    Greenwood 

County,  442 
Hoffman  v.  Dickey,  385 


TABLE  OF  CASES. 


Lri 


[The  references  are  to  page*:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 

Hoffman  v.  First  Nat.  Bank  of  Jersey 

City,  697 

Hoffman  v.  Rt-ichert,  263,  274 
Hoffman  Steam  Coal  Co.   v.  Cumber* 

land  Con  1  A:  Iron  Co.,  251 
Hogue  v.  Edwards.  645 
Holbrook  v.  Bassett.  74,  102 
Holbrook  v.  Fauquier,  etc.,  Turnpike 

Holbrook  v.   New  Jersey  Zinc  Co., 
BSD 

Holbrook.  Merrill  &  Stetson  v.   Peters 

A  Miller  Co..  1117 
Holden  v.  New  York  &  Erie  Bank, 

361 

Holden  v.  Phelps,  834 
Holden  v.  Upton.  l.Vi.  r,so 
Holder  v.   La  Fayette,  B.  &  M.  Ry. 

Co.,  245,  258/279,  356 
Hollingsworth  v.  Detroit,  946 
Hollins  v.  Brierfield  Coal  &  Iron  Co., 

1109,  1120,  1139 
Hollins  v.  St.  Paul,  M.  &  M.  R.  Co., 

489 

Hollister  v.  Powlett,  137 
Holly  Manufg.  Co.  v.  New  Chester 

Water  Co.,  1158 
Holmes  v.  Board  of  Trade,  150 
Holmes  v.  Boyd,  512 
Holmes  v.  City  of  Shreveport,  13,  849, 

s:,7 

Holmes  v.  Oilman.  752 
Holmes    v.    Kansas    City    Board    of 

Trade,  170,  234 
Holmes  v.  Roe,  659.  692,  707 
Holmes,  Booth  &  Haydensv.  Willard, 

183,  224,  362,  820 
Holmes  &  Griggs    Manufg.    Co.    v. 

I  lolmes  &  Wessell  Metal  Co    496, 

821 

Holt  v.  Bennett,  263,  349 
Holt  v.  City  of  East  St.  Louis,  1269 
Home  Friendly  Society  v.  Tyler,  819 
Home  Insurance  Co.  v.  New  York, 

1274,  1294 

Home  Nat.  Bank  v.  Newton,  637,  641 
Homestead  Bank  v.  Wood,  489 
Honduras    Commercial  Co.    v.   State 

Board  of  Assessors,  1292 
Hone  v.  Allen,  19:j 
Hood  v.   New  York  &  N.  H.  R.  R. 

Co.,  469.  4?H,  .->o:{ 
Hook  v.  Bosworth,  1197 
Hooker  v.  Eagle  Bank.  170 
Hooker  v.  Vandewater,  1178 
Hooper  v.  Ely,  129 
Hoosac  Mining  &  Milling  Co.  v.  Donat , 

Hope  v.  Deaderick,  48 

Hope  v.  International  Society,  1152 

Hope  v.  Salt  Company,  1087 

Hope  Mutual  Life  Ins.  Co.  v.  Wood,  90 


v.  Putt,  188 
Hopkins'  Appeal,  1111 
I  In] .kins  v.  Roseclare  Lead  Company, 

108 

Hopkinson  v.  Foster,  664 
Hopper  v.  Sage.  816 
Hopper  v.  Town  of  Covington,  948 
Horn  v.  Mayor,  etc.,  Ill 
Hornblower  v.  Crandall,  291 
Hornblower  v.  Duden,  58 
Hornor  v.  Henning,  388,  400,  403,  406, 

418.  557 

Hornsby  v.  Eddy,  1229 
Horn  Silver  Mining  Co.  v.  New  York, 

1294 
Horn  Silver  Mining  Co.  v.  Ryan,  :;K 

349,  558 
Horton    v.    Mobile     School    Comrs., 

881 

Horton  v.  Sayer,  1152 
Horton  v.  Town  of  Thompson,  936, 

994.  1007 

Horton  Ice  Cream  Co.  v.  Merritt,  192 
Horwitz  v.  Ellinger,  597 
Hospes  v.  Car  Company,  1084,  1135 
Hotchin  v.  Kent,  166,  172 
Hotchkiss  v.  Marion,  18 
Hotchkiss  v.  Pluukett,  140,  790 
Hotel  Co.  v.  Wade,  275,  1038,  1084 
Hot  Springs   Ind.  Sch.   Dist.  v.  First 

Nat.  Bank  of  Hot  Springs,  734 
Hough  v.  Cook  Land  Co.,  494 
Houghton  v.  Dodge.  234 
Houghton  v.  First  Nat.  Bank  of  Elk- 
horn,  571 

House  v.  Cooper,  309 
Howard  v.  City  of  Oshkosh,  25 
Howard  v.  Savings  Bank,  618 
Howe  v.  Barney,  558 
Howe  v.  Boston  Carpet  Co.,  456 
Howe  v.  Deuel,  309 
Howe  v.  Freeman,  1055 
Howe  v.  Hartness,  608,  628 
Howe  v.  Keeler,  235 
I  In  we  v.  Newmarch,  338 
Howe  v.  St.  Clair,  1232 
Howe  v.  Tool  Co.,  246,  254 
Howe  Brown  &  Co.  v.  Sanford  Fork 

&  Tool  Co.,  1087 
Howell  v.  City  of  Peoria,  66 
Howell  v.  McCrie,  172 
Howell  v.  Western  R.  R.  Co.,  1080 
Howland  v.  Myer,  191 
Hoyle  v.  Pittsburgh  &  Montreal  R. 

Co.,  263.  270,  282,  826,  1082 
Hoyt  v.  Shelden,  284 
Il.iyt  v.  Stoddard,  1203 
Hoyt  v.  Tbompson,  157,  180,  194,  202, 

217,  225.  243,  466,  576 
Hubbard  v.  Bank,  1118 
Hubbard  v.  Camperdown  Mills,  171 
Hubbard  v.  Lyndon,  188 


Ixii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Hubbard  v.  New  York  &  Harlem  R. 
R.  Co.,  1013,  1014 

Hubbard  v.  New  York,  etc.,  Invest- 
ment Co.,  241,  250 

Hubbard  v.  President,  etc.,  724 

Huber  v.  Bossart,  657 

Hucksteiu  v.  Herman,  642 

Hudson  v.  Elevator  Company,  1214 

Hudson  v.  Marietta,  67 

Hudson  v.  Wilkinson,  1129 

Hudson  County  Catholic  Protectory 
v.  Board  of  Township  Committee 
of  Kearney,  1279 

Hugg  v.  City  Council  of  City  of  Cam- 
den,  57 

Hughes  v.  Antietam  Manufg.  Co.,  198 

Hughes  v.  Bank  of  Somerset,  166 

Hughitt  v.  Johnson,  655 

Hulbert  v.  Carver,  627 

Hull  &  Argalls  v.  County  of  Marshall, 
832 

Hull  v.  Bank,  650 

Humboldt  v.  Long,  830,  835 

Humboldt  Mining  Co.  v.  American 
Mfg.,  Mining  &  Milling  Co.,  84 

Humboldt  Trust  Co  's  Estate,  628 

Humes  v.  Decatur  Land  Imp.  &  Fur- 
nace Co.,  151 

Humphrey  v.  McKissock,  320,  1097, 
1100 

Humphrey  v.  Patrons'  Mercantile 
Assn..  73,  469.  490 

Humphries  v.  Bicknell.  657 

Hun  v.  Cary,  347,  364,  365,  553 

Hunkins  v.  Johnson,  136 

Hunt  v   Bullock,  1096 

Hunt  v.  Fawcett,  67,  445,  953 

Hunt  v.  Memphis  Gas  Light  Co,,  1055 

Hunt  v.  Rahway,  1270 

Hunt  v.  Townsend,  739 

Hunter  v.  Louisville  &  Nashville  R. 
R.  Co.,  1264 

Huntei  v.  Nolf,  434 

Hunter  v.  Roberts,  Thorp  &  Co.  (a  Cor- 
poration), 811 

Huntington  v.  Attrill,  212.  408,  409 

Huntington  v.  Savings  Bank,  467 

Huntley  v.  Lincoln  Park  Commrs., 
1269 

Huntress  v.  Burbank,  522 

Huntsville  Belt  Line  &  M.  S.  Ry.  Co. 
v.  Corpening,  151 

Huron  Printing  &  Binding  Co.  v. 
Kittleson.  237 

Hussey  v.  King,  322 

Hutchinson  v.  BidweH,  262 

Hutchinson  v.  Green,  1111 

Hutchinson  v.  Self,  46 

Hutchinson  v.  Surrey  Consumers'  Gas 
Light  &  Coke  Assn.,  157 

Hutchinson  v.  Sutton  Manufg.  Co., 
246,  348 


Hutton    v.    Scarborough    Cliff    Co., 

325 

Hyde  v.  Larkin,  187,  234,  235,  583 
Hyde  v.  Continental  Trust  Co.,  1278 
Hyde  Park  Gas  Co.  v.  Kerber,  310, 

318 
Hyland,  Auditor,  v.   Central  Iron  & 

Steel  Co.,  12.72 

Hylton  v.  United  States,  1273 
Hypers  v.  Griffin,  357 

I. 

Ide  v.  Passumpsic  &  Connecticut 
Rivers  R.  R.  Co.,  1014 

Ihl  v.  Bank  of  St.  Joseph.  609 

Ilgenfritz  v.  Pettis  County  Bank,  639 

Ilion  Bank  v.  Carver,  247 

Illinois  Central  R.  R.  Co.  v.  City  of 
Decatur,  1306 

Illinois  Linen  Co.  v.  Hough,  279,  356 

Illinois  &  St.  Louis  R.  R.  &  Canal  Co. 
v.  City  of  St.  Louis  &  Pacific  Ele- 
vator Co.,  29 

Illinois  State  Hospital  v.  Higgins.  800 

Illinois  Trust  &  Savings  Bank  v.  First 
Nat.  Bank,  753 

Illinois  Trust  &  Sav.  Bank  v.  Smith, 
622 

Imboden  v.  Perrie,  666 

Importers  &  Traders'  Bank  v.  Everett, 
620 

Independent  District  v.  Schreiner,  886 

Indiana.  Nat.  Bank  v.  Holtzclaw,  667 

Indianapolis  Rolling  Mill  v.  St.  Louis, 
F.  S.  &  W.  Railroad,  168,  191, 
214,  235 

Indianapolis  &  St.  Louis  Ry.  Co.  v. 
People,  1302 

Indig  v.  National  City  Bank  of  Brook- 
lyn, 687,  692 

Industrial  &  Mining  Guaranty  Co.  v. 
Electrical  Supply  Co.,  1252 

Ingerman  Drainage  Comrs.  v.  State 
ex  rel.,  800 

Ingelhart  v.  Thousand  Island  Co.,  270, 
271 

Ingwersen  v.  Edgecombe,  1110 

Inhabitants  of  Boston  v.  Brazer,  379 

Inhabitants,  etc.,  v.  Weir,  857. 

Inhabitants  of  Brighton  v.  Wilkinson, 
871 

Inhabitants  of  Frankfort  v.  Inhab- 
itants of  Winterport,  56 

Inhabitants  of  Norwich  v.  County 
Comrs.,  871 

Inhabitants  of  Westbrook  v.  Inhab- 
itants of  Decring,  20,  35 

Innerarity  v.  Bank,  571,  583 

Innerarity  v.  Merchants'  Nat.  Bank, 
338 

In  re  A.  D.  St.  Nav.  &  Col.  Co.,  485 


!  AHI.K 


CASES. 


Ixiii 


[The  reference*  are  topaffea:  vol.  I  contahu  pp.  1-7U7;  vol.  II,  pp.  708-1907.] 


In  re  Appeal  of  Des  Moines   Water 

Co.,  !-.".i^ 

In  re  Armstrong,  535 
In  re  AMI 

In  n-  Hul.ia,  etc.,  828,  888 
In   re  Barnard,    I  nited   States   Trust 

Co.  of  New  York  v.  Omaha  &  8t. 

I.e.  uis  Ky.  Co..  1227 
In  r  •  Hritisli  Seamless  Paper  Box  Co., 
328 

1     ipe   Bret.  ,11   Co.,  299 

In  re  Cardiff  Savings  l'.ank.  Davies' 

Case,  i-.':; 
In  re  Certain  Stockholders  of  the  Cali- 

fornia Nat    Bank  of  San  Diego, 

In  re  Commissioners  of  Central  Park, 

::.; 

In  re  Cork  &  Y.  Ry.  Co.,  497,  1059 

In  re  Denham  &  ('!».,  347 

In  re  Klwes.  r,>7.-> 

In  re  Empire  City  Bank,  757 

In  re  Kno.  775 

In  re  European  Bank,  338,  570,  583 

In  re  Forest  of  Dean  Coal  Mining  Co., 

347 

In  re  German  Mining  Co.,  153,  365 
In  re  Hallett's  Estate,  626 
In  re  Herman,  716  » 
In  re   Home  Provident  Safety  Fund 

Assn.,  1129 

In  re  .lames'  Estate,  811 
In  re  Johnson,  1145 
In  re  Land  Allotment  Co.,  420 
In  re  I.e  Blanc.  817 
In  re  Lchigh  Co.'s  Estate,  1112 
In  re  Lewis,  1123 
In  re  London  &  Birmingham  R.  R. 

Co.,  365 

In  re  Louisiana  Savings  Bank,  598 
In  re  Marseilles  Ex  tension  Ry.  Co.,  570 
In  re  Mast,  Buford  &  Burwell  Co., 

1187 

In  r-  Middle  Dist.  Bank,  712 
In  re  Millward  (Mill  Cracker  Co.,  809 
In  re  Minnclmlia  Driving  Park  Assn., 


In  re  Mohawk  &  II.  R.  Co.,  157 

In  re  National,  etc.,  Stx'icty,  497 

In  re  New   Mashonaland  Exploration 

Co.,  422 
In  re  North    Australian  Territory  Co. 

(Archer's  Case).  298,  428 
In  re  North  River  Bank,  628,  626 
In  re  Patent  File  Co.,  98 
In  re    Pendleton   Hardware  &  Imp. 

Co..  1  .Vi 

In  re  Petition  of  Powers,  129 
In  re  Pyle  Works,  246 
In  re  Reciprocity  Bank,  771 
In    re     Rochester.      Hornellsville    & 

Lacka  wanna  R.  R.  Co.,  820 


In  re  Seln>-<l  Directors,  188 

In  re  Seattle.  L.  S.  t«c  E.  Ry.  Co., 
Grievance  Commiiti  e  of  Brother- 
hood of  Kail  u  ay  Trainmen  Lodge 

x...  I'.M;  v.  Brown,  1209 

In  re  Seven  Corners  Hank 

In  re   South    Mountain    Consolidated 

Mining  Co..  7.V, 
InrcTallassee  Mf-r.  Co..  .vj:! 
In  re  The  Independent  Assurance  Co., 

1157 
In  re  The  Liverpool  Household  Stores 

Assn.,  ll'.i 
In  re  Washington    Diamond   Mining 

Co,  .l-.'o 
In  re  Western  &  Marine  Kin-  Ins  Co., 

.-)(iit 
In   re  Westmoreland   Green   &   Blue 

Slate  Co.,  421 
In  re  Wet  more,  881 
I.  N.  &  8.  Ry.  Co.  v.  City  of  Attica, 

951 

Insurance  Co.  v.  Cappellar,  1306 
Insurance  Company  v.  Lott,  1807 
Insurance  Company  v.  Oakley,  170 
Intendant,  etc.,  of  Livingston  v.  Pip- 
pin, 29,  445 

Intendant  of  Marion  v.  Chandler,  48 
International  Bank  v.  Ferris,  696 
International  Bank  v.  3erman  Bank, 

630 
International  Bank  v.  Jones,  638,  647, 

G61 
International  &  Great  Northern  R.  R. 

Co.  v.  State,  1283 
International  &  Gt.    Northern  R.  R. 

Co.  v.  Wentworth,  1204 
Investment  Co.  of  Philadelphia  v.  Ohio 

&  N.  W.    Ry.    Co.,   1185,    1204, 

1234 

Iowa  City  Nat.  Bank  v.  McCord,  619 
Iowa  Lumber  Co.  v.  Foster,  75 
Iowa  State  Sav.  Bank  v.  Black,  585 
Iron  Company  v.  Drexel,  164 
Iron  Works  v.  Grave,  259 
Irving  Bank  v.  Wetherald,  653 
Irwin  v.  Bailey,  191 
Irwin  v.  McKechnie,  1225 
Ives  v.  Smith,  1016 
Ivory  v.  Bank  of  Missouri,  656,  697 

J. 

Jackson  v.  Brown,  101,  1055 

Jackson  v.  Campl>elt,  181 

Jackson  v.  Cartwrigbt  Lumber  Co., 

203 

Jackson  v.  Hathaway,  1101 
Jackson  v.  Ludeling,  244,  826,  1108 
Jackson  v.  Market  Company,  INI 
Jackson   v.   Newark   Plaukroad  Co., 

816 


Ixiv 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 


Jackson  v.  Newton,  641 

Jackson  v.  New  York  Central  R.  R. 

Co.,  308 

Jackson  v.  Traer,  166,  1033 
Jackson  County  v.  Brush,  59,  918 
Jackson  Insurance  Co.  v.  Cross,  602, 

603 
Jackson  School  Township  v.  Farlow, 

800 
Jacksonville,  N.  W.  &  8.  E.  R.  R.  Co. 

v.  Vfrden,  904,  971 
Jacksonville,    T.    &    K.    W.    R.    R. 

Co.  v.  American  Construction  Co., 

1184 

Jacobs  v.  Knapp,  1250 
Jacobsohn  v.  Belmont,  688 
Jaffray  v.  Matthews,  1114 
Jagger  v.  National  German-American 

Bank  of  St.  Paul,  682 
James  v.  Rogers,  743 
Jansen  v.  Ofcto  Steitz  New  York  Glass 

Letter  Co.,  209 

Janvrin  v.  Town  of  Exeter,  125 
Jarrolt  v.  Moberly,  968 
Jarvis  v.  Manhattan  Beach  Co.,  334 
Jarvis  v.  Wilson,  655 
Jassoy  v.  Horn,  600,  603 
Jeffepson  Countv  v.  Single,  132 
Jelliff  v.  Newark,  1270 
Jemison  v.  Citizens'  Savings  Bank  of 

Jefferson,  Texas,  466.  467 
Jenkins  v.  Hutchinson,  368 
Jenkins  v.  Walter,  629 
Jenks  v.  Chicago,  59 
Jennings  v.  Coal  Ridge  Improvement 

Co.,  1291 
Jermain  v.  Lake  Shore  &  Mich.  So. 

Ry.,  816 

Jersey  City  v.  Howeth.  1269 
Jesup  v.  City  Bank  of  Racine,  1073 
Jesup  v.   Illinois  Central  R.  R.   Co., 

245,  307,  1053 
Jesup  v.  Wabash,  St.  Louis  &  Pac. 

Ry.  Co.,  1173 
Jhons  v.  People,  144 
John  v.  C.  R.  &  F.  W.  R.  R.  Co.,  49, 

870 

Johnson  v.  Bush,  180 
Johnson  v.  County  of  Stark,  49,  899, 

901,  905,  929,  944,  945,  953,  964, 

978,  1004 

Johnson  v.  Farmers'  Bank,  600 
Johnson   v    First  Nat.  Bank  of  Ho- 

boken,  672 

Johnson  v.  Fisher,  388 
Johnson  v.  Goslett,  294 
Johnson  v.  Kessler,  900,  907 
Johnson  v.  Laflin,  762 
Johnson  v.  Monell,  624 
Johnson  v.  School  District,  40 
Johnson  v.  Smith,  235 
Johnson  v.  Switch  Company,  151 


Johnson  v.  Ward,  649 

Johnston  v.  Bank,  604 

Johnston  v.  County  of  Becker,  428 

Johnston  v.  Craw  ley,  143 

Johnston  v.  Shortridge,  583 

Johnston    v.    Building    Association, 

154 
Joint  Stock  Discount  Co.   v.  Brown, 

347.  352 
Joliet  Electric  Light  &  Power  Co.  v. 

Ingalls,  201 
Joliff  v.  Newark,  1270 
Jones  v.  City  of  Cincinnati,  19 
Jones  v.  A  very,  203 
Jones  v.  Barlow,  390,  394 
Jones  v.  Garcia  Del  Rio,  294 
Jones  v.  Glover,  1146 
Jones  v.  Green,  1142 
Jones  v.  Guaranty  &  Indemnity  Co.. 

1057 

Jones  v.  Guaranty,  etc.,  Co.,  97 
Jones  v.  Hawkins,  188 
Jones  v.  Milton,  etc.,  Co.,  144 
Jones  v.  Morrison,  566 
Jones  v.  Pacific  Woolen  Co.,  665 
Jones  v.  Pearl  Mining  Company,  1123 
Jones    v.    Pendleton    County  Court, 

127 

Jones  v.  Robinson,  1146 
Jones  v.  Town  of  Lake  View,  1269 
Jones  v.  Trustees  Florence  Wesleyan 

University,  144 
Jones,  McDowell  &  Co.  v.  Arkansas 

Mechanical   &  Agricultural    Co., 

1108 
Jones    Mfg.    Co.    v.    Commonwealth, 

1292 
Jones,  Treasurer,  v.  Rushville  Natural 

Gas  Co.,  1272 
Jonesboro'  City  v.  Railroad  Company, 

940 

Jordon  v.  Bank,  721 
Jordon  v.  Long  Island  Railroad  Co., 

155,  234,  239 
Jordan  v.  Nat.  Shoe  &  Leather  Bank, 

641 

Jordan  v.  Osceola  County,  124 
Jourdaine  v.  Leprone,  701 
Joy  v.  Manion,  157 
Joy  v.  Plank  Road  Co.,  209 
Judson  v.  City  of  Bessemer,  952 
Judson  v.  Rossie  Galena  Co.,  1141 
Judy   v.  Farmers  &  Traders'   Bank, 

639 

Junction  Railroad  Co.  v.  Bank  of  Ash- 
land, 1021 

Junction  R.  R.  Co.  v.  Cheneay,  1014 
Juniata  Township  v.  Reamer,  136 
Just  v.  Wise  Township,  971 
Justine  v.  City  of  Logansport,  59 
J.  W.   Butler  Paper  Co.  v.  Jeffery, 

295,  1115, 1141 


TAUl.K  OF  CASES. 


K 


[The  reference*  are  to  page*:  vol.  I  contains  pp.  1-707;  rol.  II,  pp.  708-1907.] 


K. 

Kadish  v.  Garden  City  Eq.  Loan  & 
Bdg.  Assn.,  470,  495 

Kaiser  v.  Savings  Bank,  :J71 

Kul;iinu7.(x)  K.  Nov.  Mfg.  Co.  v. 
McAlMer,  l.-i2,  217 

Kalamii/.  >o  Spring  &  Axle  Co.  v.  Wi- 
ii'.ns,  Pratt  A:  Co.,  1117 

Kane  v  Independent  School  District 
of  Rock  Rapid*,  67,  886 

Kansas  Mut.  Life  Assn.  v.  Hill,  Treas- 
urer, etc  ,  l:l'»7 

Kansas  Valley  Nat.  Bank  v.  Rowell, 
509 

Katcnherger  v.  City  of  Aberdeen,  17, 

m 

Kean  v.  Davis,  288,  359 

Kean  v.  Johnson 

Keen  v.  Bceknmn.  t!34 

Keene  v.  Collier,  634 

Keeney  v.  Converse-.  Cfil 

Keenev  v.  Jersey  City,  114 

Keitbfiburg  v.  Frirk.  970,  976 

Kelley  v.  city  of  Milwaukee,  19,  42 

Kelley  v.  I.indsey,  13:1 

Kellev  v.  Mayor,  etc.,  of  Brooklyn, 
20 

Kelley  v.  Newburyport  Horse  Rail- 
road, 238 

Keliey  v.  Town  of  Milan,  17,  872,  886 

Kelly  v.  Boyhan,  1082 

Kelly  v.  Fall  Brook  Coal  Co.,  152 

Kelly  v.  McCormick,  990 

Kelly  v.  Mobile  Building  &  Loan 
Assn.,  454 

Kelly  v.  Trustees  of  Ala.  &  Cin.  R.  R. 
Co.,  93.  1013,  1096 

Kelsey  v.  National  Bank,  236,  490 

KeUy  v.  Serpent,  248,  250,  278 

IV.   Teale,    1H 

Kelty  v.  Seeond  Nat.  Bank.  648 
Kendall  v.  Bishop.  20»,  1115 
Kendig  v.  Dean,  811 
Kenieott  v.  Supervisors,  916,  930,  956 
Kennard  v.  C:i-<  ('mini  v     ln|s 
Kennebec  &  Portland  "R.    R.    Co.  v. 

Portland  &  KenueU-c  R.   R.  Co., 

in:,.-i.  ID?:! 
Kennedy  v.  California  Sav.  Bank,  J7u, 

:.!.;,  519 
Kennedy    v.    Gibson,    554,    558,   715, 

772 

Kennedy  v.  Green,  888,  570 
Kent  v.'Brickmaking  Co..  298 
Kent  v.  Iron  Co..  1!«".   1162 
Kent  v.  Quicksilver  Minim;  Company, 

92,  94.  458.  482,  486 
Kenton    Insurance  Co.    v.  Bowman, 

210 
Kenton  Ins.  Co.  v.  City  of  Covington, 

1806 

ix 


Kentucky  Central    I!     II    Co.  v.  Com- 
monwealth,  I 
Kentucky  Cent  nil  R.  R.  Co.  v.  Counlv 

of  Pendleton,    IIHK) 
Kentucky    Flour    Co.'s    Assignee    v. 

Mcn-hanK  Nvt.  Bank,  1146 
Kent'ieky  1'nion  R.  Co.  v.   County  of 

Bourbon,  906.907,  931 
Kentucky.  W.  &   M.    L.  S.  R.  R.  Co. 

v.  Clark  County  Court.  46 
Keokuk  Xortlu  rn  Line  Packet  Co.  v. 

Davidson 

Keokuk  ct  Western  R.  R.  Co.  v.  Mis- 
souri. 1282 

Kerrison  v.  Stewart.  1158 
Ketchuin    v.   City  of  Buffalo,   20,  24, 

32 
Ketchum  v.  Duncan,  171,  1048,  1047, 

1256 
Kettlewell  v.  Watson,  888 

A*-ociiition,  495 
Keyser  v.  Hit*,  758,  771 
Kickland  v  Menashu  Wooden  Ware 

Co..  W4 

Kiichli  v.  C'ity  of  Minneapolis,  428 
Kilborne  v.  Lyman,  1118 
Kilbourne   v.  Supervisors  of  Sullivan 

County,  995,  9M8 
Kiley  v.  Forsee,  145,  184 
Killinsrsworth  v.  Commercial  Bank  of 

Rodney.  330 
Kilsby  v.  AVilliams,  601 
Kilvinston    v.   City  of  Superior,  41, 

485 

Kimhall  v.  Cleveland.  209,  573 
Kimball  v.  Donam,  664 
Kimball  v.  Goodburn,  218 
Kimball  v.  Norton,  617 
Kimball  v.  School  Dist.  No.  4.  888 
Kimbnll  v.  Town  of  Lakeland,  941 
Kimmel  v.  Dickson,  621 
Kinder  v.  Shaw,  539 
King  v.  Egginton,  626 
King  v.  Howard.  1152 
King  v.  Insurance  Company,  1129 
King"  v.   Paterson    &  Hudson   River 

Railroad,  816 

King  v.  Union  Iron  Co. ,  381 
Kingmim  v.  Perkins.  665 
Kinirsbury  v.  School  District,  111 
Kinkier  v.  Junini.  •>* 
Kinnie  v.  O'ty  of  Waverly,  60 
Kinyon  v.  Stanton,  646 
Kirk  v.  Bell,  217 
Kirkland  v.  Killc.  :503,  395 
Kirkpatrick   v.  I'enrosc  Ferry  Bridg«> 

Co.,  279 

tn  v.  Anderson,  592 
Kitchen  v.    Branch   Bank  at   Mobile. 

528 

Kitchen   v.    Cape  Cirardcau   &   State 
Line  R.  R.  Co.,  7:> 


Ixvi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-70T;  vol.  II,  pp.  708-1S07.] 


Kitchen  v.    St.    Lous,   etc.,  Railway 

Co.,  233,  241,  283,  285,  286,  1084, 

1114 

Klauber  v.  Biggerstaff,  628 
Kleekamp  v.  Meyer.  660 
Klen  v.  K.  II.  Steel  Co.,  1124 
Klcise  v.  Galush-v,  975 
Klemme  v.  McClay,  174 
Kline  v.  Bank  of  tescott.  362 
Knatchbull  v.  Hallett,  731,  732,  742, 

751 
Knecht  v.  United  States  Savings  Inst., 

597 
Kneeland  v.  American  Loan  &  Trust 

Co.,  1172,  1202,  1218,  1220,  1239, 

1240 
Kneeland  v.  Foundry,    etc.,   Works, 

1220 

Kneeland  v.  Lawrence,  1037 
Knight  v.  Fisher,  721 
Knight  v.  Lanir,  98,  150,  218 
Knott  v.  Venable,  702 
Knower  v.  Haines,  387 
Knowles  v.  Duffy,  263 
Knox  v.  Baldwin,  398,  399,  402 
Knox  v.  Bank  of  United  States.  530 
Knox  County  v.  Aspinwall,  858 
Knox  County  v.  Ninth  Rational  Bank, 

914,  957 
Koch  v.  Nat.    Union  Building  Assn., 

151,  194 
Koehler  v.  Black  River  Falls  Iron  Co., 


LaFayette,   M.    &  B.   R.  R.   Co.    v. 

Geiger,  17.  870 
La  Fayette  Savings  Bank  v.  St.  Louis, 

etc.,  Co..  78 
La  Fayette  Savings  Bank  v.  Stoneware 

Co.,  362 

Laforge  v.  Ma  gee,  118 
La  Grange  Butter  Tub  Co.  v.  National 

Bank  of  Commerce,  1114,  1118 
Laing  v.  Burley,  757 
Lake    County     v.    Graham,    40,  832, 

835,  836,  839,  872,  897,  927,  972 
Lake  County  v.  Rollins,  40,  839.  927 
Lake  Erie  &  Western  R.  R.  Co.  v. 

Indianapolis  Nat.  Bank,  1146 
Lake  Shore  Banking  Co.   v.  Fuller, 

1115 
Lake  Shore  &  Mich.  So.  Ry.  Co.  v. 

Chicago,  59 
Lake  Shore  &  Michigan  Southern  Ry. 

Co.    v.    City    of    Grand    Rapids, 

1306 
Lake   Superior    Iron  Co.    v.   Brown, 

Bonnell  &  Co..  1168 
Lake  Superior  Iron  Co.  v.  Drexel,  412, 

455 
Larkin  v.  Willamette  Valley,  etc.,  R. 

R.  Co.,  465 
Lamar  Water  &  Electric  Light  Co.  v. 

City  of  Lamar,  438 
Lamb  v.  Cecil,  576 
Lamb,  Trustee,  v.  Laughlin,  1108 


254,  258,  275,   282,  283,  301,  807,  I  Lamprell  v.  Billericay. 


1025,  1108 
Koetting  v.  State,  1146 
Koontz  v.  Bank,  1213 
Koppikus  v.  State  Capitol  Comrs.,  68 
Korn  v.  Mut.  Soc.,  90 
Koshkonong  v.  Burton,  946 
Kountze  v.  Hotel  Company,  1186 
Kraft  v.  Coykendall,  394 
Kramrath  v.  City  of  Albany,  113 
Kreiijer  v.  Railroad  Company,  946 
Kritner  v.  Woodson,  389 
Kuhu  v.  Bank,  657 

Kuntz  v.  Sumption.  Treasurer,    1272 
Kupfer  v.  Bank  of  Galena,  598,  699 
Kyle  v.  Malin,  5,  20 

L. 

Laborde  v.  Consolidated  Assn.,  671 
Lacey  v.  Central  Nat.  Bank,  511 
Laclede  Bank  v.  Schuler,  662.  664 
Ladies'  United  Aid  Society  (Methodist 

Home)  v.  Philadelphia,  1266 
La  Dow  v.  First  Nat.  Bank  of  New 

London,  530 

Lady  well  Mining  Co.  v.  Brooks.  299 
La  Fayette  Bank  v.  McLaughlin,  690 
La  Fayette.  B.  &  M.  Ry.  Co.  v.  Chee- 

ney,  270 


Lancaster  Bank  v.    Woodward,   5fi:>, 

650 
Lancaster  County  v.  Cheraw  &  C.   R. 

R.  Co.,  210 
Lancaster  County  Nat.  Bank  v.  Smith, 

636 

Land  Company  v.  Sloan.  154 
Land  Credit  Co.  of  Ireland  v.   Lord 

Fermoy,  554 
Lander  v.  Castro,  350 
Landers  v.   Frank    Street  Methodist 

Epis.  Church  of  Rochester,  152 
Land  Grant  Ry.  &  Trust  Co.  v.  Davis 

County,  918 
Landis  v.  *  West  Pennsylvania  R.  R. 

Co.,  1037 
Lane  v.  Bank  of  West  Tennessee,  550, 

570 

Langan  v.  Francklyn,  263 
Langdon   v.  Town  of  Castleton,    60, 

138 

Langhorne  v.  Robinson,  1264 
Langston  v.  South  Carolina  R.  R.  Co., 

^1014,  1047 
Lanham  v.  First  Nat.  Bank  of  Crete, 

535 

Lansing  v.  Lytle,  1002 
Laredo  v.  McDonnell,  64 
Laredo  v.  Martin,  64 


TAIU.i:  «iK  (ASKS. 


Ixvii 


[The  referenceM  are  to  pagti<:  rol.  I  contain*  pp.  1-7O7;  rol.  U,  pp.  708-1807.) 


La  Salle  Nat.   Bank  v.  Tolu   Hock  & 

K}' 

Lasher  v.  Stimson,  354 
Lessen  County  v.  Shinn,  57 
Laulmch  v.  Leibert,  642 
Laughlin  v.  braley,  1095 
Lavt'tistein  v.  City  of  Fond  du  Lac, 

Law  v.  Cross,  169 

Law  v.  People,  4,  40,  66 

Lawless  v.  Reese,  445 

Lawn-lie.-  v.  Gebhard,  152,  167,  172 
Ijiwrencr  v.  .Morgan's  La.  &  Tex.  It. 

R.  A:  Steamship  Co.,  1176 
Lawrence  v.  Schmidt,  648 
Lawn-nee  v.  Stonington  Bank,  701 
Lawrence  v.  Trailer,  1271 
biwn  nee  v.  Tucker.  10.X 
Lawrence   Iron  Works  Co.   v.    Rock- 

brid sfc  Company,  11 24 
Lawrenceville  Cement  Co.  v.  Parker, 

466 

Lawson  v.  Hunk,  W3.  694 
Law  son  v.  Richards,  657 
I^iy  v    Austin,  206 
Liivbouni  v.  Seymour,  1130 
Lazarus,  Use  rf,  v.  Shearer,  192,  359 
Lazenr  v.  Nat.  Union  Bank  of  Mary- 
land, 512,  515.  529 
La/ier  v.  Horan,  689,  690 
I.     .-h  v.  Hal-.  506,  635 
Leachman  v.  Dougherty,  1271 
Leather  Manufacturers'  Bank  v.  Mor- 
gan, 602.  606,  675 
Leavenworth  v.  Norton,  27 
Leavenworth  County  v.  Brewer.  126 
Leavenworth     County     v.     Chicago, 

Rock  Island,  etc.,  Ry.  Co.,  1172 
Leavenworth  County  v.  Keller,  126 
Leavenworth  County  v.  Miller,  844 
Leavenworth,   L.   &   G.   Ry.   Co.   v. 

Douglas  County,  919 
Leavitt  \.  BUtchfora,  85 
I.eavitt  v.  Connecticut  Peat  Company, 

itt 

Leavitt  v.  Palmer,  469 

I.eavitt  v.  Simes,  602 

Lcavitt  v.  Stanton.  • 

I.eilwich  v.  .McKiiu.  857 

Lee  v.  Board,  etc.,  of  Ionia  County, 

128 

Lee  v.  Neuchatel  Asphaltc  Co.,  813 
Lee  v.  Pittsburg  Coal  &  Mining  Com- 
pany, 154,  181 
I    •   v.  Smith,  575.  579 
Lee  v.  Trustees  of  Flemington,  43 
l.'-e  County  v.  Rogers,  897,  949 
Lee  County  v.  State  ex  rel.,  801 
Leeds  v.  City  of  Richmond,  42 
Lcekins  v.  Nordyke  &  Marmon  Com- 
pany, 152 
Leffman  v.  Flanigan.  306,563 


I^ftley  v.  Mills,  641 
Leggett  v    Rink  of  Sing  Sing.  526 
Leggett  v.  New  Jersey  Manufg.  Com- 
pany. 193,  199 
Le  Grand    v.    Manhattan  Mercantile 

Assn..  73.  92 
Lehigh  Coal  A:  Navi -ration  Co.  v.  Ccn- 

tnil  Railroad,  1207 
Leighton  v.  Camplx-ll.  414 
Leloup  v.  Mobile,  1  •.'»;:.  1293 
Leo  v.  Union  Pac.   Railway  Co.,  102, 

:n:{.  1024 

Leon  County  v..  Vann,  114 
Leonard  v.  A.  Ins.  Co.,  466 
Leonard    v.    Burlington    Mut.    Loan 

Assn.,  201 

Leonard  v.  City  of  Canton,  4,  441 
Leonard  v.  Long  Island  City,  89 
I.e  I  Joy  v.  Globe  Ins.  Co..  817 
Leslie  v.  Lori  Hard.  183,  407,  500 
Lester  v.  Bank  of  Mobile.  528 
Lester  v.  Webb.  219,  227 
Levey  v.  New  York  Central  &  H.  R. 

R.  R.  Co.,  151 
Levi  v.  Bank,  750 
Levy  v.  Bank  of  the  United  States, 

595,  1213 
Levy  v.  Mutual  Benefit  Life  &  Fire 

'Ins.  Co.,  89 
Levy  v   Peters,  657 
Levy  v.  U.  S.  Bank,  600 
Lewis  v.  Barbour  County  Comrs.,  Ill 
Lewis   v.    Board,    etc.,  of    Sherman 

County,  15 
Lewis  v.  Bourbon  County,  826,  900, 

905,  941 

Lewis  v.  Comanche  County,  5,  844 
Lewis  v.  Commissioners,  844 
Ixj wis  v.  Freeholders  of  Hudson,  62 
Lewis  v.  Hartford  Silk  Manufg.  Co., 

189 

Lewis  v.  International  Bank   647 
Lewis  v.  Jeffries,  1088 
Lewis  v.  Lyons,  1060 
Lewis  v.  Madocks,  742 
Lewis  v.  Montgomery,  404,  40 
Lewis  v.  Nicholson.  309 
Lewis  v.  Park  Bank.  599 
Lewis  v.  Pima  County,  948 
Lewis  v.  Planters'  Bank,  688 
Lewis    v.    St.    Albans  Iron   &  Steel 

Works,  347 

Lewis  v.  Traders'  Bank,  665 
Lewis  v.  United  States,  729 
Lewis  v.  Vicksburg  «k  Meridian  R.  R. 

( '-. ..  1233 

Lewis,  Admr.   v.  Glenn,  Trustee,  11:57 
Lexington  v.  Butler,  IH:;T 
Libby  v.   Union  National  Bank,    198, 

512 
Laebfritz  v.    Dubuque    St.   Rv.   Co., 

235 


Ixviii 


TABLK  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Life  &  Fire  Ins.  Co.  v.  Mechanic  Fire 
Ins.  Co.,  75,  98.  102,  150,  182,  439 
Lightner  v.  City  of  Peoria,  1268 
Lilly  v.  Miller,  657 
Lime   City  B.,  L.    &  Sav.    Assn.    v. 

Black,  1123 
Lincoln   v.   Sun   Vapor  Street  Light 

Co.,  861 

Lincoln  B.  &  L.  Assn.  v.  llass,  1095 
Lincoln  County  v.  Luming,  845,  846, 

847 
Lincoln  County  Court  v.  United  States, 

847 
Lincoln   Township   v.    Cambria    Iron 

Company,  948 
Linden  v.  Case,  118 
Lindley  v.  Bank,  655 
Lindsley  v.  McClelland,  628 
Lingle  v.  National  Ins.  Co.,  271 
Linn  v.  Chambersburg  Borough,  1012 
Linthicum  v.  Ray,  1101 
Lionberger  v.  Mayer,  571 
Lionberger  v.  Rouse,  1296 
Lippincott  v.  Carriage  Co.,  246,  254, 

1087 
Lippincott  v.  Town  of  Pana,  876,  904, 

971,  973,  976,  982,  983 
Litchfield  v.  Ballan,  930,  968 
Litchfield  v.  McComber,  871 
Litchfield  v.  White,  364 
Little  v.  Chadwick,  752 
Little  v.  City  of  Rochester,  42 
Little  v.  Kerr,  156 
Little   Rock   v.    Merchants'   National 

Bank,  1004 
Little  Rock  &  Fort  Smith  Ry.  Co.  v. 

Huntington,  1104 
Little  Rock  &  Fort  Smith  Railway  v. 

Worthen,  1282 
Little  Warrior  Coal  Co.  v.    Hooper, 

1123 
Liverpool  &  Great  Western  Steam  Co., 

v.  Phoenix  Ins.  Co.,  473 
Live  Stock  Assn.   of  New   York  v. 

Levy,  502 

Livingston  v.  Hollenbeck,  121 
Livingston  v.  Lynch,  325 
Livingston  County  v.  First  Nat.  Bank 
of  Portsmouth,  920,  935,  941,  965 
Livingston  County  v.  Weider,  852 
Lloyd  v.  City,  955 
Lloyd  v.  McCaffrey,  664 
Loan  Association  v.  Stonemetz,  279 
Loan  Association  v.  Topeka,  43,  44 
Locke  v.  Davisou,  13,  16 
Locke  v.  Merchants'  Nat.  Bank,  686 
Lockhart  v.  Van  Alstyne,  416,  485 
Lockwood    v.    Thunder    Bay    River 

Boom  Co.,  157,  165 
Logan  v.  Earl  of  Courtown,  84 
Logan   County  Bank    v.    Townsend, 
505,  543 


Lohman  v.  New  York  &  Erie  R.  R. 

Co.,  154 
Long  v.  Court,  1123 
Long  v.  Straus,  600 
Longbottom's  Execrs.  v.  Babcock,  597 
Loomis  v.  Bank,  571 
Lord  v.  Yonkers  Fuel  Co.,  1060 
Lorillard  v.  Clyde,  164 
Lott  v.  Mayor,  etc.,  of  City  of  Way- 
cross,  67 
Loudenslager  v.  Bonton,  1055 
Loughlin  v.  Marshall,  627 
Louisiana  v.  New  Orleans,  37 
Louisiana  v.  Wood,  787,  855,  860,  925 
Louisiana  State  Bank  v.  Orleans  Nav- 
igation Company,  78,  100 
Louisiana  State  Bank  v.  Senecal,  571, 

583 
Louisville   City  Ry.  Co.   v.   City  of 

Louisvillfi,  29 
Louisville,   etc.,  R.  R.  Co.  v.  County 

Court,  48 

Louisville,  etc.,  R.  R.  Co.  v.  David- 
son, 49 
Louisville  &  Nashville  R.  R.  Co.  v. 

Commonwealth,  1282,  1302,  1304 
Louisville  <fe  N.  R.  R.  Co.  v.  Count? 

Court,  etc.,  48,  901 
Louisville  &  Nashville  R.   R.  Co.  v. 

Hopkins  County,  1300 
Louisville  &  N.  R.  R.  Co.  v.  Literary 

Society  of  St.  Rose,  82 
Louisville  &  Nashville  R.  R.  Co.  v. 

Palmes,  1282 
Louisville  &  Nashville  R.   R.  Co.  v. 

Trustees  School  District  No.  108, 

1263 
Louisville,    New  Albany  &  Chicago 

Ry.'  Co.  v.  Carsin,  233 
Louisville,  N.  A.  &  Chic.  Ry.  Co.  v. 

Flanagan,  455 
Louisville,  N.  A.  &  O.  R.  Co.  v.  Ohio 

Valley   Improvement    &    Constr. 

Co.,  1050 

Love  v.  Mining  Co.,  807 
Loveland  v.  Doran  &  Wright  Co.,  402 
Loveland  v.  Garner,  384 
Lovingston  v.  Wider,  1005,  1006 
Low  v.  Buchanan,  403 
Low  v.  California  Pac.  R.  R.  Co.,  78, 

1052 
Low  v.    Connecticut    &    Passumpsic 

Railroad,  198 
Low  v.  Mayor,  etc.,  of  Marysville,  26, 

43 

Lowber  v.  Mayor,  etc.,  69 
Lowell  v.  City  of  Boston,  44,  917 
Lowell   Five  Cents  Savings  Bank  v. 

Inhabitants  of   Winchester,    133, 

445 
Lowene  v.  American  Insurance  Co., 

817 


TABLE  OF  CASES. 


Ixix 


[The  references  are  to  pages:  vol.  I  contain*  pp.  1-707;  vol.  II.  pp.  708-1807.  ] 


Lowry  v.  Bunk,  539 

Lowry  v.  Polk  County,  634 

Lowry,  Trustee,  etc.,  v.  Phila.  Optical 

A.:  \Vatcb  Co.,  llir, 
Lucas  v.  DOWIUT.  713 
LU-MS  v.  Pitney,  8.  91,  96.  102 
Lucas  County  V.  Hunt.  -1 II 
Lucas   v.    White    Line   Transfer  Co., 

468,  470.  4«9.  490 
Ludlnw  v.  Hur.1.  in."!,  1096 
Luiulx T\  ille  Delaware  Bridge  Co.  v. 

St  ite    Board   of   Assessors,    1293, 

UN6 
Luse  v.  Isthmus  Transit  Ry.  Co.,  99, 

150,  1673 

Luzardcr  v.  Sarceant,  880 
Lyceum  v.  Kills.  1007 
Lyddy  v.  Ix>ng  Isl  .nd  City,  821 
l.y.'ll  v.  Saniiourn,   l.VJ 
Lyman  v.  Bonney,  306 
Lvman    v.   Northern    Pac.    Elevator 

Co.,  11  H 
Lynch   v.  First  Nat.   Bank  of  Jersey 

City,  653 
Lynde  v.  Columbus,  C.  &  I.  C.  Ry. 

Co.,  1161 

Lynde  v.  The  County,  832,  920,  921 
Lvmle   v.    Winnebago    County,   W7, 

941,  982 

Lyndeborough   Glass   Co.   v.   Massa- 
chusetts (Mass  Co.,  9,  238 
Lyndon  Mill  Co.  v.  Lyndon  Literary 

&  Biblical  Inst..  172,  182 
Lyng  v.  Michigan,  1267,  1293 
Lyon  v.  New  York,  S,  &  "W.  R.  R. 

Co..  1048 

Lyon  v.  State  Bank,  530 
Lyons-Thomas  Hardware  Co.  v.  Perry 

Stove  Manufg.  Co.,  1114,  1117 
Lytle  v.  Lansing,  1002 

M. 

Mass  v.  Missouri,  Kansas  &  Tex.  Ry. 

Co.,  1043 

Mann  v.  Second  Nat.  Bank,  601 
McAleer  v.  MrMurrav,  250 
HcAllen  v.  Woodcock,  271 
McAllister  v.  Plant.  1054,  1096 
McBec  v.  Central  Trust  Co.  of  New 

York,  1U7.  1148 
McBlair  v.  Gibbes,  269 
McBniin  v.  Grand  Rapids,  114 
McCahc  v.  Board  of  Comre.  of  Foun- 
tain County,  121 
MeCall  v.  California.  1267 
McCallie  v.  Mayor,  etc.,  964 
McCaim  v.  First  Nat.  Bank,  519 
McCaslin  v.  State,  446 
McCarty  v.  Roots,  95 
McClave  v.  Thompson,  402 
McClelland  v.  Reynolds,  359 


McCloskey  v.  City  of  Albany,  114 
McClure   v.  Board  of  Comn.  of   La 

Plata  County,  376 
McClure  v  Levy,  262 
McCl'irc  \  Ox  ford  Township,  71,  446, 

836.  892.  897 
McComb  v.  Barcelona  Apartment  As 

social  ion.  -Jim,  1048 
.McConnell  v.  Hainin.  851 
McConville  v.  (iilmour,  720 
McCormick  v.  Bay  City,  112 
McCoy  v.  Briant,  444 
McCoy  v.  Washington  County,  1048 
MeCracken  v.  Citv  of  San  Francisco, 

li:t.  939 

McCracUen  v.  Hobison,  263 
McCrary  v.  Chambers.  818 
McCrory  v.  Junction  R.  R.  Co.,  471 
HcCulloogfa  v.  Moss,  78,  9<>,  i.v.1 
McCul lough  v.  Talladega  Ins.  Co.,  98 
McCunly's  Appeal,  1055,  1093 
McDermott  v.  Bank.  572 
McDonald  v.  Chisholm,  203 
McDonald  v.  Houghton,  258 
McDonald    v.    Mayor,    114,   443,   444, 

445 

McDonough  v.  Temnleman.  14-"i 
McDowell  v.  Bank  of  Wilmington,  525, 

637,  642 

McDowell    v.    Rutherford    Ry.    Con- 
struction Company,  906 
McElhenny's  Appeal,  298,  299 
McElrath  v.  Pittsburg  &  Steubcnville 

R.  R.  Co.,  1038 

McElroy  v.  Nucleus  Association,  1074 
McEwen  v.  Davis,  610,  638.  640 
McGargcll  v.  Hazleton  Coal  Company, 

161 

McGarrahan  v.  Mining  Co. ,  857 
McGcorge  v.  Big  Stone  Gap  Improve- 
ment Co.,  88,  303.  304,  1123 
McGhee  v.  Claridy,  1232 
McGourkey  v.  Toledo  &  Ohio  Central 

Ry.  Co.,  243 

McGrade  v.  German  Sav.  Inst.,  660 
McGregor  v.  Covington  &  Lexington 

R.  R.  Co.,  1021 
McGregor  v.  Deal  &  Dover  Ry.  Co., 

95,"  450,  491 

McGregor  v.  Loomis,  597.  697 
McGregor's  Excere.  v.  Vaupel.  1298 
McGugin  v.  Railroad  Company,  1250 
Mell.-irg  v.  Eastman,  898 
M.  Henry  v.  Hazard.  992 
McllenrV  v.  Railroad  Co.,  816 
Mcllhen'ny  v.  Binz,  1098,  1172,  1241 
Mclndoe  v.  St.  Louis,  498 
Mclntirc  v.  Blakrley,  608 
Mclntire  v.  Pembroke,  185 
Mclntirc  v.  Preston,  106,  206 
Molntosh  v.  Tvler,  648 
McKay's  Case,  259,  800 


Ixx 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


McKeag  v.  Collins,  193 
McKeesport  District  v.  Miller,  139 
McKenzie  v.  Woolcy,  900,  907 
McKiernan  v.  Leuzen,  98,  173 
McKim  v.  Odom,  110 
McKinster  v.  Bank  of  Utica,  581 
McKleroy  v.  Southern  Bank  of  Ken- 
tucky, 670 

McLain  v.  Wallace,  609,  684,  710 
Me  Lane,    Trustee,    v.    Plaeerville  & 
Sacramento  Valley  R.  R.  Co.,  97, 
1013,  1053 
McLaughlin  v.   Citizens',  etc.,  Assn., 

870 

McLaughlin  v.  D.  &  W.  R.  R.  Co.,  485 
McLean  v.  Jephson,  1288 
McLean  v.  Pittsburgh  Plate  Glass  Co., 

811 

McLean  County  v.  City  of  Blooming- 
ton,  1268 

McLellan  v.  File  Works.  80 
McLendon  v.  Anson  County,  946 
McLendon  v.  Commissioners,  1048 
McLeod  v.  Evans,  622,  731,  747,  749, 

750,  753 

McMahon  v.  Morrison,  1282 
McManus    v.    Duluth,    Crookston    & 

Northern  R.  R.  Co.,  960 
McMasters  v.  Reed,  1013 
McMurray  v.  Moran,  1183 
McMuirav  v.  Oil  Company,  203 
McNab  v:  McNab  &  Harlin  Mfg.  Co., 

821 

McNeal  v.  Allegheny  Township,  135 
McNeil  v.  Chamber  of  Commerce,  226 
McNeil  v.  Shober  &  Cargueville  Lith. 

Co.,  359 

McNeil  v.  Tenth  National  Bank,  627 
McNeill  v.  Lacey,  246 
McNulta  v.  Lochridge,  1224 
McPherson  v.  Foster,  66,  442,  826 
McTighe  v.  Macon  Construction  Com- 
pany, 1095 

McVeany  v.  Mayor,  798 
McWhorter  v.  People,  792 
M.  T.  Co.  v.  Howe,  46 
Machinists'  Nat.  Bank  v.  Field,  335 
Mackintosh  v.  Eliot  Bank,  668 
Mackintosh  v.  Flint  &  Pere  Marquette 

R.  R.  Co.,  821 

MacNaughton  v.  Osgood,  308 
Macomber  v.  Doane.  665 
Macon  &  Birmingham  R.  R.  Co.  v. 

Gibson,  974 

Macy  v.  City  of  Indianapolis,  19 
Madison  v.  Ross,  144 
Madison  Ave.  Baptist  Church  v.  Bap- 
tist Church  in  Oliver  St.,  234 
Madison  County  v.  Bartlett,  16 
Madison  County  v.  Paxton,  914,  915 
Madison  County  v.  Priestly,   Treas- 
urer, 912 


Madison  County  Court  v.  Richmond, 

Irvine&  T.  F.  R.  R.  Co.,  908 
Madison,    etc.,   Plank    Road    Co.    v. 
Watertown  Plank  Road  Co.,  74. 
80,  453,  459,  468,  471 
Madison,  etc.,  R.  R.  Co.  v.  Norwich 

Sav.  Society,  78 
Madry  v.  Cox,  900 
Magee  v.  Cowperthwaite,  1232 
Magee  v.  Mokelumne  Hill  Coal  &  Min- 
ing Co.,  99,  102 
Magee  v.    Pacific  Improvement  Co., 

470 

Magill  v.  Hinsdale,  339 
Magniac  v.  Thompson,  931 
Magor  v.  Ray,  7,  10,  378,  444,  821, 

1004 

Magruder  v.  Colston,  756 
Mahaiwe  Bank  v.  Peck,  640 
Maher  v.  City  of  Chicago,  65,  164,  488 
Mahone  v.    Manchester,   etc.,    R.    R. 

Corp.  182 
Mahone   v.  Southern  Telegraph  Co., 

1185 

Mahoney  Mining  Co.  v.   Anglo-Cali- 
fornia Bank,  564 
Main  v.  Casserly,  490 
Main  Jellico   Mountain   Coal   Co.    v. 

Lotspcich,  263 

Maine  v.  Grand  Trunk  Ry.  Co..  1293 
Maisch  v.  Saving  Fund,  306,  307 
Makin  v.  Institution  for  Savings,  618 
Mallory   v.    Hanaur  Oil  Works,  501, 

820 
Mallory   v.  Mallory   &  Wheeler  Co., 

172,  246,  298    ' 
Mallory    v.    West    Shore  &    Hudson 

River  R.  R.  Co.,  1042 
Manchester  &  Lowell  Railroad  v.  Con- 
cord Railroad,  821 

Mandeville  v.  Union  Bank  of  George- 
town, 637 

Mandeville  v.  Welch,  663 
Maneval  v.  Jackson  Township,  24, 136 
Mangels  v.  Donan  Brewing  Co.,  1150 
Manhattaa  Bank  v.  Walker,  623,  635 
Manhattan  Beach  Co.  v.  Harned,  334 
Manhattan  Brass  Co.  v.  Webster  Glass 

&  Queensware  Co.,  583 
Manhattan  Co.  v.  Lydi<r,  600,  602 
Manhattan  Hardware  Co.  v.  Phalen, 

1075,  1079,  1089 
Manhattan  Hardware  Co.  v.  Roland, 

1079 

Manhattan    Life    Ins.    Co.   v.  Forty- 
second  St.  &  Grand  St.  Ferry  R. 
R.  Co.,  340 
Manhattan  Trust  Co.  v.  Sioux  City  & 

N.  Ry.  Co.,  1095 
Manley  v.  City  of  Atchison,  112 
Mann  v.  Chandler,  810 
Maim  v.  Cooke,  166 


TABLE  OF  CASES. 


Ixxi 


[The  references  are  to  pages:  vol.  I  contain*  pp.  1-707;  vol.  II,  pp.  708-1907.] 


Mann  v.  Eckford,  459 

Mann  v.  Second  Nat.  Bank.  (>r> 

Manning  v.  Norfolk  Southern  R.  R. 
Co.,  1042,  1048 

Manufacturers'  Hank  v.  Continental 
Bank,  612,  744,  750 

Manufacturers'  Hank  v.  Sroii.-ld.  .">;-.! 

Manufacturers'  Nat.  Bank  v.  Barnes. 
604,  GHO 

Manufrs.  Nat,  Bank  v.  Newell.  »»i<5 

Manufrs.  Sav.  Hank  v.  Wig  Muddy 
Iron  Co.,  288 

Manufacturing  Co.  v.  Ferguson,  1070 

Maux  Ferry  Gravel  Road  Co.  v.  Brane- 
gan. 278 

Mapes  v.  Scott,  511 

Marble   v.    Jamcsville    Manufg.    Co., 

mi 

Marble  Company  v.  Harvey,  81 
Marhury    v.    Kentucky    Union   Land 

Co.,  79,  88 

March  v.  Eastern  Railroad,  265,  306 
Marey  v.  Ama/cen,  G17 
Marcy  v.  Township  of  Oswe^o,  880, 

885,  842.  M»r 
Maricopa  it  Phwnix  R.  R.  Co.  v.  Ari- 

y.oiri  Territory,  1805 
Marine  Bank  v.  Biays,  163 
Marine  Bank  v.  Butts,  529 
Marine   Bank   v.   Clements,   180,  182, 

183,  207 
Marine  Bank  v.  Fulton  Bank,  597,  615, 

662,  745,  750 
Marine   Bank  of  Chicago  v.   Birney, 

598 
Marine  Bank  of  Chicago  v.  Chandler, 

598,  627,  647 

Marine   Bank  of  Chicago   v.  Ferry's 

Admr.,  596 

Marine  Bank  of  Chicago  v.  Ogden,  646 
Marine  Bank  of  Chicago  v.  Rushmore, 

599,  627,  647 

Marine  Bank  of  Buffalo  v.  Butler  Col- 
liery Co.,  148,  197,  284 
Marine  Nat.   Bank  v.    National  C'ity 

Bunk,  654 
Marine   Nat.  Bank  v.  National   C'itv 

Bank,  c.vj 
Marion   County    v.    Harvey    County, 

903 

Marion  Savings  Bank  v.  Dunklin,  497 
Market  Company  v.  .Jackson,  !*•„> 
Market  »fc   Fulton   National    Hank  v. 

Jones,  1066 

Market  Street  Bank  v.  Stompe.  v»s 
Markey   v.  Mutual    Hem-tit    Ins.  Co., 

193 

Markley  v.  Rhodes,  561 
Marks,    Trustee,  etc.,  v.   Trustees  of 

Pardue  University,  26 
Marlatt  v.   Levee  Steam  Cotto:i  Press 

Co.,  210 


Marlborough  Manufg.  Co.  T.  Smith, 

166 
Marquette,    H.    &  O.    R.  R.   Co.    v. 

United  States.  l:;ol 
Marquette  A.   Ontonagon  R.  R.  ('•-.  \. 

Taft,  l.VJ 

Marrett  v.  Hrackett.  659 
Marsh  v.  Burroughs,  1183 
Marsh  v.  Fulton  County.  71.  Ill,  471. 

787,  872,  897.  936,  989,  956.  1004 
Marsh  v.  Maxwell,  648 
Mar-It  v.  Oncida  Central  Bank.  598 
Marsh  v.  Small,  643 
Marsh  v.  Whit  more,  168 
Marshall  v.  P.  &  M.  Savings  Bank  of 

Alexandria.  5.13 
Marshall  v.  Harris.  371 
Marshall  v.  SHliiiian.  936.  972,  1005 
Marshall  v.  Vicksburg,  1059 
Martel  v.  City  of  East  St.  Louis,  793 
Martin   v.    Great  Falls  Manufg.  Co., 

182 
Martin    v.  Mayor,  etc.,  of  Brooklyn, 

446 

Martin  v.  Morgan.  601 
Martin   v.   Niagara  Falls  Paper  Mfg. 

Co.,  149,  186,  1066 
Martin  v.  Railway  Company,  188 
Man  in  v.  Santa  "Cruz  Water  Storage 

Co.,  235 
Martin  v.  Victor  Mill  &  Mining  Co., 

235 
Martin  v.  Webb,    149,    177.    184,    187, 

553,  623 
Marza  v.  Bait.  &  Ohio  R.  R.  Co.,  12*2. 

1303 

Mason  v.  Chandler,  359 
Massachusetts  &  8.  Construction  Co. 

v.  Cove  Creek  Township,  1008 
Massey  v.  Fisher,  731 
Massey  v.  Papin,  109o 
Masterton  v.  Mayor,  etc.,  of  Brooklyn. 

80 

Mather  v.  Union  L.  &  Trust  Co.,  228 
Matson  v.  Alley,  151 
Matter  of  Clark  v.  Sheldon,  907 
Matter  of  Fayerweather,  1300 
Matter  of  Franklin  Bank,  598 
Matter  of  Prime,  1290 
Matter  of  Tiffany  &  Co.,  1290 
Matthews  v.  Patterson,  385 
Matthews  v.  Skinker,  498,  501),  510 
Maupinv.  Franklin  County,  446 
Maury  v.  Mason.  7.V5 
Maxey  v.   Williamson    Count  v,    N24. 

893,  902,  900 

Maxwell  v.  Planters'  Hank.  •f>7<>.  571 
Mayer  v.  Griina.  I'JT  1 
Mayor  v.  Sands.  «is: 
Mayor  v.   Wetumpka  Wharf  Co.,   !•'• 

'  sr.i 
Mayor  of  Ludlow  v.  Charli.m.  9M 


1  \.\ii 


TABLE  OK  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Mayor  of  Norwich  v.  NorfolkRy.  Co., 

491 

Mayor,  etc.,  v.  Inmtin,  233,  250 
Mayor,  etc.,  v.  Kirkley,  111 
Mayor,  etc.,  v.  Tenth  Nat.  Bunk,  361 
Mayor,  etc..  of  Baltimore  v.  Baltimore 

&  Ohio  R.  R.  Co.,  74 
Mayor,  etc.,  of  Baltimore  v.  Eschbuch, 

109 
Mayor,  etc.,  of  Baltimore  v.  Musgrave, 

111 
Mayor,  etc.,  of  Baltimore  v.  Poultney, 

112 
Mayor,  etc.,  of  Baltimore  v.  Reynolds, 

110,  111 
Mayor,  etc.,  of  Cartersville  v.  Baker, 

23 
Mayor,  etc.,  of  Jackson  v.  Bowman, 

29 
Mayor,  etc.,  Kokomo    v.  State,  949, 

950 

Mayor,  etc.,  of  Rome  v.  Cabot,  29.  70 
Mayor,  etc.,  of  Rome  v.  Me  Williams, 

68 
Mayor,  etc.,  of  Staple  of  England  v. 

Governor,  etc.,  of  Bank  of  Eng- 
land, 344 
Mayor,  etc.,  of  Wetumpka  v.  Winter, 

47,  48 

Mead  v.  Kegler,  73,  75,  100,  102 
Mead  v.  Mali,  287,  309 
Mead  v.  Merchants'  Bank  of  Albany, 

647    651 
Mead  v.'  New  York,  H.  &  N.  R.  R. 

Co.,  1013,  1055 
Mechanics'  Bank  v.  Bank  of  Columbia, 

359,  572 
Mechanics'  Bank  v.  New  York  &  N. 

H.  R.  Co.,  286,  483 
Mechanics'  Bank  v.  Merchants'  Bank, 

641 

Merchants'  Bank  v.  State  Bank,  328 
Merchants'    Bank    of    Alexandria   v. 

Bank  of  Columbia,  142,  146,  185 
Mechanics'  Bkg.  Assn.  v.  New  York, 

etc  ,   White  Lead   Company,  78, 

106,  223,  362 
Mechanics  &  Farmers'  Bank  v.  Smith, 

662 
Mechanics  &  Workingmen's  Mut.  Sav. 

Bk..  etc.,  v.  Meriden  Agency  Co.. 

77,  517 

Medberry  v.  Short,  220 
Medomak  Bank  v.  Curtis,  571 
Meeker  v.  Winthrop  Iron  Co.,  267 
Meier  v.  Railway  Company,  1126 
Meinzer  v.  Racine,  42 
Melledge  v.    Boston   Iron    Company, 

152,  234 

Mellen  v.  Iron  Works,  1140,  1142 
Mellen    Pipe     Lines     v.     Allegheny 

County,  1279 


Melvin  v.  Lisenby,  825 
Memphis  City  v.  Dean,  29 
Memphis  v.  Ensley.  1303 
Memphis  v.  Home  Insurance  Co.,  1307 
Memphis   v.    Phoenix,  etc.,  Ins.   Co., 

1307 
Memphis  v.  Union  &  Planters'  Bank, 

1307 
Memphis  &  C.  R.  R.  Co.  v.  Hoechner, 

1232 
Memphis  Grain   &   Elevator    Co.    v. 

Memphis  <fc  Charleston  R.  R.  Co., 

819 
Memphis,  Kansas  &  Colorado  Ry.  Co. 

v.  Thompson,  919,  962 
Memphis   &  Little  Rock  Railroad  v. 

Commr?.,  1282 
Memphis  &  Little  Rock  R.  R.  Co.  v. 

Dow,  98,  1028,    1031,  1037,  1039, 

1103 
Memphis  &  Little  Rock  Ry.   Co.   v. 

Stringfellow,  1228 
Menasha  v.  Hazard,  935 
Menier  v.  Hooper's  Telegraph  Works, 

323,  326 

Mercantile  Bank  v.  McCarthy,  573 
Mercantile  Bank  v.  New  York,  1277 
Mercantile    Library   Co.    v.    City    of 

Philadelphia  and  Taylor,  Receiver 

of  Taxes,  1266 

Mercantile   Library   Co.    v.    Philadel- 
phia, 1266 
Mercantile    Trust    Co.     v.     Chicago, 

Peoria  &  St.  Louis  Ry.  Co.,  1162 
Mercantile  Trust  Co.  v.  Kana^ha  & 

Ohio  Ry.    Co.,  1161,   1166,    1212, 

1215 
Mercantile  Trust  Co.  v.  Missouri,  K. 

&  T.   Ry.   Co.,  1149,   1152,  1184, 

1186,  1203,  1206 

Mercantile  Trust  Company  v.   Pitts- 
burgh &  W.  R.  R.  Co.,  1238 
Mercantile  Trust  Company  v.  Texas 

&  Pac.  Ry.  Co.,  1105 
Mercer  County  v.  Hocket,  825,  949 
Mercer  County    Court    v.    Kentucky 

River  Navigation  Co.,  46,  899 
Mercer  County  Court  v.  S.,  M.  &  H. 

T.  Company,  46 
Merchants'  Bank  v.  Bergen   County, 

445,  872 

Merchants'  Bank  v.  Bliss,  398 
Merchants'  Bank  v.  Central  Bank,  573 
Merchants'  Bank  v.  Exchange  Bank, 

650,  666 

Merchants'  Bank  v.  Marine  Bank,  672 
Merchants'  Bank  v.  McColl,  187 
Merchants'  Bank  v.  Rawls,  193 
Merchants'  Bank  v.  Rudolf,  575,  579 
Merchants'  Bank  v.  State  Bank,  174, 

177.  206,  222,  226.  506,  507,  546, 

571,  651,  652,  655 


TAKI.K  oK  CASE*. 


Ixxiii 


[The  references  are  to  page*:  vol.  I  contains  pp.  1-707;  TO!.  II,  pp.  708-1907.] 

Merchants'   Bank  v.    Stevenson.   :>^T.  Metropolitan  Nat.  Hunk  \    1. lo\d,  506, 

400  «5i::.  ill  1.  (ilii 

.Merchants' Bank  of  C:in;i(l:i  v.  Union  Metropolitan    R.    K.  Co.  v     District  «•! 

K.  R.  &  Transp.  Co.,  696  Columbia 

Merchants  A:  Fanners'  I'.ank  v.  Austin.  Metropolitan  Trust  Co.  v    New  York. 

I.    K   vV  U     K    H.  Co..  lloj 

Merchants  A:  Farmers'  Bank  v.  IIer\ey  Metropolitan  T.  &  T.  Co.  v.  Domestic 

Plow  Company.  163  T.  A:  T.  Co.. 

Mircliants  A:   Fan'ners'  Nat.  Bank  of  Meyer  v.  City  of  Museatine,  897,  909. 

Charlotte  v.  Myers.  529  941 

Mi  Tenants'  Insurance  Co.  v.  Chaiivin.  Meyer  v.  Utah  &  Pleasant  Valley  K. 

176  H.  Co..  117-J 

Merchants'  Nat.  Bank  v.  Bailey  Mf?.  Mezger  v.  Can-,  881 

Co.,  *ss  Michoud  v.  Girod.  275.  :!1«5.  326 

Men-liants'  Nat.  Hank  v.  Chattanooga  Michigan   Slate  Co.  v.  Iron   Range  &, 


Construction  Co.,  1140 


Huron  Bay  H.  K.  Co..  283 


M- Tenants'  Nat.  Bank  v.  Hanson.  500,    Middlehury  v.  Hood.    l:;c, 


515 
Merchants'  National  Bank  v.  Manufg. 

Company,  1123 
Merchants'   Nat.   Bank    v.    Rit/iir/er. 

641,  644,  645 

Merchants'  Nat.  Bank  v.  Tracy,  239 
.Merchants'  Nat.    Hank  of  Chicago  v. 


Middlesex  Countv  liank  v.  Hirsch 
Bros.  Veneer  Mfir.  Co.,  363 

Middlesex  H.  K.  Co.  v.  Boston  &  Chel- 
sea H.  H.  Co..  466 

Middleton  v.  Allegheny  County,  954 

Millmnk  v.  New  York,"  L.  E.  &  W.  R. 
H.  Co.,  517 


Detroit  Knitting  &  Corset  Works.    Millmnk  v.  Welch,  200 


156 


-v  Treasurer,  v.  Ray,  1271 


Merchants'  Nat.   Bank  of  Gardner  v.  Milhau  v.  Sharp,  29 

Citizens'  Gas  Light  Co.  of  Quiney,  Millard   v.   St.  Francis  Xavier  Acad- 
•JvT.,  239  emy,  487 

Merchants'  Nat.  Bank  of  Gardiir-r  v.  Mill  Co.  v.  Kampe,  25-1 


Clark,  361 
Merchants'  Nat.  Bank  of  St.  Paul  v. 
McNeir.  587 


Mill  Dam   Foundery  v.   Hovey,  395, 

414 
Miller  v.  Barber.  291 


Merchants  &  Planters'  Line  v.  Waga-    Miller  v.  Bradish,  385 


ncr,  317 
Merchants'  Union   Barb  Wire  Co.  v. 

Kiee.  142,  146 

Meriden  Tool  Co.  v.  Morgan,  390 
Meri wether  v.   Muhlenburg  County. 

900 
Merriam  v.  Moodv's  Execre. .  4 


Miller  v.  Chavec,  169 

M'.ller  v.  Embrec,  122 

Miller  v.  Ewer,  1075 

MilLr  v.  New  York  &  Erie  R.  R  Co., 

97,  y07,  1013 
Miller  v.  Kace.  625 
Miller  v.  Roach,  809 


Merrick  v.  Inhabitants  of  Amherst.  37    Miller  v.   Rutland  «fc  Washington  R. 
Merrick  v.   Peru  Coal   Co..  279.  356,  !         R.  Co.,  1047.  1055,  1073 

1108  i  Miller  v.   Washington   Southern   Ry. 

Merrick  v.  Trustees  of  the  Bank  of  the  Co..  402 


Metropolis,  162,  1SH 


Miller  v.  White.  394.  396.  398,  399,  415 


Merrill  v.  Consumers'  Coal  Company.    Millikin  v.  Shapleigh,  702 
155.  170  Mills  v.  Bellmer.  119 


Merrill  v.  Florida  Land  Imp.  Co. .  5(56, 
717 

Merrill  v.  Plainflcld,  790 

Merrill  v.  Town  of  Monticello,  Iv;  IJV 
884,  999,  1004 

Merritt  v.  Goixlrich.  381 

Merville  v.  American  Tract  Society. 
787 

Merz  v.  Interior  Conduit  &  Insulation 
Co.,  1031 

Meserole  v.  Mayor,  etc.,  of  Brooklyn. 
121 

Metropolitan  Elevated  Ry.  Co.  v.  Man- 
hattan Ry.  Co.,  167,  264,  265,  308 


Mills  v.  Gleason.  24.  41,  42 
Mills  v.  Jefferson,  946,  955 
Mills  v.  State  Bank,  653 
Millsaps  v.  City  of  Terrell,  869 
Milne  v.  Davidson,  798 
Miltenberger  v.  Cook,  787 
.Miltenberirer  v.  Logansport  Railway 

ll'.M,  1202.  1220.  1222.  1240 
Milwaukee.  »fc  Illinois  Northern  R.  R. 

Co.  v.  Field.  163 
Milwaukee  ^    Minnesota  R.  R.  Co.  v. 

Soutter.  11<»2 

Miner  v.  Belle  Isle  Ire  Co..  ?r,:; 
Miners'  Bank  Estate,  508 


Ixxiv 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Miners'  Ditch  Co.  v.  Zellerbuch,  491 
Mining  Company  v.  Anglo- Calif oruian 

Bank,  93,  184,  222,  226 
Mining  Company  v.  Mason,  1164 
Minneapolis  Times  Co.  v.  Nimcocks, 

260 

Minnesota  Central  K.  K.  Co.  v.  Donald- 
son, 1282 
Minnesota  Thresher  Mfg.  Co.  v.  Lang 

don.  1188 

Minor  v.  Mechanics'  Bank,  563,  567 
Minot  v.  Paine,  815 
Minot  v.   Phil.,  Wilm.  &  Bait,  R.  R. 

Co.,  1294 

Minot  v.  West  Roxbury,  34 
Minturn  v.  Lame,  4,  29 
Miranda  v.  City  Bank,  681 
Mish  v.  Main,  1124 
Mississippi  R.  R.  Co.  v.  Scott,  625 
Missouri,  K.  &  J.  Ry.  Co.  of  Kansas, 

v.  Chilton,  1231 
Missouri  Lead  Mine  &  Smelting  Co.  v. 

Reinhard,  1070 
Missouri  Pac.  Ry.  Co.  v.  Texas  &  Pac. 

Ry.  Co.,  1204,  1210,  1225,  1229 
Missouri   River,    etc.,   R.    R.    Co.    v. 

Morris,  871 
Missouri  Valley  &  B.  Ry.  &  B.  Co.  v. 

Harrison  County,  1301,  1302 
Mitchell  v.  Beckman,  604,  756 
Mitchell  v.  Burlington,  12,  909 
Mitchell  v.  Deeds,  194 
Mitchell  v.  Harris.  1152 
Mitchell  v.  McCabe,  608 
Mitchell  v.  Rockland,  446 
Mitchell  v.  Walker,  716 
Mixer  v.  Manistee  County  Supervisors, 

128 
Mobile  &  Cedar  Point  Ry.  Co.  v.  Tal- 

man,  91,  1055,  1096 
Mobile  &  M.  Ry.  Co.  v.  Gilmer.  234 
Mobile  &  Ohio  R.  R.  Co.  v.  Tennessee, 

1281 

Mobley  v.  Clark,  688 
Moers  v.  City  of  Reading,  49 
Moffat  v.  Winslow.  294 
Mofflt  v.  State  ex  rel.,  122 
Mohawk    Bank    v.    Broderick,    658, 

707 
Mohawk  Bridge  Co.  v.  Utica  &  Schen- 

ectady  Railroad,  1097 
Mokeluinne  Hill  Canal  &  Mining  Co. 

v.  Woodbury,  756 
Montclair  v.  Ramsdell,  1001,  1002 
Montelius  v.  Charles,  702 
Montgomery     v.     Township    of    St. 

Mary's,  971 

Montgomery  County  v.  Barber,  32 
Montgomery  County  Bank  v.  Albany 

City  Bank,  703 
Montillet  v.  Bank  of  the  United  States, 

681 


Monument  National    Bank   v.  Globe 

Works,  93,  106,  226,  227,  465 
Moody  v.  Mack,  661 
Mooera  v.  Swedley,  121 
Moon  v.  Board,  etc.,  123 
Moore  v.  Butler,  1108 
Moore  v.  Davis,  665 
Moore  v.  City  of  Walla  Walla,  14 
Moore  v.  H.  Gano  <fe  Sons'  Mfg.  Co., 

151,608 

Moore  v.  Lent,  383 
Moore  v.   Mayor,  etc.,  of  New  York, 

441 

Moore  v.  Meyer,  599 
Moore  v.  Railroad  Company.  1031 
Moore  v.  Schoppert,  806 
Moore  v.  Sinks,  857 
Moore  v.  Swanton  Tanning  Co.  820 
Moore  v.  Waitt,  602 
Moores  v.  Citizens'   Nat.    Bank,  335, 

342,  343 

Moors  v.  Goddard,  612 
Moran  v.  Comrs.  of  Miami  Co.,  106, 

328,  895,  897,  949,  956,  965 
Moran  v.  New  Orleans,  1293 
Morey  v.  Food,  394 
Morford  v.  Farmers'  Bank  of  Saratoga, 

78,  465 

Morgan  v.  Louisiana.  1282 
Morgan  v.  Merchants'  Bank,  192 
Morgan  v.  Skiddy,  286.  291 
Morgan  Count}'  v.  Seaton,  31 
Morgan  County  v.  Thomas,  901,  1096 
Morgan's  La.  &  Tex.  R.  R.  &  St.  Ship 

Co.  v.  Board  of  Reviewers,  1301 
Morgan's  La.  &  Tex.  R.  R  &  St.  Ship 

Co.  v.    Texas    Central   Ry.    Co., 

1147,  1151,  1153,  1256 
Morgan  &  Raynor,  Trustees,  v.  Dono- 
van, 95, 1096 
Morrell  v.  Long  Island  R.  R.  Co.,  234 
Morrill  v.  Noyes,  1096 
Morris  v.  Keil,  1071,  1075 
Morris  v.  Merrel,  116 
Morris  v.  The  State,  831 
Morris  Canal  &  Bkg.   Co.   v.  Fisher. 

1014 
Morris   Canal  &  Bkg.  Co.  v.  Lewis, 

955 
Morris  &  Essex   Railroad  v.  Centr.-il 

Railroad  Co.,  1097 
Morris  K.  R.  Co.  v.  Railroad  Co.,  4.S8 
Morris  Run  Coal  Co.  v.  Barclay  Coal 

Co.,  1178 

Morrison  v.  Bailey,  656,  658 
Morrison  v.  Easton  &  Hamilton  R.  If. 

Co.,  456,  1021 
Morrison  v.  Globe  Panorama  Co..  2r<<7 
Morrison  v.  Lawrence,  33 
Morrison  v.  Ogdensburg  &L.  C.  K.  R. 

Co.,  250 
Morrisville  School  District,  139 


TABLE  OF  CASES. 


Ixxv 


[The  reference*  are  to  pages:  roL  I  contains  pp.  1-707;  vol.  n,  pp.  708-1W7.) 


e  v.  Beale.805 
v.  Swits,  291 

Morton  v.  City  of  Nevada,  83,  968 
Morton  v.  New  Orleans  &  Selma  Ry. 

Co.,  1188 

Moser  v.  Kn-iirh.  210 
Moses  v.  Franklin  Bank  of  Baltimore, 

057,  659,  064 

Moses  v.  Ocoll  Hank,  550 
Mosher  v.  Hubbard,  995 
Mosher   v.    Independent  School   Dis- 

trict, 66.  879 
Mosber  v.  Supreme  Sitting  of  Order 

of  Iron  Hall.  1123 
Moas  v.  Aven-11.  819 
Moss  v.  Harpcth  Academy,  102 
Moss  v.  Livingston,  360 
M.—  v.  Oakley,  74.  97,  101 
Moss  v.  Boorie  L.  M.  Co.,  494 
Mott  v.  Hicks,   20,  74,  96,   101,  358, 

360 

Monlton  v.  City  of  Evansville,  45 
Moulton  v.  Connell-Hnll-McLesterCo., 

1141 

Mount  v.  First  Nat.  Bank,  691 
Mt.  Adams,  etc..  Inclined  Ry.  Co.  v. 

City  of  Cincinnati,  7 
Mount  Holly  Paper  Co.'s  Appeal,  288 
Mount  Pleasant  v.  Beckwith,  844 
Mt.  Sterling  &  Jefferson  villeT.  P.  Co., 

v.  Looney,  180,  181,  182 
Moyer   v.  East  Shore  Terminal  Co., 

235 

Mozley  v.  Alston,  305,  348 
MIP  uch  v.  Valley  Nat,  Bank,  640 
Mullauphy  Savings  Bunk  v.  Schott, 

246    ' 

Mullarky  v.   Town  of    Cedar  Falls, 
' 


Mullcr  v.  Dows,  1161 

Mullikin  v.  Reeves,  Treasurer,  1271 

Multnomah  County  v.   Oregon  Nat. 

Bunk,  7:57 

Mundt  v.  Railroad  Company,  1250 
Mumford  v.  Hawkins,  170 
Mu  nirer  v.    Albany  Citv  Nat.  Bank, 


One    v.    Orleans 


74, 


Municipality     No. 

Theatre  Co.,  77 
Mu  nn  v.  Burch,  649,  655,  662 
Munii   v.    Commission  Company 

90,  96 
Munson  v.  Syrncuse,  Geneva  &  Corn- 

ing R.  R.  Co..  48.  204.  267,  27" 
Murdock  v.  AVoodson,  1105 
Murphy  v.  City  of  Jacks  tnville,  42 
Murphy  v.  Kast  Portland,  67 
Murphy  v.  Louisville.  446 
Murphy  v.  Welch,  1071 
Murrali  v.  Branch  Bank  at  Decatur,  580 
Murray   v.    American  Surety   Co. 

New  York,  714 


Murray  v.  Bull's  Head  Bank,  650 
Murrav  v.  Cannon,  680 
Murray  v.  East  India  Co.,  98,  152 
Murray  v.  Lardner.  980,  1001,  1037 
Murray    v.    Lumber   Company,   172, 

Murray  v.  Paulv.  634 

Muscat  inc   v.    Mississippi  &  M.  R.  It. 

Co..  904 
Muscatine    Water   Co.   v.    Muscat  ine 

Lumber  Co.,  805 
Musscr  v.  JohnxHi,  1071 
Mussey  v.    Prest.,  etc.,  Eagle  Bank, 

51M.  651 

Mustard  v.  fnion  Nat.  Bank. 
Mut.  Sav.  Bank  v.  Meriden   Agency 

Co.,  469.  478 
Mygatt  v.  City  of  Green  Bay,  945 

N. 


Nant-y-glo,  etc.,  Co.  v.  Grave.  300 
Narragansett  Bank  v.   Atlantic  Silk 

Co.,  227 

Nash  v.  Bank,  527,  528 
Nash  v.   City  of  St.   Paul,  444.  446, 

821 
Nashua  &  Lowell  Corp.  v.  Boston  & 

Lowell  Corp..  158,  470,  1148 
Nashua  «fc  Lowell  Railroad  v.  State, 

1301 
Nashville  Trust  Co.   v.  Fourth   Nat. 

Bank.  523,  1146 

Nassau  Bank  v.  Jones,  467.  469.  517 
National  Bank  v.  Burkhardt,  600 
National  Bank  v.  Case.  764 
National  Bank  v.  Commonwealth.  ?:::!. 

129(5 

National  Bank  v.  Colby,  717 
National  Bank   v.  Graham,  321,  534, 

635 
National  Bank  v.   Insurance  Co.,  609, 

626.  731.  735.  736,  737.   750,  75-J. 

759 

National  Bank  v.  Johnson.  52K. 
National  Bank  v.  Kimball.  IJT'.i 
National  Bank  v.  Matthews,  509,  515, 

540.  543.  1059 
National    Bank    v.    Mechanics'    Nat. 

Bank,  605 
National  Bank  v. 
National  Bank  v. 
National  Bank  v. 
National  Bank  v. 

BM 

National  Bank  v.  Whit  man.  tiT:!.  C.;r, 
National    Bank   v.  Whitney.  50«».  .115. 

5  JO.  548,  .544 
National  Bank  of  AujMi^ta  *    Carolina, 

K    A-    \\     R.  R  Co  .  mi 
of  I  National    Bank    of    Battle    Creek   v. 

Mallan.  157 


Norton.  361 
I'aiirr.  -II? 
Strait.  561 
Watson  town    liiink. 


1  \.\vi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 


National  Bank  of  Chemung  v.  City  ol 

Elmira,  1288 
Nat.    Bank    of    Commerce    v.    Nat. 

Mechanics'  Bank,  661 
National  Bank  of  Commerce  v.  Shum- 

way,  1112 
National  Bank  of  Commerce  v.  Town 

of    Granada,  859,    861,   866,   867, 

891 
National  Bank  of  Commerce  of  Kansas 

City  v.  Atkinson.  178 
Nat.  Bank  of  the  Cammonwealth  v. 

Grocers'  Nat.  Bank,  672 
Nat.  B.mk  of  Fort  Edward  v.  Wash- 
ington County  Nat.   Bank,   605, 

630 

Nat.  Bank  of  Gloversville  v.  Wells,  554 
Nat.  Bank  of  Jefferson  v.  Beahn,  535 
Nat.  Bank  of  Jefferson  v.  Texas 

Investment  Co.,  349 
Nat.  Bank  of  Metropolis  v.  Williams, 

571 
National  Bank  of  Newburgh  v.  Smith, 

.642 
National  Bank  of  North  America  v. 

Bangs,  331 
Nat.  Bank  of  Republic  of  N.  Y.  v. 

Young,  Recr.,  etc.,  92,  362,  464 
Nat.  Bank  of  Yenia  v.  Stewart,  517, 

540,  543,  572 
Nat.  Citizens'  Bank  of  New  York  v. 

Howard.  620 

National  Cordage  Co.  v.  Pearson  Cord- 
age Co.,  151,  218 
National  Exchange  Bank  v.  Benbrook 

School  Furnishing  Co.,  1129 
National  Exchange  Bank  v.  Hartford, 

Prov.  &  F.  R.  R.  Co.,  1048 
Nat.  Exchange  Bank  of  Baltimore  v. 

Peters,  558 
National  Exchange  Bank  of  Dallas  v. 

Beal,  710 

National  Exchange  Co.  v.  Drew,  294 
National  Foundry  &  Pipe  Works  v. 

Oconto  Water  Co.,  1022 
National   Gold    Bank    v.   McDonald, 

601,  698 
National  Life  Ins.   Co.  of  Montpelier 

v.  Board  of  Education  of  City  of 

Huron,  880,  891,  893,  894,  897 
National   Pahquioque  Bank  v.   First 

Nat.  Bank  of  Bethel,  689 
Nat.  Park  Bank  v.  German  American 

Mut.   W.  &  S.   Co.,   78,  80,  100, 

362,  465,  568 

National  Park  Bank  v.  Remsen,  397 
National  Pemberton  Bank  v.  Porter, 

515,  516 
National  Security  Bank  v.   Cushman, 

337 
National  Spraker  Bank  v.   Tread  well 

Company,  197 


National  State  Bank  v.  Independent 
District,  66 

National  State  Bank  v.  Young,  1298 

Nat.   State  Bank  of   La  Fayette   v. 
Ringel,  628 

National  Trust  Co.  v.  Miller,  354 

National  Tube  Works  Co.  v.  Ballou, 
1139 

National  Water  &  Mining  Co.  v. 
Clarkson,  454,  494 

Naugatuck  R.  R.  v.  Waterbury  But- 
ton Co.,  469 

Neal  v.  Briggs,  404 

Xeall  v.  Hill,  302,  311 

Neary  v.  Phila.,  Wilm.  &  Bait.  R.  R. 
Co.,  1280,  1300 

Xebr.  &  Kans.  Farm  Loan  Co.  v. 
Bell,  211,  234,  235 

Needham  v.  Wilson,  1157 

Neely  v.  Rood,  597,  748,  752 

Neely  v.  Yorkville,  446 

Neff  v.  Greene  County  Nat.  Bank,  603 

Negley  v.  Counting  Room  Co.,  210 

Xeiffer  v.  Bank  of  Knoxville,  198 

Xeill  v.  Spencer,  359 

Xelligan  v.  Campbell.  351 

Nelson  v.  City  of -La  Porte,  29 

Xelson  v.  Eaton,  102 

Nelson  v.  Haywood  County,  900,  907 
908 

Nelson  v.  Hubbard,  1057 

Nelson  v.  Luling,  286 

Nelson  v.  Mayor,  444 

Nelson  v.  Mil'ford,  35,  61 

Nemaha  County  v.  Frank,  948 

Neosho  County  v.  Stoddart,  125 

Nesbit  v.  Riverside  Independent  Dis- 
trict, 879,  885,  886,  897,  1138 

Nesmith  v.  Washington  Bank,  525 

Xeuse  River  Nav.  Co.  v.  Comrs. ,  166 

Nevada  Bank  of  San  Francisco  v. 
Portland  Nat.  Bank.  546,  547 

Nevitt  v.  Bank  of  Port  Gibson,  494 

New  Albany,  etc.,  Plank  Road  Co.  v. 
Smith,  949,  955 

Newark  Banking  Co.  v.  Bank  of  Erie 
660 

Newbery  v.  Fox,  443,  821 

Xewbery  v.  Garland,  291 

New  Buffalo  v.  Iron  Co.,  935 

New  Chester  Water  Co.  v.  Holly  Man- 
ufacturing Co..  1102 

Newell  v.  Bank,  534 

Xew,  etc.,  Co.  v.  Erlanger,  291 

New  Ensrland,  etc.,  Ins.  Co.  v.  Robin- 
son,"^? 

Newgass  v.  Atlantic  &  D.  Ry.  Co. 
(Central  Car  Trust  Co.,  Inter- 
vener).  1255,  1256 

Newgass  v.  City  of  New  Orleans,  11 

New  Hampshire  Savings  Bank  v. 
Downing,  596 


TAIJLE  OF  CASES. 


Ixxvii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707:  vol.  II,  pp.  708-1807.  j 


New  Haven.  M.  &  W.  R.   R.  Co.  T. 

Town  of  Chatham,  1052 
New  Haven  &  Northampton  Co.   v. 

Hayden,  155 

New  Jersey  Iiis.  Co.  v.  Meeker,  895 
Nc  \v  London  v.  Brainard.  3:{ 
New  -iiiiin  v.  City  of  Einporia,  114,  889, 

890 
New  Market  Savings  Hank  v.  Gillet. 

«  )rleans  v.  Clark.  66.  880.  860 
New  Orleans  Canal  Co.    v.    Escoffic, 

688 
New  Orleans  Fla.  «fc  Havana  St.  Ship 

Co.  v.  Ocean  Dry  Dock  Co.,  77 
New  Orleans  Gas  Light  Co.  v.  City  of 

New  Orleans,  29.  80 
New  Orleans,  M.  &C.  R.  Co.  v.  Dunn, 

11.  4H.  -M.  950 
New  Orleans  &  Pac.  Ry.  Co.  v.  Union 

Trust  Co.,  1101 
New  York  &  8.  C.  Co.  v.  F.  Bank. 

499 
New  York,  etc.,  R.  R.  Co.  v.  Smith, 

6»7 
New  York  Firemen's  Ins.  Co.  v.  Ben- 

nett, 90 
New  York  Firemen's  Ins.  Co.  v.  Ely, 

96,  489,  469 
New    York    Firemen's    Ins.    Co.    v. 

Sturges,  90,  100 
New    York    Iron    Mine    v.    Citizens' 

Hank.  180,  209 
New  York   Iron   Mine  v.  First  Nat. 

Bank  of  Negaunee,  152 
Nr\v    York    Iron   Mine  v.    Negnuncc 

Hunk,  180.  209 
New  York.  Lake  Erie  &  West.  R.  R. 

Co.  v.  Commonwealth  of  Pennsyl- 

vania, 1291,  1304 

Ni-w  York  Life  Ins.  Co.  v.  Beebe,  342 
New  York  &  N.   II.   R.   R.   Co.   v. 

Ketch  urn.  279 
New  York   &  N.   H.   R.   R.   Co.   v. 

Schuyler,  8t?2,  325,  333,  335,  888, 

389,  340,  986 
New  York,   P.  &  B.  R.  R.  Co.  v. 


New  York,  P.  &  N.  Ry.  Co.  v.  Bates, 

156 
New  York,  P.  &  O.  R.  R.  Co.  v.  New 

York,   L.  E.   &  W.    R.    R.    Co., 

1189,  1201 
New  York  Security  &  Trust  Co.  v. 

Saratoga   Gas  &  Electric    Light 

Co.,  Hod,  11.  V, 
New  York  State  Loan  &  Trust  Co.  v. 

Heliner,  528 
Niagara  County  Bank  v.  Baker,  515, 

Niantie  Savings    Bank  v.   Town  of 
Douglas,  974 


Nichol  v.  Mayor,  etc.,  4,  48,  49,  901 

Nicholas  v.  Oliver.  206 

Niehols  v.  Howe,  122 

Nichols  v.  Mase,  1<W2,  1096 

Nichols  v.  Pinn. 

Nichols  v.  Scranton  SteeJ  Co.,  151 

Nichols  v.  Stephens,  712 

Nickerson  v.  Huger,  621 

Niles  v.  Shaw,  1299 

Niles   Water   Works  v.  Mayor 

City  of  Niks,  68 

Nims  v!  Mt.  Hermon  Boys'  School.  236 
Ninth  Nat.  Hank  v.  Knox  County,  1)07 
Nixon  v.  State  ex  rel..  \->:\ 
Noble  v.  Andrew-;.  742 
Noble  v.  City  of  Vincennea,  951 
Nolan  County  v.  State,  14, 67,  828,  830, 

833,  834 

Noland  v.  Busby,  1272 
Nolle  v.  Fcnwick,  446 
Nolton  v.  Railroad  Co.,  348 
Nonotuck  Silk  Co.  v.  Flanders,  73*, 

750 

Norcross  v.  Benton,  721 
Norfolk  &  Western  R.  H.  Co.  v.  Penn 

sylvania.  1298 
Norfolk  &  Western  R.  R.  Co.  v.  Ship 

pers'  Compress  Co.,  458 
Norris  v.  Despard,  657 
Norris  v.  Hall,  522 
North  America  Bank  v.  Bangs,  668 
Northampton   Bank  v.  Pepoon,  L'ui;, 

548 
Northampton  County  v.  Easton  I'.i- 

sengcr  Railway  Co.,  1266 
North     Brookneld     Sav.     Bank     v. 

Flanders,  580 
Northern   Bank  of  Toledo   v.  Porter 

Township  Trustees,  872,  885,  897 
Northern  Central  Ry.  Co.  v.  Bastian. 

145 
Northern   Railroad  v.  Concord  Rail- 

road,  1111 
North  Hudson  Mut.  B.  &  L.  Assn.  v. 

Childs,  352 
North  Pa.   R.  R.  Co.  v.  Adam- 

1047 
Northern    Puc.    R.  R.  Co.  v.  Clark, 

1279 

Northern   Pacific  R.  R.  Co.  v.  Ray- 
mond. 1800 

North  River  Bank  v.  Aymar,  2«'J.  :;:'.! 
North  Side  Ry.  Co.  v.  Worthington, 

89,  1031 
North  Ward  National  Bank  v.  Citv  of 

Newark,  1296 
Northwestern  Coal  Co.  v.  Bowman  & 

Co.,  707 
Northwestern    Union   Packet  Co.    v. 

Shaw,  497 
Norton  v.    Alabama  National  Hank. 

285 


Ixxviii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Norton  v.  Derry  Nat.  Bank,  508 

Norton  v.  Dyersburg,  17,  1000 

Norton  v.  Peck,  795 

Norton  v.  Taxing  Dist,  of  Browns- 
ville, 954 

Norwich  Gas  Light  Co.  v.  Norwich 
City  Gas  Co.,  29 

Norwich  &  W.  II.  R.  Co.  v.  County 
Comrs.,  1282 

Norwood  &  Butterfield  Co.  v. 
Andrews,  92 

Nosser  v.  Seeley,  55,  917 

Nougue  v.  Clapp.  1137 

Nougues  v.  Douglass,  63 

Noyes  v.  Marsh,  1152 

Noves  v.  Rutland  &  Burlington  R.  R. 
Co.,  153,  489 

Nugent  v.  The  Supervisors,  935,  949 

Nunnemaker  v.  Lanier,  702 

o. 

Oakcs  v.  Cattaraugus  Water  Co.,  155, 

500 

Oakland  v.  Carpenter,  59 
Oakland  Bank  of  Savings  v.  Wilcox, 

563 

Oakland  Paving  Co.  v.  Rier,  190 
Oakland  Township  v.  Martin,  136 
Oakley  v.  Valley  County.  117 
Oates  v.  National  Bank,  583,  983 
O'Bear  Jewelry  Co.  v.  Volfer,  1111 
O'Brien  v.   C.,  R.  I.  &  P.  R.  Co.,  166 
Ocean  Co.  v.  Ophelia,  656 
Odd  Fellows  v.  First  Nat.   Bank  of 

Sturgis,  219 

Odd  Fellows'  Bank  v.  Guillen,  847 
Odd  Fellows'  Hall  Assn.  of  Portland 

v.  Hegele,  470 
Oddie  v.  National  City  Bank,  600,  639, 

1213 

Odiorne  v  Maxcy,  150,  152 
Oelbermann  v.  New  York  &  N.  Ry. 

Co.,  470 
Ogden  v.  County  of  Daviess,  866,  872, 

922 

Ogden  v.  Murray,  260,  280,  283 
Ogilvie  v.  Knox  Insurance  Co.,  1133 
O'Hare  v.  Second  Nat.  Bank  of  Titus- 

ville,  520 
Ohio  Central  R.  R.  Co.  v.  Central  Trust 

Co.  of  New  York,  1181 
Ohio  Life    &    Trust  Co.    v.    Debolt, 

957 
Ohio  &  M.  R.  R.  Co.  v.  McCarthy, 

1089 

Ohio  &  Mississippi  Ry.  Co.  v.  Com- 
missioners, 1271 
Ohio  &  Mississippi  Ry.  Co.  v.  Davis, 

1228 
Ohio  &  Mississippi  Ry.  Co.  v.  People. 

1031 


Ohio  Valley  Nat.  Bank  v.  Walton 
Architectural  Iron  Co.,  1081 

Oil  Co.  v.  Densmore,  275 

Oil  Creek,  etc.,  R.  R.  Co.  v.  Pennsyl- 
vania Transportation  Co.,  1079 

Olcott  v.  The  Supervisors.  902,  957 

Olcott  v.  Tioga  Railroad  Co.,  142.  r>.>, 
198,  232,  233 

Oldham  v.  Bank,  510,  529 

O'Leary  v.  Board,  etc.,  793 

Oliphant  v.  Woodburn  C.  &  Mining 
Co.,  165,  316 

Oliver  v.  Piatt,  263 

Olmstead  v.  Distilling  &  Cattle  Feed- 
ing Co.,  1192 

Olney  v.  Chadsey,  193,  562 

Olney  v.  Land  Company,  1087,  1111 

Olson  v.  State  Bank,  759,  1135 

Omaha  Bridge  Cases,  895 

Omaha  &  St.  Louis  Ry.  Co.  v.  Wabash, 
St.  Louis  &  Pac.  Ry.  Co.,  1095, 
1097 

O.  &  N.  R.  R.  Co.  v.  McPhcrson,  365 

Oneida  Bank  v.  Ontario  Bank,  65,  653, 
858 

O'Neil  v.  Battie,  139 

O'Neill  v.  Bradford,  628 

Onstott  v.  People,  907.  920 

Opdyke  v.  Pacific  R.  R.  Co.,  1052 

Opinion  of  the  Justices  (Me.),  21 

Orchard  v.  School  District,  883 

Ore  Company  v.  Bird,  298 

Oregon  v.  Jennings,  897 

Oregon  R.  R.  &  Nav.  Co.  v.  Oregonian 
Co.,  465,  473 

Oregon  Railway  v.  Oregon  Ry.  & 
Nav.  Co.,  73,  236 

Oregon  Short  Line  Ry.  Co.  v.  Yeates, 
1301 

Oriental  Bank  v.  Tremont  Ins.  Co., 
522 

Oriental  Vienna  Bakery,  Coffee  & 
Natatorium  Co.  v.  Heissler,  1123, 
1224 

Ornn  v.  Merchants'  Nat.  Bank,  510 

Oro  Mining  &  Milling  Co.  v.  Kaiser, 
155 

Oroville,  etc.,  R.  R.  Co.  v.  Super- 
visors, etc.,  801 

Orphan  Society  of  Lexington  v.  Fay- 
ette  County,  127 

Osage  Valley  &  So.  Kansas  R.  R.  Co. 
v.  Morgan  Co.  Court,  46 

Osborn  v.  Bank  of  the  United  States, 
845 

Osborn  v.  Moncure,  641 

Osborne  v.  County  of  Adams,  54, 
917 

Osgood  v.  King,  166 

Osgood  v.  McConnell,  627 

Otis  v.  Gross,  643 

Otoe  County  v.  Baldwin,  998 


TABU 


i  \.\i\ 


[The  reference*  are  to  pages:  TO|.  I  contaius  pp.  1-707;  yol.  II,  pp.  706-1807. j 


Ottawa  v.  Carey.  70. 

Ottawa   v.    National   Bank  of   Forts-  i 

mouth,  7i> 

Otter  v.  Brevoort  I'.  ('•»..  455 
Ouacliita  Packet  Co.  v.  Aiken,  P^.ll 
Out. re  v     I>uiiald<onville,  857 
Outterson  v.  Fonda  L-ike    Paper  Com 

puny.   l.V> 
Overseers    of    Norwich  v.    Overseers. 

..I'  N.-w  Berlin.    Jiti 
<>\i.ut  v.  Hughes.  396 
»  »wrn,l)i>ro  iV  N.  Ry.  Co.  \.  County  of 

Davie-s.   1301 

Owensboro  &  N.   Ry.   Co.  v.  Logan 

County.   l.'ic-J 

Owings  v.Grubbs'  Admr.,  359 
Ownings  v.  Hall,  172 
Oxfordlron  Co.  v.  Spradley,  100,  102 


Pacific    Coast    Ry.    Co.    v.   Ramage, 

1300 

Pai-ific  Kx press  Co.  v  Scibert.  1268 
I'acilic  Insurance  Co.  v.  Soule.  1274 
Pai-ilic  Nat.  Bank  v.  Eaton,  519,  756 
Par.  Postal  Telegraph  Cable  Co.  v. 

Western    Union    Telegraph    Co., 

464 

Pa.-.  R.  R.  Co.   v.  Seely,  493 
Paeilic  Rolling  Mill  Co.  v.  Dayton,  S. 

A:  (J    R.  Ky.  Co.,  220,  236 
Pack  v.  Thomas,  645,  660 
Packard  v.  Jefferson  County,  46 
Packard  v.  Society,  227 
Packet  Co.  v.  Catlettsburg,  1293 
Packet  Co.  v.  Keokuk,  1293 
Packet  Co.  v.  St.  IxMiis,  1293 
Paducnh    Laud,    Coal   &   Iron  Co.   v. 

Hays.  261 
Paducah    Laud,    Coal   &   Iron  Co.   v. 

Mulholland.  263 
Putrr   v    Fall   River,  W.  &  P.  R.  Co., 

MM 

Pnire  v  Supreme  Lodge  K.  &  L.  of 
Protection,  1118,  1120 

Pahlman  v.  Taylor,  152 

Palii|iiioque  Bank  v.  Bethel  Bank. 
.V,l 

Paine  v.  Guardians  of  Strand  I'nion, 
H 

Paine  v.  IjikeErie*  L.  R.  Co.,  250, 
1220 

Pairpont  Mauufg.  Co.  v.  PhUa.  Opti- 
cal &  Watch  Co.,  1115 

Palmer  v.  Forbes,  1096 

Palmer  v.  Nassau  Bank,  191 

Palmer  v.  Railway  Co.,  465 

Palmer  v.  Stumph,  870 

Palmer  v.  Whitney,  691 

Pana  v.  Bowler,  897.  980,  981 

Pangburn  v.  Westlake,  520 


Paola  A;  Fall  River  Railroad  v.  Andcr 
son  County  Comra.,  889,  800,  899 

Papc  v.  Capitol  Bank  of  Topeka,  513. 
515 

Parish  v.  Wheel,  r,  153,  496,  1096 

Park    v.   Grant    Locomotive  Works. 

!«;•.',  815 

Park  v.  New  York.  L.  K.  &  W.  R.  R. 

Co.,  I'M  I.  1-,'nj 
Parker  v.  Commonwealth,  48 
Parker  v.  Hartley,  649 
I*arkcr  v.  Jones,  758 
Parker  v.  McKenna.  259 
Parker   v.    Nickerson,   248,  259,  275, 

310 

Parker  v.  Scogin,  49 
Parker  v.  Smith,  977 
Parker  v.  Supervisors  of  Dakota 

County,  798 
I*arker  v.   Supervisors   of    Saratoga, 

130 

Parkersburg  v.  Brown,  44,  788,  880 
Parkhurst  v.  Northern  Central  R.  R. 

Co..  1096 

Parks  v.  Boston,  19 
Parr  v.  Attorney-General.  121 
Parrot t  v.  Byere,  311 
Parry  v.  Highley.  509 
Panel  v.  Barnes  &  Bro.,  Ill 
Parsons  v.  Goshen.  33,  34 
Parsons  v.  Monmouth,  18 
Partridge  v.  Badger.  72,  75,  102,  217 
Pasley  v.  Freeman,  294 
Passaic  Water  Co.  v.  City  of  Paterson, 

1279 
Patriotic  Bank  v.   Farmers'  Bank  of 

Alexandria,  692 

Patteson  v.  Ongley  Electric  Co.,  155 
Patterson  v.  Bank,  609,  610 
Patterson  v.  Robinson,  154,  183,  187, 

400,  401,  402 
Patterson  v.  Stewart,  388 
Pattison  v.  Yuba,  49 
Paul  v.  City  of  Kenosha,  857 
Pauling  v.  London  Ry.  Co.,  284 
Pauly  v.  Coronado  Beach  Co.,  470,  477 
Pauly  v.  Pauly,  491 
IViuly  v.  State  Loan  &  Trust  Co.,  717, 

765 

Paxson  v.  Brown,  895 
Paxton  Cattle  Co.  v.  First  Nat.  Bank, 

234 

Payne  v.  Bullard,  857 
Peabody  v.  Flint,  806,  826 
Peak  v.  Ellicott,  621,  781,  747 
Pearce  v.  Madison,  etc.,  R.  R.  Co.,  94, 

450.  471.  473,478.  498 
Pearson  v.  Concord  R.  R.  Corporation, 

Pearson's  Case,  428 

Peck  v.  Doran  Wright  Co.  (Lim.),  492 

Peck  v.  First  National  Bank,  624,  706 


Ixxx 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  J  contains  pp.  1-707;  vol.  n,  pp.*708-1307.] 


Peck  v.  School  District,  139 
Peddicord  v.  Connard,  639 
Peek  v.  Deny,  292 
Peek  v.  Detroit  Novelty  Works,  162 
Pelton  v.  Bank,  1273,  1297 
Pemigewassett  Bank  v.  Rogers,  583 
Pendleton  v.  Bank  of  Kentucky,  575 
Pendleton  Co.  v.  Amy,  897 
Peninsular  Bauk  v.  Hanmer,  209,  573 
Penley  v.  City  of  Auburn,  4:J.S 
Penobscot  R.  Co.  v.  Dunn,  258 
Penn  v.  Calhoun,  1179,  1193 
Pennell  v.  Deffell,  626,  742 
Pennock  v.  Coe,  1055,  1095 
Pennsylvania    Bank    Assignees'    Ac- 
count, 713 
Pennsylvania    Co.    for    Insurance    of 

Lives  and  for  Granting  Annuities 

v.  Jacksonville,  T.  &  K.  Ry.  Co., 

1157 
Pennsylvania,  Del.  &  Md.  St.  Nav.  Co.  \ 

v.  Daudridge,  145,  234,  439,  452,  j 

496 

Penn.  N.  Gas  Co.  v.  Cook,  1079 
Pennsylvania  Railroad  v.   St.  Louis. 

etc.,  R.  R.  Co.,  473,  488 
Pennsylvania  R.  R.  Co.  v.  Allegheny 

Valley  R.  Co.,  1163,  1172 
Pennsylvania   R.  R.   Co.    v.    City   of 

Philadelphia,  46 
Pensacola  Telegraph  Co.  v.  Western 

Telegraph  Co.,  1293 
Pent/,  v.  Stan  ton,  360 
People  v.   American  Bell   Telephone 

Co.,  1289 

People  v.  Argucllo,  69 
People  v.  Assessor,  1301 
People  v.  Baker,  130 
People  v.  Ballard,  465 
People  v.  Bank  of  Dansvllle,  622 
People  v.  Bank  of  North  America,  667 
People  v.  Barker,  1288,  1290,  1299 
People  v.  Baraga  Township,  446 
People  v.  Batchellor,  994,  1007 
People   v.    Board  of    Supervisors  of 

Logan  County,  910 
People    v.   Board  of    Supervisors  of 

Ford  County,  910 
People  v.  Brinckerhoff,  130 
People  v.  Cass  County,  904,  918 
People  v.  Central  Pacific  R.  R.  Co., 

871,  1304 

People  v.  Chapman,  972 
People  v.  Cheetham,  1302 
People  v.  Chicago  Gas  Trust  Co.,  517 
People   v.    City  Bank  of  Rochester, 

622,  731 

People  v.  Commrs.  of  Taxes,  1301 
People  v.  Common  Council  of  Detroit, 

29 

People  v.  Davenport,  1306 
People  v.  Demarest,  131 


People  v.  Dutcher,  977 

People  v.  Eel  River  &  E.  R.  Co.,  286 

People  v.  Flagg,  114 

People  v.  Gage,  1269 

People  v.  Garner,  979 

People  v.  Glaun,  918 

People  v.  Hamill,  67 

People  v.  Haren,  1302 

People  v.  Hicks,  1301 

People  v.  Holden.  918,  919,  953,  977 

People  v.  Home  Insurance  Co.,  1305 

People   v.    Horn   Silver  Mining  Co., 

1290 

People  v.  Johnson,  63,  802 
People  v.  Lawrence,  132 
People  v.  Logan  County,  905 
People  v.  May,  445 
People  v.  Maynard,  880 
People  v.  Mayor,  1269 
People  v.  Mavor  of  Brooklyn,  901 
People  v.  Meach,  131 
People  v.  Mead,  111 
People  v.    Merchants    &    Mechanics' 

Bank  of  Troy,  650 
People  v.  M.  &  T.  S.  Inst,,  466 
People  v.  Mitchell,  994,  1007 
People  v.  Myers,  852 
People  v.    New  England  Mut.    Life 

Ins.  Co.,  1289 
People  v.  North  River  Sugar  Refining 

Co.,  498,  500,  501 
People  v.  Overyssel  Township  Board, 

243 

People  v.  Pacheco,  68,  69 
People  v.  Pueblo  Countv,  46 
People  v.  Remington,  1144 
People  v.  River  Raisin  &  Lake  Erie  R. 

R.  Co.,  463 
People  v.  Ryan,  1289 
People  v.   St.  Clair  County   Officers, 

128 

People  v.  Salomon,  1269 
People  v.  Stephens,  793 
People  v.  Supervisors,  857 
People  v.  Supervisors  of  Cortland,  130 
People  v.     Supervisors  of    Delaware 

County,  131 
People  v.    Supervisors    of    Dutches* 

County,  131 
People  v. 'Supervisors  of  New  York, 

57,  130 
People  v.   Supervisors  of  Renssclaer, 

130 
People     v.    Supervisors    of     Warren 

County,  131 

People  v.  Tazewell  Countv.  898 
People  v.  Town  of  Bishop',  97",  976 
People  v.  Town  of  Clayton.  974 
Pepple  v.  Town  of  Harp,  975 
People  v.  Town  of  Loenna,  970,  982 
People  v.  Town  of  Oldtown,  904 
People  v.  Town  of  Santa  Anna,  976,  982 


TABLE  OF  CASES. 


[The  references  ore  to  pases:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1807.] 


People  v.  Town  of  Waynesville,  977 

People  v.  'i  rustces  of  Schools,  70 

People  v.  t'tica  Insurant  e  Co.,  1058 

People  v.  Van  Vulkenburg,  976 

Peoplr  v.  Vi'hire  of  Crotty,  4,  5 

People  v.  Warlield.  979 

People  v.  \\';i\nc  Auditors,  128 

People  v.  Weaver,  r,".»7.  £08 

People  v.  Wiaut.  979 

People,  etc.,  v.  Reliance  Marine  Ins. 
Co.  (I.iin.).  1307 

People,  etc.,  v.  Wcinple.  12.H8 

People  ex  rcl.  v.  Canithers  School 
District,  880 

People  ex  rel.  v.  Commissioners,  1306 

People  ex  rel.  v.  Draper,  871 

People  ex  rel.  v.  Mead.  999 

People  ex  rel.  v.  Jackson  County, 
971 

People  ex  rel.  v.  Johnson,  424 

People  ex  rel.  v.  Kingsbury,  424 

People  ex  rel.  v.  La  Salle  County,  424 

People  ex  rel.,  etc.,  v.  Mayor  of 
Chicago.  1005 

People  ex  rel.  v.  Supervisors  of  Broome 
County,  181 

People  ex*  rel.  v.  Supervisors  of  St. 
Lawrence  County,  131 

People  ex  rel.  v.  Tazewell  County, 
944 

People  ex  rel.  American  Bible  Society 
v.  Comrs.  of  Taxes  and  Assess- 
ments, 1239 

People  ex  rel.  American  Contracting, 
etc.,  Co.  v.  Wemple,  1289 

People  ex  rel.  American  Surety  Co.  v. 
Campbell,  1289 

People  ex  rel.  Bay  State  Shoe  & 
Leather  Co.  v.  McLean,  1287 

People  ex  rel.  Brooklyn  Traction  Co. 
v.  Board  of  Assessors,  1288 

People  ex  rel.  Chase  v.  County  Court 
of  Macoupiu  County,  120 

People  ex  rel.  Content  v.  Metropolitan 
Elevated  Ry.  Co..  165 

People  ex  rel.'  Dunkirk,  Alleghany 
Valley,  etc.,  R.  R.  Co.  v.  Camp- 
bell, 1805 

People  ex  rel.  Edison  Electric  Illumi- 
nating Co.  of  New  York  v.  Wem- 
ple. 12K8 

People  ex  rel.  Edison  General  Electric 
Co.  v.  Barker.  12KS 

People  e\  rel.  ( Jeneva  Looking  Glass 
Plate  Co.  v.  Barker,  1288 

People  ex  rel.  Kilmer  v.  McDonald, 
MM 

IV<. pie  e\  rel.  McCagg  v.  Mayor,  etc.. 
of  City  of  Chicago,  54 

People  ex  rel.  McCauley  v.  Brooks,  t'.s 

People  ex  rel.  McCulloiigh  v.  1'acheco, 


XI 


People  ex  rel.  Peabody  v.  Chicago  Gas 

Trust  Co.,  508 
People  ex  rel.  Pennsylvania  R.  li    < 

v.  Wemple,  1305 
People  ex  rel.  Postal  Telegraph  Co.  v. 

Campl>cll,  1289 
People  ex  rel.  Pratt  Institute  v.  Board 

of  Assessors  of  Brooklyn,  1289 
People  e\  rel.  Pn-ttyman  v.  Board  of 

Supervisors  of  Logan  County,  910 
People  ex  rel.  Second   Avenue  R.  R. 

Co.  v.  Barker,  1289 
People  ex  rel.  Seth  Thomas  Clock  Co. 

v.  Wemple,  1290 

People  ex  rel.  Sheldon  v.  Praser,  1299- 
People  ex  rel.  Southern  Cotton  Oil  Co. 

v.  Wemple.  1289,  1805 
People  ex  rel.  Stockwell  v.  Earle.  180 
People  ex  rel.  Singer  Manufacturing 

Co.  v.  Wemple,  1289 
People  ex  rel.  Thurber-Whyland  Co. 

v.  Barker,  1287 

People  ex  rel.  Tiffany  &  Co.  v.  Camp- 
bell, 1290 

People  ex  rel.  Union  Trust  Co.  v.  Cole- 
man,  1288 
People  ex  rel.  Western  Electric  Co.  v. 

Campbell,  1290 

People  ex  rel.  W.  &  J.  Sloane  v.  Bar- 
ker, 1289 
People    ex  rel.   Wood,   Collector,   v. 

Smith.  1271 
People's  Bank  v.  Manufacturers'  Nat. 

Bank.  179,  508 
People's  Bank  v.  St.  Anthony's  Roman 

Catholic  Church,  168 
People's  Gas,  etc.,  Co.  v.  Chicago  Gas 

etc.,  Co.,  494 
People's  Home  Sav.  Bank  v.  Court, 

1123 
Peoria,  Decatur&  Evansville  Railway 

Co.  v.  Commissioners,  1271 
Peoria  &  Springfield    R.   R.   Co.   v. 

Thompson,  487,  1013,  1028 
Percy  v.  Millandon,  247,  553 
Perkins  v.  Bradley,  219 
Perkins  v.  Hurt,  676 
Perkins  v.  Lewis,  901,  953 
Perkins   v.    Portland,  Saco  &  Ports- 
mouth IJailro.nl.  !.">:} 
Perkinson  v.  St.  Louis,  445 
Perley  v.  Miii-ke-on  County.  597 
Perpetual  Ins.  Co   v.  Cohen,  629 
Perrin  v.  Citv  of  New  London.  '.i."»:> 
Perrine  v.  (In -:ipi  ake   A:    Del.    Canal 

Co.,  95,  471,  47s 
Perrv  v.  Council  Bluffs  Water  \\ 

Co.. 

Perry  v.  Phelip- 
Perrv  v.  Simpson  Waterproof  Manufg. 

Co..  i«.« 
Perry  v.  Superior  City,  446 


Ixxxii 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Perry  v.  Tuskaloosa  Cotton  Seed  Oil 

Mill  Co.,  262 

Peterborough  Railroad  v.  Wood,  218 
Peters  v.  Bain,  626,  736,  737,  750,  752, 

1114 

Petersburg  v.  Metzker.  4 
Petersburgh  v.  Mappin,  799 
Peterson  v.  Homan,  358 
Peterson  v.  Mayor,  etc.,  36,  103,  114, 

170 

Peterson  v.  Mille  Lacs  Lumber  Co. ,  809 
Peterson  v.  Union  Nat.  Bank,  601 
Petrie  v.  Myers,  523 
Pettibone  v.  Toledo,  C.  &  St.   Louis 

R.  R.  Co.,  1018 
Pfhol  v.  Simpson.  380 
Pfister  v.  Milwaukee  Electric  Ry.  Co., 

1018 

Pharis  v.  Leachman,  742 
Phelps  v.  Town,  627 
Philadelphia  v.  Barber,  1265,  1266 
Philadelphia  v.  Fox,  29 
Philadelphia   v.    Masonic     Home    of 

Pennsylvania,  1265 
Philadelphia  v.  Pennsylvania  Hospital, 

1266 
Philadelphia  v.  Philadelphia  &  Gray's 

Ferry  Pass.  Ry.  Co.,  104 
Philadelphia  v.  Ridge    Avenue  Ry. 

Co.,  104 

Philadelphia,  etc.,  Railroad  v.  Mary- 
land, 1282 
Philadelphia  Loan  Co.  v.  Towner,  90, 

463 
Phil.  &  Read.  R.  R.   Co.  v.  Fidelity 

Ins.  <fc  Trust  Co.,  1047 
Phil.    &  Read.  R.   R.  Co.  v.   Smith, 

1047 

Philadelphia  Steamship  Co.  v.  Penn- 
sylvania, 1293 
Philadelphia  &  Sunbury  R.  R.  Co.  v. 

Lewis,  1043 
Philadelphia  Trust  Co.  v.  Philadelphia 

&Erie  R.  R.  Co.,  1049 
Philadelphia,  Wilm.  &  Bait.  R.  R.  Co. 

v.  Neary,  1282 
Phil.,   Wilm.    &  Bait.  R.  R.    Co.   v. 

Woelper,  1096 
Philips  v.  Wickham,  153 
Philipps  v.  Franciscus,  629 
Philler  v.  Yardley,  722 
Phillip  v.  Aurora  Lodge  No.  104,  etc. , 

169 

Phillips  v.  Campbell.  98,  173,  217 
Phillips  v.  Huth,  539 
Phillips  v.  Mercantile  Nat.   Bank  of 

the  Cityof  New  York,  589 
Phillips  v.  Winslow,  1096,  1169 
Phillips  Academy  v.  King,  456 
Phinizy  v.  Augusta  &  K.  R.  R.  Co., 

1018,  1093,  1148,  1155,  1188,  1203, 

1244 


Phipps  v.  Millbury  Bank,  682 
Phoenix  Bank  v.  Risley,  597,  676 
Phoenix  Ins.  Co.  v.  Allen,  702 
Picard   v.    Tennessee,  etc.,    Railroad, 

1282 
Pickard  v.  Pullman  Southern  Car  Co. , 

473,  1293 

Pickett  v.  School  District,  139,  263 
Piece  v.  Daniel,  660 
Pier  v.  George,  398 
Pier  v.  Hanmore,  407,  412 
Pierce  v.  Emery,  1054,  1096 
Pierce  v.  Holzer,  748 
Pierce  v.  Milwaukee  Construction  Co., 

1133 
Pierce  v.  Milwaukee  &  St.  Paul  R.  R. 

Co.,  1096 

Pierson  v.  Cronk,  350 
Pike  v.  Middletown,  62 
Pimental  v.   City  of  San  Francisco, 

788 

Pine  Civil  Township  v.  Huber  Manu- 
facturing Co.,  133.  427 
Pine  Lake  Iron  Co.  v.  La  Fayette  Car 

Works  (Adams,   Intervener),  1130 
Pinkard  v.  Allen,  1183 
Piscataqua  Bank  v.  Carter,  602 
Pittsburg  Mining  Co.  v.  Spooner,  298 
Pittsburg    R.    R.    Co.    v.    Allegheny 

County,  1056 
Pittsburgh,  Cin.,  Chicago  &  St.  Louis 

Ry.  Co.  v.  Backusri302,  1303 
Pittsburgh,  C.  &  St.  L.   Ry.   Co.   v. 

Keokuk  &H.  Bridge  Co.,  191,  235, 

467,  473 
Pittsburgh  &  Connellsville  R.  R.  Co. 

v.  Stewart,  191 

Pitzman  v.  Freeburg,  970,  971 
Pixley  v.  Western  Pac.  R.  R.  Co.,  233 
Planters'  Bank  v.  Markham,  690 
Planters'  Bank  v.  Sharpe,  575 
Planters'  Bank  v.  Snod  grass,  530 
Planters'  Bank  v.  Union  Bank,  269, 

597 

Planters'  Bank  v.  Whittle,  1108 
Plaquemines    Tropical    Fruit  Co.  v. 

Buck.  207 
Platt  v.  Beach,  715 
Platt  v.  Birmingham  Axle  Co.,  146 
Platt  v.  Philadelphia  &  Reading  R.  R. 

Co.,  1192 

Platt  v.  Railroad  Company,  1024 
Platt  v.  Sauk  County  Bank,  628 
Pleasant  Township  v.  ^Etna  Life  In- 
surance Co.,  877,  1011 
Pneumatic  Gas  Co.  v.  Berry,  263,  267, 

307 

Police  Jury  v.  Britton,  12,  425 
Polk  v.  Railway  Company,  1105 
Pollard  v.  Bailey,  387,  772 
Pollitz  v.  Farmers'  Loan  &  Trust  Co., 

1035,  1162 


TABLE  OK  CASES. 


Ixxxiii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1307.] 


Pollock  v.  Farmers'  Loan  &  Trust  Co., 

1  •,•::!.  1-JT'i.  i 
Pondir  v.  New  York,  L.  E.  &  W.  R. 

Oo.,  818 

Pondville  ('mii|i:iiiv  v.  Clark,  1108 
pontifex  v.  Biffokf,  -JIM 
po  >ek  v.  I/i  Favette  Building  Assn., 

496 
P(X)1  v.  Farmers'  Loan  &  Trust  Co., 


Poole  v.   Jackson  &  Whyte's   Case, 

1108 
Poole  v.  West  P.  int  Butter  &  Cheese 

Assn.,  816,  831 
Pope  v.  Hank.  ' 
Pope  v.  Bank  of  Albion,  576 
Pope   v.    Hoard  of    Comre.   of    Lake 

County,  685 

Port  v.  RoMoll,  -J14.  263,  816 
Porter  v.    Bessemer    Steel    Co.,  868, 

1095 
Port  IT  v.  Industrial  Information  Co., 

1198 
Porter  v.    Pittsburg   Bessemer    Steel 

Co.,  1241 

Porter  v.  Railroad  Company,  1082 
Portland  k   ().   ('.   H.    R.   Co.   v.  In- 

habitants, etc.  .  of  Hartford,  962 
Portland  Stone  Ware  Co.  v.  Taylor, 

800 
Portsmouth  Savings  Bank  v.  Village 

of  Ashley.  &57 
Post  v.  Kendall  County,  446 
Post  v.  Pulaski  County,  933,  940,  941, 

868 
Postal  Telegraph  Cable  Co.  v.  Charles- 

ton, 1268 

Potter  v.  Douglas  County,  67 
Potter  v.  Merchants'  Bank,  574 
Potter  v.  New  York  Infant  Asylum, 

170 

Potter  v.  Stevens'  Machine  Co.,  887 
Potter  v.  Town  of  Greenwich,  984 

r  v.  I'nited  States,  782,  788 
Potts  v.  Bennett,  26 
Potts  v.  Wallace.  192,  198,  1112 
Pottsville  v.  Norwegian  Township,  135 
Powder  River  Live  Stock  Co.  v.  Lamb, 

[|0 

Powell  v.  Hlain.  1090 
P,.wel|  v.  City  of  Madison,  14,  850 
Powell  v.   Supervisors  of  Brunswick 

County. 
Powell  v.  Willamette  Valley  R.  R.  Co., 

261 

Powers  v.  Briggs.  857,  859 
Powers  v.  Dougherty  County,  49 
Prather  v.  Kean.  587 
Pratt  v.  Beaupre,  858 
Pratt  v.  Brown,  957 
Pratt  v.  Jewett,  818 
Pratt  v.  Luther,  24 


Pratt  v.  Short,  441.  497 

Pratt  v.  Taunton  Copper  Mfg.  Co..  885 

Prentice  v.    Tn/  &  Central 

Am.  St.  Ship  Co.,  156 

Presbyterian   Church   v.  City  of  New 
Vork.  488 
•tt  Nat.  Bank  v.  Butler,  516 

President,  etc.,  v.  Railway  Co.,  268 

Piv-'t,  etc.,  of  Springfield  Bank  v. 
Merrick,  456 

Mining  &   Milling    Co.  v.  Co- 
quard,  170 

Pres't  i  Tru-tees  of  Town  of  Peters- 
burg v.  Mappin,  l',M 

Press  Printing  Co.  v.  State  Board  of 
Assessors,  K".i."> 

Preston  v.  Grand  Collier  Dock  Co., 
324 

Preston  v.  Prather,  537.  558 

Preston  v.  Loughran,  278 

Preston  National  Bank  of  Detroit  v. 
Emerson,  1129 

Preston  Nat.  Bank  of  Detroit  v. 
George  T.  Smith  Middlings  Puri- 
fier Co.,  207 

Prettyman  v.  Supervisors,  etc.,  49 

Prettyman  v.  Tazewell  County,  905, 
964 

Price  v.  Abbott,  715 

Price  v.  G.  R.  &  I.  R.  Co.,  158 

Price  v.  Neale,  669,  673 

Price  v.  Price's  Heirs,  1169 

Prideaux  v.  Criddle,  658 

Priest  v.  Way,  655 

Prince  v.  City  of  Quincy,  40,  68,  69 

Prince  Manufg.  Co.  v.  Prince's  Me- 
tallic Paint  Co.,  263 

Prindle  v.  Washington  Life  Ins.  Co., 
156 

Printing  Co.  v.  Green.  297,  298 

Pritchard  v.  Louisiana  State  Bank,  681 

Protestant  Foster  Home  Soc.  v.  Mayor, 
etc.,  of  New  York,  1280 

Prouty  v.  Mich.  So.  &  No.  Ind.  R.  R. 
Co.,  484 

Providence  Tool  Co.  v.  Norris,  268 

Provident  Institution  v.  Massachu- 
setts. 1274 

Puget  Sound  National  Bank  v.  King 
County,  1297 

Pugh  v.  City  of  Little  Rock,  487 

Pullau  v.  Cin.  &  Ckic.  Air  Line  R.  R. 
Co.,  1054.  1096 

Pullman  v.  Ellis.  1141 

Pullman's  Palace  Car  Co.  v.  Common- 
wealth, 1892 

Pullman  Pahce  Car  Co.  v.  Pennsyl- 
vania. 1274.  1294.  1803 

Pulman  v.  Upton,  1028 

Pumphrey  v.  Threadgill,  1098 

Punlv  v.  Lansing,  976 

Purifier  Co.  v.  McGroarty,  1087,  1114 


Ixxxiv 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Pusey  v.  Meade  County  Court,  127 
Pusey  v.  New  Jersey  West  Line  R.  R. 

Co.,  95 

Putnam  v.  City  of  Grand  Rapids,  66 
Putnam  v.  Jacksonville,  Louisville  & 

St.  Louis  Ry.  Co.,  1187 
Putnam  v.  Ruch,  318 
Putnam  v.  Sullivan,  608 

Q. 

Quaker    City  Nat.    Bank    v.    Nolan 

County,  832 

Quarry  Co.  v.  Bliss,  384,  390 
Queen  v.   Second  Avenue  R.  R.  Co., 

146 

Queenan  v.  Palmer,  403 
Quigley  v.  Walter,  394 
Quill  v.  City  of  Indianapolis,  22,  874 
Quincy  v.  Cook,  959,  962,  964 
Quincy  v.  Jackson,  932 
Quincy,  Missouri  &  Pacific  R.  R.  Co. 

v.  Morris,  71.  959,  962,  964 
Quincy,  etc. ,  R.  R.  Co.  v.  Humphreys, 

1200,  1202 
Quincy,  O.  &  K.  C.  Ry.  Co.  v.  People, 

1305 

R. 

Racine  &  Mississippi  R.    R.    Co.   v. 

Farmers'  Loan  &  Trust  Co.,  1055 
Rahm  v.  King  Wrought  Iron  Bridge 

Manufactory  of  Topeka,  205 
Railroad  v.  Cleghorn,  1108 
Railroad  v.  Davidson  County,  979 
Railroad  v.  McGee,  1098 
Railroad  Bank  v.  Douglas,  506 
Railroad  Co.  v.  Bank,  655 
Railroad  Co.  v.  Brown,  465 
Railroad  Co.  v.  Cheatham,  93 
Railroad  Company  v.  Closser,  1177 
Railroad  Co.  v.  Collins,  479 
Railroad  Company  v.  Collector,  1275 
Railroad  Co.  v.  County  of  Otoe,  16, 

904,  923 
Railroad  Company  v.  Cowdrey,  1186, 

1222 

Railroad  Co.  v.  Crane,  465 
Railroad  Co.  v.  Derby,  546 
Railroad  Co.  v.  Durant,  263,  269 
Railroad  Company  v.  Elizabethtown, 

1169,  1170 

Railroad  Company  v.  Falconer,  988 
Railroad    Co.    v.    Hamblen    County, 

1307 

Railroad  Co.  v.  Hicks,  1307 
Railroad  Co.  v.  Hinsdale,  480 
Railroad  Co.  v.  Howard,   79,  80,  91, 

2-54.  1158 
Railroad    Company    v.    Humphreys, 

1190 
Railroad  Company  v.  Husen,  1293 


Railroad  Co.  v.  Lockwood,  473 
Railroad  Co.  v.  Maine,  1282 
Railroad  Company  v.  Marion  County, 

971 

Railroad  Co.  v.  Mississippi,  720 
Railroad  Company  v.  National  Bank, 

983,  1003 

Railroad  Company  v.  Orr,  1156 
Railroad  Company  v.  Pettus,  1183 
Railroad  Company  v.  Priex  County, 

1282 

Railroad  Co.  v.  Quigley,  321,  546 
Railroad    Co.   v.   Railroad  Co.,   479, 

1241 

Railroad  Co.  v.  Schutte,  1050 
Railroad  Co.  v.  Sloan,  1191 
Railroad  Co.  v.  Wilson,  1251,  1259 
Railroad  National  Bank   v.   City  of 

Lowell,  133,  231 
Railway  Co.  v.  Allerton,  166 
Railway  Company  v.  Dey,  1237 
Railway  Co.  v.  Harris,  321 
Railway  Co.  v.  Iron  Co.,  480 
Railway  Co.  v.  Johnson,  1224,  1228 
Railway  Co.  v.  McCarthy,  107,  488 
Railway  Company  v.  People,  1302 
Railway  Company  v.   Schuyler,  1050 
Railway  Co.  v.  Stark,  1247 
Railway  Company  v.  Whitton,  1148 
Railway  Company  v.  Wilkes,  937 
Railway  Frog         v.  Haven,  296 
Ralph  v.   Shiawassee  Circuit  Judge, 

1123 
Rails  County  Court  v.  United  States, 

72,  847,  932 
Ralston  v.  Washington  &  C.  R.  Ry 

Co.,  1192 

Ramsey  v.  Erie  Ry.  Co.,  495,  1043 
Ramson  v.  Mayor,  etc. ,  of  New  York, 

59 
Ranger  v.  Champion  Cotton-Press  Co., 

312,  1124 

Rapp  v.  Bank,  601 
Rasmusson  v.  County  of  Clay,  436 
Ratcliff  v.  Teters,  806 
Rathbone  v.  Parkersburg  Gas  Co.,  316 
Rathbone  v.  Sanders,  525 
Rathbun  v.  Snow,  103,  183 
Ratterman    v.    Western  Union  Tele- 
graph Co.,  1268,  1293 
Raub  v.  Blairstown  Creamery  Assn., 

203 

Ray  v.  Bank  of  Kentucky,  636 
Raymond  v.  Clark,  1096 
Raymond  v.  S:m  Gabriel  Val.  Land  & 

Water  Co.,  263 
Re,  Asiatic  Banking  Co.,  76 
Re,  Barned's  Banking  Co.,  76 
Re,  Bates,  1144 
Re    New   York  Catholic  Protectory, 

1288 
Reagan  v.  Aiken,  720 


TABLE  OF  CASES. 


Ixxxv 


[The  references  are  to  pages:  rol.  I  contains  pp.  1-707;  TO!.  II,  pp.  706-1807.] 


Recamier  Manufg.  Co.  v.  Lyman,  817 
Redingtou  v.  Woods,  674 
Redmond  v.  Dickerson,  250,  258 
Redmond  v.  Ifciilway  Company,  1250 
Red  NVillow  County  v.  Chicago,  B.  & 

L.  R.  R.  Co.,  1302 
Ri-f.1  v.  Buffum,  155 
Reed  v.  I'lattsmouth,  859,  925 
Reed  v.  Powell,  175 
Ri-iil  v.  Bank  of  Mobile,  952 
Reese  v.  Mitchell.  641 
Reeve  v.  Bank,  155 
Reeve  School  Township   v.   Dodson, 

133,  427 

Rehmke  v.  Goodwin,  67 
Reichwald  v.  Commercial  Bank,  97 
Reichwald  v.  Hotel  Company,    1084, 

1112 
Reincman  v.  Coviugton,  Columbus  & 

Black  Hills  Railroad,  928 
Relfe  v.  Rundle,  466 
Removal  Cases.  720, 1150 
Reno  Water  Co.  v.  Leete,  191 
Resor  v.  Ohio  &  Mississippi  R.  R.  Co., 

1096 

Rew  v.  Pettet,  98 
Reynes  v.  Dumont,  528,  544, 1273 
Reynolds  v.   Commissioners  of  Stark 

County,  1055,  1058 
Reynolds    v.    Continental    Insurance 

Co.,  152,  193 

Reynolds  v.  Crawfordsville  Bank,  512 
Reynolds  v.  Shreveport.  857 
Reynolds  &  Henry  Construction  Co.  v. 

Police  Jury.  151 
Rhodes  v.  McDonald,  265 
Rhodes,  Assignee,  v.  Webb,   175,  249 
Rice  v.  Plymouth  County,  124 
Rice's  Appeal,  275 
Rich  v.  Errol,  134 
Rjrh  v.  Town  of  Mentz,  976 
Richards  v.  Crocker.  407 
Richards  v.  Insurance  Company,  1108 
Richards  v.  Merrhnnck  &  Connecticut 

River  Railroad,  1054,  1055,  1158 
Richards  v.  New  Hampshire  Ins.  Co., 

M 

R:dmrds  v.  Railroad,  98 
Richardson  v.  Green.  268 
Richardson  v.  Lawrence  County,  904 
Richardson   v.    Massachusetts    Chari- 
table Mechanics'  Assn.,  4.~>7 
Richardson    v.    St.   Joseph  Iron  Co., 

144 

Richardson  v.  Sibley,  466.  471.  1068 
Richardson  v.  Vermont  &  Mass.  R.  R. 

Co.,  485 
Richardson's  Executor  v.  Green,  266, 

UW.-I.  10S5.  111I5 
Richelieu    Hotel    Co.    v.    International 

Military   Encampment  Co.,   -ITu. 

478 


Richmond  v.  Irons,  175,  758,  768,  768, 

769,  770.  772 
Richmond  County  Gas  Light  Co.  r. 

Town  of  Middlctown,  29 
Richmond,  etc.,  R.  R.  Co.  v.  Snead, 

210,  859 

Richt.-r  v.  Jerome.  1158,  1162 
Rickets  v.  Spraker,  ! 
Rickford  v.  Ridge,  658 
Ricord  v.  Railroad  Co.,  92 
Riddle  v.  County  of  Bedford,  161 
Rider  Life  Raft  Co.  v.  Roach,  170 
Ridgley  Nat.   Bank  v.   Patton,   687, 

644 
Ridgeway  v.  Farmers'  Bank  of  Buck* 

County,  75,  102 
Riley  v.  Pettis  County,  129 
Ring  v.  County  of  Johnson,  971 
Ringling  v.  Conn,  504,  572 
Rings  T.  Binns,  251 
Rings  v.  Biscoe,  1112 
Ring  &  Reil  v.  Foster,  608 
Rio  Grande  Cattle  Co.  v.  Burns,  821 
Ripley  v.  Sampson,  387,  769 
Risk  v.  Banking  Company,  1129 
Risley  v.  Ind.,  B.  &  W.  R  R.  Co.,  242, 

278 

Risley  v.  Phenix  Bank,  653,  666 
Ritchie  v.  Franklin  County,  880 
Rittenhouse  v.  Mayor,  etc.,  of  Balti- 
more, 29 

Roan  v.  Winn,  254,  550,  1119 
Robbins  v.  Bacon,  665 
Robbins  v.  Board  of  Comrs.  of  Morgan 

County,  81 

Robbins  v."  Railroad  Company,  957 
Robbins  v.   Shelby  Taxing  District, 

1267 

Robbins  v.  Shelby  County,  1293 
Roberts  v.  Austin  Corbin  &  Co.,  662 
Roberts  v.  Breed  love,  14 
Roberts  v.  Broome,  742 
Roberts  v.  Hill,  544 
Roberts  v.  Pottawatomie  County,  28, 

126 
Roberts  &  Co.  v.  Iron  Car  Equipment 

Co.,  1048 

Robertson  v.  Breedlove,  828 
Robertson  v.    Buffalo    County    Nat. 

Bank,  566 
Robertson  v.  City  of  Rockfonl,   49, 

958 
Robinson     v.     Alabama    &    Georgia 

Manufg.  Co.,  1234 
Robinson  v.  Ames.  702 
Robinson  v.  Atlantic  &  Great  Western 

Ry.  Co.,  1059 

Robinson  v.  Hawksfprd,  658 
Robinson  v.  Iron  Railway  Co.,  1172 
Robinson  v.  I  .and  Company,  1057 
Robinson  v.  Nat.  Bank  of  'Newberne, 

BM 


Ixxxvi 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1S07.] 


"Robinson  v.  Smith,  282,  801,  302,  306, 

348,  349,  554,  556,  557,  560 
Robinson  v.  Thompson,  402 
Robinson  v.  Turrentine,  772 
Robison  v.  McCracken,  268 
Roby  v.  City  of  Chicago,  793 
Rochester  Bank  v.  Harris,  506,  649 
Rochester   Printing    Co.    v.    Loomis, 

621 
Rochester  Savings  Bank  v.   Averill, 

1061,  1066 
Rock  County  Nat.  Bank  v.  Hollister, 

681 
Rock  Creek  Township  v.  Strong,  1011, 

1012 
Rockford,  R.  I.  &  St.  L.  R.  R.  Co.  v. 

Sage,  279,  356 

Rock  River  Bank  v.  Sherwood,  527 
Rockwell  v.  Elkhorn  Bank,   75,  102, 

574 
Rockwell   v.    Farmers'  Nat.  Bank  of 

Longmont,  531 
Rodman  v.  Justices  of  Larue  County, 

127 

Rogan  v.  City  of  Watertown,  13 
Rogers  v.  Board  of  Comrs.  Le  Sueur 

County,  67,  428 
Rogers  v.  Burlington,  12,  49,  56,  328, 

949,  954,  1000 
Rogers  v.  Durant,  657 
Rogers  v.  Keokuk.  955 
Rogers  v.  La  Fayette  Agr.  Works,  306, 

315 

Rogers  v.  Lee  County,  955 
Rogers  v.  Stevens,  994 
Rogers  Locomotive  &  Machine  Works 

v.  Southern  R.  R.  Assn.,  1049 
Roll  v.  City  of  Indianapolis,  29 
Rolland  v.  Hart,  338 
Rolling  Stock  Co.  v.  Railroad,  282 
Rollins  v.  Clay,  258,  325 
Rollins  v.  Shaver  Wagon  &  Carriage 

Co.,  470,  1073,  1074,  1087,  1112 
Rolseth  v.  Smith,  349 
Root  v.  Olcott,  170 
Roper  v.  Town  of  Laurinburg,  60 
Rorke  v.  Thomas,  394,  399 
Rosborough  v.    Shasta    River    Canal 

Co.,  233 

Roseboom  v.  Whitaker,  253 
Rosenberg  v.  First  Nat.  Bank  of  Tex- 

arkana,  524 

Rosenblatt  v.  Habermann,  661 
Rosenthal  v.  Martin  Bank,  665 
Ross  v.  City  of  Philadelphia,  198 
Rothrock  v.  Carr,  27,  122,  431 
Rounds  v.  Smith,  652 
Rouse  v.  Bank.  1087,  1111,  1113,  1114 
Rouse  v.  Harry,  1232 
Rowe  v.  Table  Mountain  Water  Com- 
pany, 205 
Rowe  v.  Tipper,  693 


Rowley  v.  Fair,  375 

Roy  &  Co.  v.  Scott,  Hartley  &  Co.. 

491 

Royal  Bank  of  India's  Case,  164 
Royal  Bank  of    Liverpool   v.   Grand 

Junction  R.  R.  &  Depot  Co..  1014 
Royal  British  Bank  v.  Turquand,  980 
Ruby  v.  Shain,  46 
Ruby  v.  Abyssinian  Society,  312 
Rudd  v.  Robinson,  261 
Ruffner  v.  Coal  Co.,  809 
Ruggles  v.  Collier,  59,  114 
Rumbough  v.  Southern  Improvement 

Co.,  218 

Rumford  v.  Wood,  795 
Rumford  School  District  v.  Wood,  34 
Runyan  v.  Coster's  Lessee,  478 
Runyon  v.  Montfort,  686 
Rushville  Gas  Co.  v.  City  of  Rush- 

ville,  864 

Russell  v.  Cage,  14,  834 
Russell  v.  Cook,  121 
Russell  v.  Hadduck,  649,  743 
Russell  v.  Railway  Co.,  490 
Russell  v.  Southard,  982 
Russell  v.  Tate,  44 
Rutherford  v.  Davis,  1272 
Rutland  &  Burlington  R.  R.   Co.  v. 

Proctor,  489 

Rutland  R.  R.  Co.  v.  Haven,  287 
Rutland  R.  R.  Co.  v.  Thrall,  484 
Ryall  v.  Rolle,  623,  626 
Ryan  v.  L.  A.  &  N.  W.  Ry.  Co.,  258, 

261,  275 

Ryan  v.  Lynch,  851,  852,  1004 
Ryder  v.  Alton  &  Sangamon  River  R. 

R.  Co.,  49 

S. 

Sabin  v.  Columbia  River  Lumber  & 

Fuel  Co.,  1035 

Sackett  v.  City  of  New  Albany,  68,  69 
Sackett's    Harbor    Bank     v.     Lewis 

County,  460 

Safford  v.  Wyckoff,  102,  469 
Sage  v.  Culver,  318 
Sage  v.  Heller,  1118 
Sage  v.  Memphis  &  Little  Rock  R.  R. 

Co.,  1159,  1222 
Sagory  v.  Dubois,  521 
St.  John  v.  Homans,  660 
St.  John  v.  O'Connell,  681 
St.  Joseph  &  Denver  City  R.  R.  Co. 

v.  Buchanan  County,  46,  49,  964 
St.  Joseph,  etc.,  R.  R.  Co.  v.  Humph- 
reys, 1202 
St.    Joseph   Fire   &  M.    Ins.  Co.  v. 

Hauck,  493 
St.  Joseph  Township  v.  Rogers,  71. 

911,  980 
St.  Louis  Bridge  &  Tunnel  R.  R.  Co., 

1302 


TAI1I.K  OF  CASES. 


Ixxxvii 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 

St.  Louis  Car  Co.  v.  Stillwater  Street  Sampson  v.  Bowdoinham  Steam  Mill 

Ry.  Co.,  1188  Corporation.  159 

St.  Louis  Drug  Co.  v.  Robinson,  4'.i:>  SHI  Antonio  \.  .Jones.  49 

St.  I.ouU  etc     H.  R.  Co.  v.  Cleveland,  San  Antonio  v.  Ijinc,  955 
etc..  R.  R.  Co  ,  1239,  1241 


St.  Louis,  etc.,  H.  R.  Co.  v.  Johnston, 

tijl.  750 
St.   Ix>uis.  Ft.  Scott  &  W.  R.  Co.  v. 

Grove,  156 
St.  Louis,  Ft.  Scott  &  Wichita  R.  R. 

Co.  v.  Tiernnn,  276 
St.  Louis,  Iron  Mountain  &  So.  Ry. 

Co.  v.  Anthony,  129 
8t.  Louis,  Iron  Mountain,  etc.,  R.  R. 

Co.  v.  Berry,  1282 
St.  Louis  &  Sandoval  Coal  &  Mining 

Co.  v.   Sandoval  Coal  &  Mining 

Co..  856 
St.  Louis  &  8.  F.  Ry.  Co.  v.  Apper- 


St. 


son.  1802 
Louis    & 


Gracy,  1263 


Santa  Fe  Ry.   Co.   v. 


St.   Louis  &  8.   F.   Railway  Co.   v. 

Johnston,  612,  613.  614,  619 
St.  Louis  &  S.  F.  R.  Co.  v.  Kirkpat- 

rk-k,  239 
St.  Louis  8.  W.  Rv.  Co.  v.  Graham, 

Intervener,  12J7 

St.  Louis  8.  W.  Ry.  Co.  v.  Stark,  1 175 
St.  Louis,  Vandalia  &  T.  H.  R.  R.  (  o. 

v.  Terre  Haute  &  Ind.  R.  R.  Co., 

486 
St.  Mary's  Industrial  School  for  Boys 

v.  Brown,  30 
St.  Nicholas  Insurance  Co.  v.  Howe, 

198 
St.  Nicholas  Nat.  Bank  v.  Bank  of  the 

State  of  New  York,  654 
St.  Paul.  M.  &  M.  Ry.  Co.  v.  City  of 

St.  Paul.  1282 
St.  Paul  &  Sioux  City  R.  R.  Co.  v. 

Robinson.  1802 
St.  Paul  &  Sioux  City  R.  R.  Co.  v. 

Shanks,  1802 

St.  R.  Co.  v.  Morrow,  1807 
Salem  Bank  v.  Gloucester  Bank,  567 


San  Antonio  v.  Lewis,  108 

San  Antonio  v.  Mchaffy,  328,  488,  990 

San  Antonio  &  G.   S.'  H.   H.  Co.    v. 

Davis,  1123 

Sanborn  v.  Decrfleld,  134 
San  Dici^o  County    v.  California  Nat 

Bank,  7*5.  788 
San  Diego,  8.  D.  &  L.  A.   R  R.  Co., 

I'.Hi 

San  Diego  Water  Co.  v.  City  of  San 

Diego,  44,  118 
Sands  v.  Matthews,  665 
Sandy  River  Bank  v.    Merchants   & 

Mechanics'  Bank,  578 
Sand  ford  v.  Prentice,  808 
San  Francisco  Gas  Co.  v.  City  of  Sao 

Francisco,  29 
San  Francisco  Water  Co.  v.  Pattee, 

vra 

Sang  v.  City  of  Duluth,  438 
Sangamon,  etc.,  R.  R.  Co.  v.  County 

of  Morgan,  871 
Sanger  v.  Upton,  1028 
San  Joaquin  Valley  Bank  v.  Bours, 

580 
Sankey  v.  Terre  Haute  &  S.  W.  R.  R. 

Co.,  949 
San  Luis  Obispo  County   v.   Pettit, 

374 

Santa  Cruz  Co.  v.  Spreckels,  263 
Sargent  v.  Franklin  Ins.  Co..  768 
Sargent  v.  Kansas  Midland  R.  R.  Co., 

262 

Sargent  v.  Webster.  1074,  1084, 
Sartwell  v.  North,  337 
Satterlee  v.  Strider,  901 
Sauer  v.  Town  of  Nevadaville,  876 
Savage  v.  Rix,  359 

Savage  Mfg.   Co.  v.  Worthington.  78 
Savannah  &  Memphis  R.  R.  Co.   v. 

Lancaster,  93 
Savings  Bank  v.  Hamlin,  571 


Salem  Land  Co.  v.  Montgomery  Land  ;  Savings  Bank  v.  Holt,  562 


Co.,  198 
Sali-m  Turnpike  v.  County  of  Essex, 

871 
Salem  Water  Co.   v.   City  of  Salem, 

68 

Saline  County  v.  Anderson,  798 
Saline  County  v.  Wilson.  128 
Salmon  v.  Richardson,  289,  847 
Salmon  Falls  Bank  v.  Leyser,  514 
Salomons  v.  Laing,  77,  452 
Salt  Company  v.  Guthrie,  1178 
Salt  Lake  City  v.  Hollister,  821,  478 
Salt  marsh   v.    Spaulding,     273,    809, 

1073,  1075 
Sammis  v.  Clark,  603 


Savings  Bank  of  New  Haven  v.  Davis, 

143 

Sawyer  v.  Hoag.  255,  1028.  1108 
Sawyer  v.  Manchester  &  Keene  R.  R. 

Co.,  976 

Sayers  v.  First  Nat.  Bank,  155 
Saylor  v.  Bushong,  648 
Sayles  v.  Bates,  774 
Sayre  v.  Association,  1178 
Scanlan  v.  Ki-ith.  :r>7,  858,  859 
Schacffcr  v.  linnham.  971,  977 
Schalltinl    v.    Kd   River  Steam   Nav. 

Co.;  i.vi 

Schanck  v.  Mayor,  42 
Schenck  v.  Andrews,  164 


Ixxxviii 


TABLE  OF  CASES. 


[The  referenees  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  IL,  pp.  70&-1307.] 


Schenck  v.  Bandmann,  884 
Schetter  v.  Southern  Oregon  Improve- 
ment Co.,  263 

Schierenberg  v.  Stephens,  712 
Schindelholz  v.  Collum,  1118 
Schneider  v.  Irving  Bank,  602,  646 
Schneitman  v.  Noble,  176 
Schoff  v.  Bloomfield,  137 
Schofield  v.  Henderson,  416 
Scholey  v.  Rew,  1275 
School  District  v.  Padder,  139 
.School  District  v.  Snell,  40 
School  District  v.  Stone,  842,  844,  876, 

968 
School  District   2    of    Township    of 

Buckeye  v.  Clark,  794 
School  District  No.  3,  etc. ,  v.  Western 

Tube  Company,  40 

School  District  No.  39,  etc.,  v.  Sulli- 
van, 115 
School  Town  of  Monticello  v.  Kendall, 

20 

Scott  v.  People,  4,  5 
Schrader  v.    Manufrs.  Nat.    Bank  of 

Chicago,  175 

Schuler  v.  Laclede  Bank,  662 
Schultz  v.  Jerrard,  1129 
Schum  v.  Seymour.  443,  445 
Schurr  v.  Investment  Co.,  458 
-Schuyler  County  v.  The  People,  898, 

1004 
'Schuylkill   County  v.    Citizens'    Gas 

Company,  1267 
Scipio  v.  Wright,  15,  915 
Scobey  v.  Decatur  County,  123 
Scofield  v.   Parlin  &  Orendorff  Co., 

810 

Scofield  v.  State  Nat.  Bank,  511 
Scotland  County  v.  Hill,  858,  1021 
Scott  v.  Armstrong,  525,  733,  734 
Scott  v.  Avery,  1152 
Scott  v.  Clinton  &  S.  R.  R.  Co.,  1055 
Scott  v.  Depeyster,  248,  302,  306,  364 
Scott  v.  Independent  District  of  Har- 

din  County,  139 
Scott  v.  Johnson,  187 
Scott  v.  Nat.  Bank  of  Chester  Valley, 

366,  636 

Scott  v.  Noely,  1139 
Scott  v.  Ocean  Bank,  688 
Scott  v.  Shirk,  638 
Scott  v.  W.,  etc.,  R.  R.  Co.,  234 
Scott  v.  City  of  Davenport,  66,  69 
Scott's  Excrs.  v.   Shreveport,   17,   114 
Scottish  North  Eastern  Ry.   v.   Stew- 
art, 447 

Scudder  v.  Anderson,  181 
Scudder  v.   Trenton  Delaware  Falls 

Co.,  917 

Sc-idder  v.  Union  National  Bank,  1021 
Seal  v.  Puget  Sound  Loan  &  Invest- 
ment Co.,  236,  1078 


Seale  v.  Baker,  288 

Seaman  v.  Baughman,  22 

Search  v.  Ellicott,  1119 

Searight  v.  Payne,  76,  819 

Sears  v.  Hotchkiss,  306 

Sears  v.   Trustees  Illinois  Wesleyan 

University,  211 
Sears  v.  Waters,  390 
Seaver  v.  Coburn,  359 
Second  Nat.  Bank  v.   Pettier  &  Sty- 

mus  Mfg.  Co.,  235,  362 
Second  Nat.  Bank  of  Albany  v.  Wil- 
liams, 647 
Second  Nat.    Bank  of  Baltimore    v. 

Western  Nat.  Bank  of  Baltimore, 

690 
Second  Nat.    Bank  of  Baltimore    v. 

Wrightson,  630 
Second  Nat.   Bank  of  Louisville    v. 

Nat.  State  Bank  of  New  Jersey, 

527 
Second  National  Bank  of  New  Albany 

v.  Town  of  Danville,  38,  39 
Second  &  Third  St.  Pass.  Ry.  Co.  v. 

Philadelphia,  104 
Security  Bank  v.  Cushman,  549 
Security  Bank  of  Minnesota  v.  North- 
western Fuel  Co.,  616 
Security    Bank    of    New     York    v. 

National  Bank  of  the  Republic, 

654 

Security  Co.  v.  Ball,  605 
Security  Sav.  &  Trust  Co.  v.  Piper, 

1123 

Sedgwick  v.  Lewis,  152 
Seeley  v.  Bridges,  55,  917 
Seeley  v.  San  Jose  Independent  Mill 

&  Lumber  Co.,  154,  196 
Seibert   v.    Minneapolis  &  St.   Louis 

Ry.  Co.,  1080,   1102,   11^0,   1153, 

1159,  1204 

Seibrecht  v.  City  of  New  Orleans,  121 
Seiser  v.  Mali,  287 
Selby  v.  McCullough,  661 
Seiser  v.  Brock,  608 
Seneca  County  Bank  v.  Neass,  550 
Senter  v.  Continental  Bank,  661 
Settle  v.  Van  Evrea,  838 
Seventh  Nat.  Bank  v.  Cook,  645 
Seventh  National  Bank  v.  Shenandoah 

Iron  Co.,  1255,  1256 
Sewage  Co.  v.  Hartmont,  298 
Sewauee  Mining  Co.  v.  McCall,  152 
Seward  County  v.  Cattle,  597 
Sewell  v.  Beach  Company,  1122 
Sewickley  Borough  v.  Tholes,  1265 
Seybert  v.  City  of  Pittsburg,  16,  954 
Seymour  v.  Canandaigua  &  Niagara 

Falls  R.  R.  Co.,  1096 
Sevmour  v.  Spring  Forest  Cemetery 

Assn.,  236,  457,  470 
Shaffer  v.  Hahn,  809 


TABLE  OF  CASES. 


Ix.XXLX 


[The  references  are  to  pages:  ToL  1  contain*  pp.  1-707;  voL  II,  pp.  708-1107.* 


Shaffner  v.  Edgerton,  655 
Shamokin  Valley  R.  R.  Co.  v.  Liver- 
more,  1096 

iShainl  v.  Du  Buisson,  665 
Miiirik  v.  Shoemaker,  121 
Shannon  v.  Portsmouth,  798 
Shapley  v.  Abboct,  995 
Sharpless  v.  Mayor,  44,  48,  49,  964 
Sli.-i\ .  r  v.  Ik-ar  Kiv.-r.  etc.,  Co.,  190,  198 
Shaver  v.  Hardin.  236 
Shaw  v.  Bill.  1055 
Shaw  v.  Campbell  Turnpike  Road  Co., 

820 

Shaw  v.  County  of  Pina,  798 
Shaw  v.  Clark," 549 
Shaw  v.  Dennis,  49,  901 
Shaw  v.  Independent  School  Dist.  of 

Riverside,  896 
Shaw  v.  Port  Phillip  &  Colonial  Gold 

Mining  Co.,  834,  335,  344,  1148 
Shaw    v.    Railroad    Company,    1001, 

1080,  1158.  1162 
Shaw  v.  Spencer,  589 
Shawmut     Bank     v      Plattsburg    & 

Montreal  R.  Co.,  819 
Shea  v.  Mabrv,  568,  1108 
Shear  v.  K.  &  K.  R  R.  Co.,  563 
Sheboygan  Count}'  v.  Parker,  1000 
Sheffield  School  Township  v.  Andress, 

20,  89 
Shelby  v.  Chicago  &  Eastern  111.  R.  R. 

Co.,  493 
Shelby  County  v.  Tennessee  &  T.  Ry. 

Co.,  1302 
Shelby  County  Court  v.  C.  &  O.  R.  R. 

Co.,  46,  908 
Shelbyville,    etc.,    Turnpike    Co.    v. 

B'arnes,  471 
Shelbyville  Trustees  v.  S.  &  E.  T.  Co., 

46 

Sheldon  v.  Mann,  1081 
Sheldon,  etc.   Co.  v.  Eickeymeyer  Hat 

Blocking  Machine  Co.,  490 
Shepaug  Voting  Trust  Cases,  500 
Sheppard  v  Township,  136 
Sheridan  Electric  Light  Co.  v.  Chat- 

ham  JSat.  Bank,  169.  368 
Sherlock  v.  Village  of  Winnetka,  849, 

878,  879 

Sherman  v   Carr,  60 
Sherman  v    Fitch.  197,  288 
Sherman  v.  Slcytmrk,  897 
Sherman  Center  Town  Co.  v.  Fletcher, 

490,  821 
Shrrman  Center  Town  Co.  v.  Morris, 

103,  821 
Sherman  Center  Town  Co.  v.  Russell, 

461.  821 
Slierman  Center  Town  Co.  v.  Swignrt, 

198 
Sherwood  v  Milford  State  Bank,  748, 

752 

xii 


Shields  v.  Ohio,  1282 

Shi.-l.is  v.  Thomas,  788 

Shinf>one  v.    Randolph   County,  948, 

'.Ml 
Shiiikle  v.  First  Nat.  I'a:ik  of  Riplcv, 

505,536 
Shipman  v.  Bank  of  the  State  of  New 

York,  878.  590 
Shipman  v.  State,  446 
Shiji^-v  v    liow.-ry  Nat.  Bank,  708 
Shirk  v.  Pulaski  County,  487 
Shtx-kley  v.  Fisher,  111 
Shorb  v.  Beaudry,  25* 
Shotwell  v.  Mali.  286,  287 
Sho waiter  v.  Improvement  Co.,  1123, 

1129 
Shrewsbury   &    Birmingham   Ry.   v. 

Northwestern  Ry.,  448 
Shrewsbury  v   Blount,  294 
Shrieve  v.  Duckham,  657 
Shunk  v.  Bank,  539 
Sicardi  v.  Oil  Company,  111 
Sice  v.  Cunningham,  702 
Sickels  v.  Richardson,  266 
Siebricht  v.  New  Orleans.  446 
Sieby    v.     Joshua     Hendy    Machine 

Works,  210 
Silliman  v.  Fredericksburg,  O.  &  C. 

R.  R.  Co.,  152 

Silva  v.  Metropolitan  Drug  Co.,  183 
Silver  Lake  Bank  v.  North,  65,  459, 

1059 

Simmes  v.  Chicot  County,  63 
Simmons  v.  Troy  Iron  Works,  820 
Simms  v.  Hervey,  857 
Simons  v.  Fisher,  565 
Simons  v.  Patchett,  372 
Simons  v.  Vulcan  Oil  &  Mining  Co  . 

260,  275.  291,  298,  299 
Simpson  v.  Dennison,  491 
Simpson  v.  Turney,  698 
Simpson  v.  Waldby,  702 
Simpson  Centenary  College  v.  Bryan, 

455 

Sims  v.  Board  of  Comrs.,  etc.,  122 
Singer  Manufg.  Co.  v.  Holdfodt,  153 
Sioux  City  v.  Weare,  446,  851 
Sioux  City  &  St.  Paul  R.  R.  Co.  v. 

King,  1302 
Sioux  City  &  St.  Paul  R.  R  Co.  v. 

<K.  .-ola  County,  826,  840 
Sioux  City  &  St.  Paul  R  R.  Co.  v. 

Robinson,  1302 
Sistare  v.  liest,  183,  466 
Sisters  of  St.  Francis  v.  Mayor,  etc., 

of  New  York,  1289 
Skiddy  v   Railroad  Company,  1158 
Skiles  v  Houston,  712 
Skinner  v.  City  of  SanU  Rosa,  969 
Skinner     v.    Merchants'    Bank,    330, 

832 
Skinner  v.  Smith,  277 


xc 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


Skinner  v.  Walter  A.  Wood  Mowing 

&  Reaping  Machine  Co.,  217 
Slack  v.  Maysville  &  Lexington  R.  R. 

Co.,  12,  49,  54,  901 
Stark  v.  Highgatr  Archway  Co.,  90 
Slater  v.  Oriental  MilK  TW,  752 
Slater  "Woolen  Co.  v.  Lamb,  515,  822 
Slattcry  v.  St.  LOUH  &  N.  O.  Transp. 

Co.,  316 

Slaughter  v.  State  ex  rel.,  792 
Slaymaker's  Admr.  v.  Jaffray  &  Co., 

418 
Small  v.    Minneapolis  Electro-Matrix 

Co.,  475 

Small,  Receiver,  v.  City  of  Lawrence- 
burgh,  1272 
Smallwood    v.    La  Fayette   County, 

129 

Smead  v.  Ind.,  Pittsburgh  &  Cleve- 
land R.  R.  Co.,  78,  98,  464 
Smedes  &  Utica  Bank.  681 
Smith  v.  Ala.  Life  &  Fire  Ins.  Co.,  74, 

439,  477 

Smith  v.  Alexander,  186 
Smith  v.  Appleton,  41 
Smith  v.  Aylesworth,  641 
Smith  v.  Bank,  508,  528 
Smith  v.  Branch  Bank  at  Mobile,  652 
Smith  v.  Case,  761 
Smith  v.  Cheshire,  857 
Smith  v.  Chicago  &  North  Western 

Railway,  1173 

Smith  v.  City  of  Newburgh,  114,  444 
Smith  v.  Commissioners,  123 
Smith  v.  County  of  Clark,  903 
Smith  v.  County  of  Los  Angeles,  119, 

430 

Smith  v.  Cramer,  36 
Smith  v.  Essex  County  Bank,  688 
Smith  v.  Eureka  Flour  Mills,  74,  99 
Smith  v.  Exchange  Bank,  515 
Smith  v.  First  Nat.  Bank  of  Crete, 

535 
Smith  v.  First  Nat.  Bank  of  Westfield, 

636 

Smith  v.  Flanders,  522 
Smith  v.  Florida  Central  &  Western 

R.  R.  Co.,  1043 
Smith  v.  Hodson,  332 
Smith  v.  Hull  Glass  Co.,  154 
Smith  v.  Hurd,  212,  320,  560 
Smith  v.  Inhabitants  of  Dedham,  68 
Smith  v.  Janes,  707 
Smith  v.  Law,  73,  75,  102 
Smith  v.   Los   Angeles    Immigration 

Land  Co.,  261 
Smith  v.  McLean,  690 
Smith  v.  McNair,  879 
Smith  v.  Martin  Anti-Fire  Car  Heater 

Co.,  151,  234,  236 

Smith  v.  Mayor,  etc.,  of  New  York,  57 
Smith  v.  Mechanics'  Bank,  671 


Smith  v.  Mosby,  628 

Smith  v.  Nashua  &  Lowell  Ruilr  >ad, 

145 

Smith  v.  Ossipee  Savings  Bank,  617 
Smith  v.  Poor,  560 
Smith  v.  Pratt ville  Manufg.  Co.,  348 
Smith  v.  Prior.  1135 
Smith  v.  Rathbun,  551 
Smith  v.  Sac  County,  980 
Smith  v.  Sage,  394 
Smith  v.  Shawnee  County,  28 
Smith  v.  Skeary,  1084,  1108,  1112 
Smith  v.  Smith,  192,  194,  210,  263 
Smith  v.  Tracy,  172 
Smith  v.  White,  470,  495 
Smith  Bridge  Co.  v.  Louisville,  N.  A, 

&  St.  L.  R.  R.  Co.,  1251 
Smith  Canal  or  Ditch  Co.  v.  City  of 

Denver,  444 
Snelling  v.  Soffrion,  Prest.  of  Police 

Jury,  18 

Snyder's  Sons  Co.  v.  Armstrong,  720 
Snyder  Township  v.  Bovaird,  136 
Societe  des  Mines  D' Argent  et  Fon- 

deries  de  Bingham  v.  Mackintesh, 

264 

Society  for  Savings  v.  Coite,  1274 
Soens  v.  Racine,  957 
Solomon  v.  Penoyar,  350 
Sombrero  Phosphate  Co.  v.  Erlanger, 

297,  299 
Southern  California  Colony  Assn.   v. 

Bustamente,  155,  204 
Southern  Development  Co.  v.  Houston 

&  Texas  Central  Ry.  Co.,  560 
Southern  Kansas  &  P.  R.  R.  Co.  v. 

Towner,  900 

Southern  White  Lead  Co.  v.  Haas,  1087 
Southgate  v.  Railroad,  145,  150,  169 
South  Joplin  Land  Co.  v.  Case,  298 
South  Ottawa  v.  Perkins,  446,  872 
Southwestern  A.  &  I.  T.  Ry.  Co.  v. 

Martin,  811 
South  Yorkshire  Ry.  v.  Great  Northern 

Ry.,  447 

Sower  v.  Philadelphia,  890 
Sowles  v.  Bank,  735 
Sowles  v.  Witters,  720,  734,  735 
Spafford  v.    First  National  Bank  of 

Toma  City,  506 
Spann  v.  Webster  County,  67 
Sparhawk  v.  Serkcs,  1203 
Sparks  v.  Dispatch  Transfer  Co.,  183, 

184 
Sparrow  v.  Evans  ville,  etc.,  R.  R.  Co., 

471 

Spaulding  v.  Lowell.  33,  35,  41,  42 
Spear  v.  Crawford,  756 
Spear  v.  Ladd,  577 
Speidel  v.  Henrici,  263 
Spence  v.  Mobile  &  Montgomery  R, 

R.  Co.,  1238 


TAIII.K  OF  CASES. 


\ci 


[The  reference*  are  to  page*:  vol.  I  ooaudns  pp.  1-707;  vol.  H,  pp.  706-1807.] 


Sperinjr's  Appeal.  241.  347. 

Spies  v.  Chieairo  A:  Kastern  Iowa  Hy. 

CM.,     ID  If, 

Spiliniiii  v.  City  of  Parkcreburg,  67 

Spilman  v.  Meixleniiall,  1186 

Spokane  County  v.  Clark,  786 

Spring  A:  Axle  Oo.'l  Appeal,  534 

Spriniri -r  v.  t'nitcil  States,  1275 

Springfield  &  I.  S.  E.  Ry.  Co.  v.  Cold 
8prin.tr  Township,  975 

Sprin'_'ii.  Id  Marine  &  Fire  Ins.  Co.  v. 
I'eck,  610,  629 

Spykcr  v.  Spcnce,  193 

Squire  v.  ( 'art  wright,  86 

Squire  v.  I'iv-ton,  86,  57 

Stafford  v.  Harris,  490 

Stair  v.  Bank,  7-M 

Stallcup  v.  National  Hank  of  the  Re- 
public. 198 

Stamp  v.  Cass  County,  127 

Stanley  v.  Sheffield,  L.  I.  &  C.  Co., 
156 

Stanton  v.  Allen,  1178 

Stanton  v.  NN'ilkeson,  715,  772 

Staples  v.  Franklin  Bank,  641 

Staples  v.  Schulenberg  &  Boeckler 
Lumber  Co.,  1117 

Star  Printing  Co.  v.  Andrews,  1083 

Starin  v.  Genoa,  49,  111 

Starin  v.  Edson,  490,  821 

Stark  Bank  v.  U.  S.  Pottery  Co.,  144, 
172,  205,  220 

Star  Line  v.  Van  Vliet,  209 

State  v.  Allen,  929 

State  v.  Babcock,  883 

State  v.  Baltimore  &  Ohio  Railroad, 
816 

State  v.  Bank  of  Commerce,  1800 

State  v.  Bank  of  Louisiana,  521 

State  v.  Bank  of  New  England,  1128, 
1135 

Stat.-  v.  Bell,  59 

State  v.  Bevers,  446 

State  v.  Board  of  Assessors,  1280 

Htate  v.  Brobston.  1144 

State  v.  Branin,  1298 

State  v.  Buck,  1146 

State  v.  Carroll,  55 

State  v.  Cassidy.  1270 

State  v.  Catron,  1299 

State  v.  Cent  nil  Pac.  R.  R.  Co.,  1302 

State  v.  Cincinnati  Gas  Light  &  Coke 
Co.,  29 

State  v  City  of  Bayonne,  438 

State  v.  City  Council,  850 

State  v.  City  of  Omaha,  1288 

State  v.  Clark.  798 

State  v.  Commcn -i:il  Bank  of  Man- 
chester, 530,  548,  578 

State  T.  Commercial  State  Bank,  723 

State  v.  Commissioners  of  Clinton 
County,  49 


State  v.  Commissioners  of  Hancock, 

49 

Stale  v.  Common  Council.  41 
State  v.  District  Court,  1306 
State  v.  Echolo, 
State  v.   Kstahrook.   IS 
State  v.  Farmers  A:  Drovers'  Bunk  of 

Battle  Creek,  740 
State  v.  Fields,  1146 
State  v.   Hannibal   &   St.  Jos.   H.  R. 

Co.,  975,  1264,  1282,  1801,  1302 
-•  ,'•    .     llarrN.  907 
State  v.  Haskell,  446 
State  v.  Hastings,  446 
State  v.  Hausen.  59,  864 
State  v.  Hoff,  1263 
State  v.  Jersey  City,  112,  890,  1282 
State  v.  Keim,  597 

State  v.  Kcokuk  &  W.  R.  R.  Co..  1282 
State  v.  Linn  County  Court,  49 
State  v.  McCauley.  68,  69 
State  v.  Macon  County  Court,  915 
State  v.  Mayor,  68 
State  v.   Mayor,   etc.,   City  of  New 

York,  29 

State  v.  Medberry,  68 
State  v.  Milwaukee  Gas  Light  Co..  29 
State  v.  Missouri  Pac.  Ry.  Co.,  1300 
State  v.  Morris  &  Essex  R.  R.  Co., 

321,  1282 

State  v.  Myers,  1146 
State  v.  Nashville,  C.  &  St.  L.  R.  R. 

Co.,  1301,  1307 

State  v.  Nebraska  Distilling  Co.,  501 
State  v.   Northern  Pac.   R.   R.   Co., 

1282,  1301 
State  v.  Pierce,  126 
State  v.  Powers,  1298 
State  v.  Rice,  1055 
State  v.  Roggen,  924 
State  v.  Saline  County  Court,  46 
State  v.  Second   Jud.  Dist.   Court  of 

Silver  Bow  County,  1123 
State  v.  Shortridge,  128 
State  v.  Smith,  296 
State  v.  Standard  Oil  Co.,  1178 
State  v.  Stone,  1804 
State  v.  The  Mayor,  969 
State  v.  Thome,  917 
State  v.  Trustees  of  Union,  49 
State  v.  Union  Trust  Co.,  1801 
State  v.  Van  Home,  49 
State  v.   Wabash,  St.   L.  &  Pac.  Ry. 

Co.,  1801 
State  v.    Washington  Social  Library 

Co.,  50 

State  v.  Webber,  1282 
State  v.  Winterbottom,  803 
State  v.  Worth,  1262 
State  Bank  v.  Andrews.  381 
State  Bank  v.  Comegvs,  144 
State  Bank  v.  Fox,  76,  455 


XC11 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  n,  pp.  708-1307.] 


State  Bank  v.  Holcomb,  172,  200 

State  Bank  v.  Kain,  599 

State  Bank  of  Troy  v.  Bank  of  the 

Capitol,  687 
State  Board  of  Agriculture  v.  Citizens' 

St.  Ry.  Co.,  29,  65,  441 
State  Board  of  Assessors  v.  Paterson 

&R.  R.  R.  Co.,  1301 
State,  Bradley,  v.  Hammonton,  62 
State  of  California    v.  Central    Pac. 

R.  R.  Co.,  1302 
State,  De  Baun,  Prosecutor,  v.  Smith, 

Collector,  etc.,  1296 
State,  Edison  Phonograph  Co.,  Prose- 
cutor, v.  State  Board  of  Assessors, 

1286 
State,  Hoxsey,  v.  Mayor,  etc.,  of  the 

City  of  Paterson,  59 
State,  Padney,  Prosecutor,  v.  Passaic, 

1269,  1270 
State,  Smith,  Prosecutor,  v.  Ramsey, 

Collector,  1298 
State,  Walls,   Prosecutor,  v.  Mayor  & 

Aldermen  of  Jersey  City,  1270 
State  ex  rel.  v.  Ai.en,  125 
State  ex  rel.  v.  Board,  etc.,  800 
State  ex  rel.  v.  Davis,  801 
State  ex  rel.  v.  Yoxall,  844 
State  ex  rel.   v.  Hannibal,  etc.,  R.  R. 

Co.,  73 

State  ex  rel.  v.  Marion  County,  125 
State  ex  rel.  v.  Nevada  County,  907 
State  ex  rel.  v.  Osawakee  Township, 

877 
State  ex  rel.  Quincy,  Mo.  &  Pac.  Ry. 

Co.  v.  Harris 
State  ex  rel.  v.  Reitz,  870 
State  ex  rel.  v.  Schaack,  801 
State  ex  rel.  v.  Sliek,  801 
State  ex  rel.  v.  Standard  Oil  Co.,  501 
State  ex  rel.  v.  Trustees,  800 
State  ex  rel.  Attorney-General  v.  Ne- 
braska Savings  Bank,  1143 
State  ex  reL  Bowen  v.  Adams  County, 

55 

State  ex  rel.  Bermadez  v.  Heath,  58 
State  ex  rel.  Carpenter  v.  Beloit,  49 
State  ex  rel.  C.,  C.  &  C.  R.  Co.  v. 

Whitesides,  1008,  1010 
State  ex  rel.  Clinton  County  v.  Hanni- 
bal &  St.  Joseph  R.  R.  Co.,  129 
State  ex  rel.  Copes  v.  Charleston,  49, 

964 
State  ex  rel.  Dean  v.  City  of  Madison, 

48 

Stute  ex  rel.  Dickinson  v.  Neely,  1009 
State   ex  rel.    Girardez  v.    Southern 

Bank,  643 
State  ex  rel.  Greeley  County  v.  Milne, 

797 

State  ex  rel.  Mavor,  etc.,  v.  Kirkley, 
111 


State  ex  rel.  Page  v.  Smith,  144,  204 
State  ex  rel.  Phillips  v.  School  Dist. 

No.  9,  883 
State  ex  rel.  Stow  v.  City  Council  of 

Montgomery,  953 
State  ex  rel.  Treadwell  v.  Commission- 
ers, 949 

State  ex  rel.  Vandiver  v.  Tolly,  68 
State  Freight  Tax,  1268 
State  Railroad  Tax  Cases,  1278,  1303 
State  Savings  Assn.  v.  Boatmen's  Sav- 
ings Bank,  528,  641,  650,  661 
State    Sav.     Assn.     v.    Nixon-Jones 

Printing  Co.,  583 
State   Tax   on  Foreign  Held  Bonds. 

1291 
State  Tax  on  Railway  Gross  Receipts. 

1294 

State  of  Tennessee  v.  Davis,  575 
Steamboat  Co.  v.  Brockett,  321 
Steamboat  Co.  v.  Locke,  752 
Steam  Engine  Co.  v.  Hubbard.  398 
Steckcl  v.  Bank,  628 
Steel    Edge    Stamping   &   Retinning 

Co.  v.  Manchester  Savings  Bank, 

1141 

Steele  v.  Russell,  682 
Stein  v.  Mayor,  etc.,  of  Mobile,  47,  48, 

909 

Stein  v.  Mobile,  964 
Steyer  v.  Davis,  490 
Stephens  v.  Benton,  1018 
Stephens  v.  Follett,  758 
Stephens  v.  Fox,  394,  399 
Stephens  v.  McNeill,  658 
Stephens  v.  Monongahela  Bank,  520, 

528 

Stephens  v.  Overstoln,  558 
Stephens  v.  Railroad,  1228 
Stephens,  Receiver,  v.  Schuchmann, 

711,  712 
Sterling  v.  Parish  of  West  Feliciana, 

18 

Sterrett  v.  Rosencrantz,  661 
Stetson  v.   Kempton,  20,   2.,  33,  34, 

50 
Steubenville  &  Ind.  R.  R.  Co.  v.  North 

Township,  49 
Steubenville  v.  Culp,  798 
Stevens  v.  Anson,  46 
Stevens  v.  Buffalo  &  New  York  City 

R.  R.  Co.,  1082 
Stevens  v.  Carp  River  Iron  Company, 

203 
Stevens  v.  New  York  &  Oswego  Mid. 

R.  R.  Co.,  1047,  1236 
Stevens  v.  Rutland  R.  Co.,  326 
Stevens  v.  St.  Mary's  Training  School, 

445 

Stevens  v.  Williams,  1146 
Stevenson  v.  Bay  City,  112,  571 
Stewart's  Appea'l,  471,  1173 


TABLE  OF  CASES. 


XC111 


[The  references  arete  pages:  vol.  I  contains  pp.  1-707;  rol.  n,  pp.  706-1907.] 


Stewart  v.   Board  of  Supervisors  of 

Polk  County,  49 

Stewart  v.  City  of  Council  Bluffs,  110 
Stewart  v.  Dunham,  1150 
Stewart  v.  Lansing.  980,  1002 
Stewart  v.  Lchigh  Valley  It.  R.  Co., 

•.Ml.  -JI'J 

Stewart  v.  Otoe  County,  786 
Stewart  v.  St.  Louis,  Ft.  S.  &  W.  R. 

Co..  167,  2.19.275 
Stewart  v.  Smith,  697 
Stewart  v.  Wyoming  Rancbe  Co.,  294 
Stidger  v.  Red  Oak.  446 
Stillwell  v.  Mayor,  etc.,  of  New  York, 

60 

Stiz  v.  City  of  Indianapolis,  1271 
Stobie  v.  Dills.  357.  889 
Stockdale  v.  Wayland  School  District, 

929 
Stockholders  of  Bank    of    Abingdon 

v.    Supervisors    of    Washington 

County,  1296 
Stocking  v.  The  State,  26 
Stockle  v.  Silsbee,  128 
Stockton  v.  Mechanics'  Bank,  618 
Stockton  v.   Mechanics  &  Labor.  8. 

Bank,  366 
Stockton  &.   Visalia    R.    R.    Co.    v. 

Stockton,  49 

Stockwell  v.  State  ex  rel.,  792 
Stokes  v.   Jersey   Pottery   Company, 

150,  184,  198,  200,  201,  209 
Stokes  v.  Stickney.  398 
Stoller  v.  Coates,  643,  731 
Stone  v.  Bank,  761 
Stone  v.  Chisholm,  418,  557 
Stone  v.  Hayes,  342 
Stone  v.  Trust  Company,  1105 
Stoney  v.  American  Life  Ins.  Co.,  106 
Stookey  v.  Hughes.  359 
Storrs  v.  City  of  Utica,  121 
Story  v.  Furman,  400 
Stoudingcr  v.  City  of  Newark,  42 
Stout  v.Yaeger  Milling  Company,  102, 

250 

Stoutenburgh  v.  Hennick,  1267 
Stover  v    Mitchell.  121 
Stow  v.  Wyse,  98,  150 
Stowe  v.  Bank  of  Cape  Fear.  681 
Stoystown   &   Greensburg    Turnpike 

Road  Co.  v.  Craver,  159 
Straman    v.  North  Baltimore  Water 

Works  Co.,  1122 
Strang  v.  Cook.  976 
Stratton  v.  Allen,  263,  569,  1084,  1108, 

1112 

Straus  v.  Trotter,  880,  894 
Strauss  v.  Eagle  Ins.  Co.,  73,  74,  90. 

IT'.i 

Strauss  v.  Sage,  894 
Street   v.    Maryland   Cent.   Ry.    Co., 

1192,1211 


Strr.-t  Ry.  Co.  v.  Morrow,  1307 
Strerterv.  First  Nat.  Bank,   511,686 
Stni-ht  v.  Junk,  818 
Stri.-l,  v.  Cox,  22,874 
Stringer's  Case,  815 
Strong  v.  Southworth,  772 
Strong  v.  Spmul 
Strough  v.  Supervisors,  997 
Stuart  v.  Boulware,  1232,  1233 
Stuart  v.  Supervisors,  928 
Sturdivant  v.  Hull.  *59 
Sturgeon  v.  Hampton,  128 
Sturges  v.  Keith,  635 
Sturges  v.  Knapp,  489 
Sturges  v.  Stetson,  166 
Sturtevant  v.  Liberty,  857 
Stutz  v.  Handler ,  1140 
Stuy  vesant  Bank  v.  National  Mechan- 
ics' Bkg.  Assn..  672 
Succession  of  Kercheval,  657 
Sugden  v.  Crossland,  259 
Suit  v.  Woodhall,  337 
Sullivan  v.  Lewiston  Institution   for 

Savings.  618 
Sullivan  v.  Mitchell,  690 
Sullivan  v.  Murphy,  74,  99 
Sullivan  v.  School  District,  140 
Sullivan    v.   Triunfo    Gold  &  Silver 

Mining  Co.,  168 
Sumner  v.  Marcy,  92,  478,  517 
Sunflower  Oil  Co.  v.  Wilson,  1198,  1200 
Sun  Mutual  Ins.  Co.  v.  Mayor,  etc.,  of 

New  York,  1306 
Supervisors  v.  Bowen,  995 
Supervisors  v.  Deyoe,  1051 
Supervisors  v.  Schenck,  362,  980 
Supervisors  v.  Stanley,  1298 
Supervisors  v.  United  States,  795 
Supervisors,  etc.,  of  Hensley  Town- 
ship v.  The  People,  71 
Supervisors  of  Orleans  v.  Bowen,  121, 

131 
Supervisors   of  Marshall  County   v. 

Cook,  825,  904 
Supervisors  of  Richmond  County  v. 

Ellis,  131 
Supervisors  of    Schuyler  County    v. 

Bank  of  Havana,  609 
Supervisors  of    Schuyler  County   v. 

Farwell.  824 
Supreme  Sitting  of  the  Order  of  Iron 

Hull  v.  Baker,  1123 
Susquehanna  Bridge  &  Bank  Co.  v. 

General  Ins.  Co..  102.  808 
SutclilTe  A:  Bird  v.  McDowell.  657 
Sutliff  v.  Hoard.   He..    I^ike  County, 

835.  842.  869.  897,  927 
SutlitT  v.  ( Me\  eland  &  Mahonins  R.  R. 

Co.,  I'M:: 

Sutro  v.  Pettit.  445 
Sutro    Tunnel    Co.     v.    Segregated 

Belcher  Mining  Co.,  76,  818 


XC1V 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  v<*.  II,  pp.  708-1807.] 


Swan  v.  City  of  Arkansas  City,  858 
Swan   v.   North  British  Australasian 

Co..  344 
Swan  Land  &  Cattle  Co.  v.  Frank, 

1139 

Swan  v.  Clark,  1215 
Swartwout    v.    Mechanics'    Bank   of 

New  York,  599 
S\v:i/.i'y  v.  Union  Manufacturing  Co., 

210 

Sweeney  v.  Easter,  682.  706,  744 
Sweet  v.  City  of  Syracuse,  857 
Sweet  v.   County  Comrs.  of  Carver 

County,  376 

Swentzel  v.  Penn  Bank,  347,  367,  368 
Swift  v.  Jewsbury,  547 
Swift  v.  Smith,  1001 
Swift  v.  Tyson,  982 
Swift  v.  Whitney,  627 
Symmes  v.  Union  Trust  Co.,  263 
Syracuse  Savings  Bank  v.  Town  of 

Seneca,  993 

T. 

Taft  v.  Brewster,  300 

Tafft  v.  Pittsford,  446 

Tagg  v.  Tennessee  Nat.  Bank,  521 

Talbot  v.  Dent.  49,  901,  979 

Talcott  v.  First  Nat.  Bank  of  Lamed, 

600 

Taliaferro  v.  Bank,  539 
Talladega  Ins.  Co.  v.  Landers,  98 
Talladega  Ins.  Co.  v.  Peacock,  91 
Tallman  v.  Treasurer  of  Butler  County, 

1298 
Tallmadge  v.  Fishkill  Iron  Co.,  102, 

166 

Talmage  v.  Pell,  469 
Talman  v.  Rochester  City  Bank,  96, 

506 

Tappau  v.  Bailey,  151 
Tappan  v.  Bank,  227 
Tappan  v.  Merchants'  National  Bank, 

1296 

Tash  v.  Adams,  33 
Tatlock  v.  Louisa  County,  124 
Tatten  v.  Tisou,  484 
Taxing    District    of    Brownsville   v. 

League,  954 

Taylor  v.  Board  of  Supervisors,  898 
Taylor  v.  Burlington,  Cedar  Rapids  & 

Minn.  Ry.  Co.,  1096 
Taylor  v.  Callaway,  495 
Taylor  v.  Chichester  Ry.  Co.  325 
Taylor  v.  Henry  &  Bruscup,  630 
Taylor  v.  Holmes,  316 
Taylor  v.  Insurance  Company,  1118 
Taylor  v.  Miami  Export  Co.,  76,  258 
Taylor  v.  Newberne,  49 
Taylor  v.  Philadelphia  &  Reading  R. 

R.  Co.,  94 


Taylor  v.  Plumer,  625,  626,  742,  751 
Taylor  v.  Thompson,  35,  70,  964 
Taylor  v.  Wilson,  658 
Taylor  v.  Ypsilanti,  45 
Taymouth  v.  Koehler,  144,  806 
Tazewell    Co.    v.    Farmers'  Loan  & 

Trust  Co.,  315 
Tehan  v.  Bank,  734 
Teitig  v.  Boesman.  151,  809 
Telegraph  Co.  v.  Texas,  1268 
Templin  v.  Chicago,  B.  &  P.  R.  Co., 

156 

Tennessee  v.  Davis,  720 
Tennessee  v.  Whitworth,  1282,  1285, 

1307 
Terhune  v.  Bank  of  Bergen  County, 

711 

Terhune  v.  Mayor,  798 
Terrell  v.  Bank,  569 
Terry  v.  Tubman,  1134 
Texas  &  Pac.  Ry.  Co.  v.  Goay,  1232 
Texas  &  Pac.  Ry.  Co.  v.  Marlor,  1049 
Texas  &  P.  Ry.  'Co.  v.  Southern  Pac. 

Ry.  Co.,  1178 
Thacher     v.     Comrs.    of     Jefferson 

County,  27,  57 
Thacher  v.  King,  386,  387 
Thayer  v.  Butler,  519,  756 
Thayer  v.  Montgomery  County,  824, 

826,  946 

Thayer  v.  Union  Tool  Co.,  387 
The  Banks  v.  Poitiaux,  494 
The  Charitable  Corporation  v.  Button, 

301,  348,  364,  554 
The  Distilled  Spirits,  337 
The  Floyd  Acceptances,  152,  936 
The  Liquidators  of  Western  Bank  v. 

Baird,  364 

The  People  v.  Dupuyt,  70 
The  People  v.  Utica  Insurance  Co.,  50 
The  State  Freight  Tax,  1293 
The    State,     Muller,    Prosecutor,    v. 

Mayor    &    Council    of    City    of 

Bayonne,  1269 
The  State,  Raymond,  Prosecutor,  v. 

Mayor  &  Council  of  Borough  of 

Rutherford,  1269 
The  State,   Simmons,    Prosecutor,  v. 

City  of  Passaic,  1270 
The  State,  Singer  Mfg.  Co.  Prosecu- 
tors, v.  Heppenheimer,  1292 
Thew  v.  Porcelain  Manufg.  Co.,  201 
Third  Nat.  Bank  v.  Allen,  521 
Third  Nat.  Bank  v.  Boyd,  537 
Third  National  Bank  v.  Clark,  681 
Thomas  v.   Brownville,    etc.,   R.  R. 

Co.,  93,  263,  268,   278,  284,  451, 

467,  478,  497 
Thomas  v.  Cincinnati,  N.  O.  &  T.  P. 

Ry.  Co.,  1210 
Thomas  v.  Citizens'  Horse  Ry.  Co., 

487,  1054 


TAliLE  OF  CASES. 


XCV 


[The  reference*  are  to  pages:  vol.  I  contain*  pp.  1-707;  vol.  II,  pp.  708-1807.] 


Thomas    v.    Citv     National     Bank   of 

Batting*,  MS,  5o7 
Thomas  v    <  'it y  of  Port  Huron,  5 
'1'h  .mas  v.  City  of  Richmond,  4, 787 
Thomas   \.    Ka>t    TI-I,III-.V<-C.  V.  &  8. 

Kv.   Co.   (Cook,   Intervener),   U'lo 
Tli  Unas   v.  I.dand,  901 
Thomas  v.   .Minot,  1241 

:aa.s  v.  .Morgan  County,  899 
Thomas    v.    1'ioria  A   H.  1.   Ry.   Co. 

(West i  rii     Car    Co.,   Intervener), 

l-Jl'.t.  L222,  1240 

Tli .is  v.  Railroad  Co.,  820 

Thomas  v.   Railway  Co.,  1220 
Thomas  v.  S  \\cirt,  261 
Thorns  v.  Western  Car  Co.,  1240 
Thomas  Kane  &  Co.  v.  School  District 

of  Calhoiin,  11.1 
Thompson  v.  Charnock,  1152 
Thompson  v.  City  of  Peru,  39,  951 
Thompson  v.  Giles,  615 
Thompson  v.  Lambert,  77,  102,  469 
Thompson  v.  Lumber  Company,  1111, 

1129 

Thompson  v.  McKee,  193 
Th  impson  v.  New  York  &  Harlem 

Hail  road,  1050 
Thompson  v.  Perrine,  1007 
Thompson  v.  Rigps,  597,  598 
Thompson  v.  St.  Nicholas  Nat.  Bank, 

540,  542 

Thompson  v.  School  District,  169 
Thompson  v.  Sioux  Falls  Nat.  Bank, 

616 

Thompson  v.  Stanley,  151,  351 
Thompson  v.  Valley  R.  R.  Co..  1095 
Thompson's  Appeal,  623,  752 
Thomson    v.    Bank   of    British    No. 

America,  672 
Thomson  v.  Harris,  1263 
Thomson-Houston     Electric     Co.    v. 

Capitol  Electric  Co.  (Read,  Inter- 
vener), 1044 
Thomson  v.  Lee   County,   4,  49,  71, 

909,  946 
Thomson  v.  Madison  Building  &  Aid 

Assn.,  497 

Thorington  v.  Gould,  204 
Thome  v.  Deas,  348 
Thornton  v.  National  Exchange  Bank, 

493,  511 
Thornton  v.  St.  Paul,  etc.,  R.  R.  Co., 

167 

Thorp  v.  Wegefarth,  713 
Thrasher  v.  Greene  County,  129 
Thurber  v.  Cecil  Nat.  Bank,  538 
Ticonic  Bank  v.  Johnson,  527,  640 
Tiffany  v.  Nat.  Bank  of  Missouri,  528, 

MB 

Tifft  v.  Bank,  562 

Tifft  v.  City  of  Buffalo,  994 

Tilden  v.  Sacramento  Co.,  118 


TUlinghut  v.  Troy  &  Boston   R.  R. 

llti-j 

Tillotson  v.  City  of  Sagiuaw,  859 
Tinlt-v  v.  Mclliiifrham  Bay  Boom  Co., 

236 
Titus  v.   Cairo,  etc..  R.  R.  Co.,  182, 

199 
Titus  v.  Great  Western  Turnpike  Co., 

888,  884.  :::{'; 
Titus  v.  Mabee,  1096 
Tobey  v.  County  of  Mi-land,  1152 
Tohin  Canning  Co.  v.  Frasrr,  272 
Tod  v.  Kentucky  I'nion  Land  Co.,  79, 

81,  83 
Tod  v.  Kentucky  Union  Ry.  Co.  (Ros- 

serct  al.,  brtervenero),  r,'."ii.  1253 
Todd  County   v.   St.   Paul,   .M.  A:  M. 

Ry.  Co.,  1301 
Toledo,  Delphos  &  Burlington  R.  R. 

Co.  v.  Hamilton,  1247,  1248 
Toledo,  etc.    R.  R.  Co.  v.  Hamilton, 

1095,  1096 
Tombigbee  R.  R.  Co.   v.   Kneeland, 

47* 

Tome  v.  Parkersburg  Branch,  334 
Tompkins  v.  Snltmarsh,  366 
Tomlinson  v.  Branch,  12*2 
Tomlinson  v.  Jessup,  1283 
Tootle  v.  First  Nat.  Bank  of  Port  An- 
geles, 490 
Topeka  Primary  Assn.  v.  Martin,  156, 

210 
Toppan  v.  Cleveland,  Col.  &  Cin.  R. 

R.  Co.,  1052 

Topping  v.  Bickford,  159 
Torbett  v.  Eaton,  401 
Torbett  v.  Goodwin,  408 
Torrey  v.  Bank  of  Orleans,  251,  326 
Torrey  v.  Dustin  Monument  Assn., 

98,  150,  227 
Tovey  v.  Culver,  894 
Towle  v.  American  Buildg.,  Loan  & 

Inv.  Society,  1123,  1126 
Town  v.  Bank,  1115 
Town  Co.  v.  Morris,  490 
Town  Co.  v.  Swigart,  490 
Town  of  Andes  v.  Ely,  1012 
Town  of  Big  Grove  v.  Wells,  852, 

972 

Town  of  Brewton  v.  Spira,  1012 
Town  of  Bruce  v.  Dickey,  58 
Town  of  Cabot  v.  Britt,  137 
Town  of  Cherry  Creek  v.  Becker,  978 
Town  of  Cicero  v.  Clifford,  945 
Town  of  Colona  v.  Eaves,  897,  972, 982 
Town  of  Concord  v.  Robinson,  974 
Town  of  Darlington  v.  Atlantic  Trust 

Co.,  1012 
Town  of  Douglas  v.  Ariantic  Savings 

Bank.  850 
Town  of  Duancsburgh  v.  Jenkins,  094, 

1007 


XCV1 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  H,  pp.  708-1307.] 


Town  of  Durango  v.  Pennington,  113 
Town  of  Eagle  v.  Kohn,  977,  978 
Town  of  East  Lincoln  v.  Davenport, 

'.»:;:, 

Town  of  Enfield  v.  Jordan,  974 
Town  of  Guilford  v.  Supervisors  of 

Chenango  County,  923 
Town  of  Hackensack  v.  Swackhamer, 

8 

Town  of  Harwood  v.  Hamilton,  8 
Town  of  Keithsburg  v.  Frick,  1005 
Town  of  Lyons  v.  Chamberlain,  985 
Town  of  Lyons  v.  Cooledge,  795,  796 
Town  of  Middleport    v.    ^Itna  Life 

Ins.  Co.,  973 

Town  of  Alt.  Vernon  v.  Patton,  58,  59 
Town  of  Newport  v.  Batesville  &  B. 

Ry.  Co.,  438 

Town  of  Odell  v.  Schroeder,  795 
Town  of  Pana  v.  Lippincott,  879,  971, 

974.  976 

Town  of  Reading  v.  Wedder,  974 
Town  of  Solon  v.  Williamsburgh  Sav- 
ings Bank,  983,  985,  987,  990,  992, 

993 

Town  of  Springport  v.  Teutonia  Sav- 
ings Bank,  992 

Town  of  Venice  v.  Murdock,  56 
Town  of  Weyanwega  v.  Ayling,  971 
Town  of  Winamac  v.  Huddleston,  22, 

874 

Township  v.  County,  132 
Township  v.  Gibboney,  135 
Township  of  Bernards  v.  Morrison,  913 
Township  of  Burlington  v.  Beasley, 

54,  55,  917 
Township  of  Pine  Grove  v.  Talcott, 

471 

Township  of  Rock  Creek  v.  Strong,  27 
Township  of    Washington  v.    Coler, 

972,  999 

Tracy  v.  Talmage,  65,  514,  527 
Traders'  Nat.  Bank  v.  Manufacturing 

Co.,  1021 
Traders'  Nat.  Bank  of  San  Antonio  v. 

Cresson,  523,  525 
Tradesman's  Bank  v.  Merritt,  639 
Tradesmen's  Bank  v.  Astor,  608 
Tradesmen's    Nat.   Bank   v.    Lumber 

Co.,  151 

Trammell  v.  Pennington,  906 
Transportation   Co.    v.   Parkersburg, 

1293 
Travelers'   Ins.    Co.   v.   Township  of 

Oswego,  974 
Traver  v.    Board,    etc.,    of    Merrick 

County,  55,  917 
Treadway  v.  Schnauber,  446 
Treadwell  v.  Commissioners,  111 
Tread  well  v.  Salisbury  Manufg.  Co., 

278,  305,  456,  473,  491,  1063 
Treiciiler  v.  Berks  County,  132 


Trenton  Mut.  Life  &  Fire  Ins.  Co.  v. 

McKelway,  91,  481 
Trimmer  v.  City  of  Rochester,  1288 
Tripp   v.    Swanzey    Paper  Co.,    147, 

152,  162 
Trisconi  v.  Winship,  349 
Trott  v.  City  Insurance  Co.,  1152 
Trott  v.  Warren,  158 
Trowbridge  v.  Seaman,  627 
Trust  Company  v.  City,  955 
Trust  Co.  v.  Floyd,  368,  373 
Trust  Co.  v.  Morrison,  1222 
Trust  Company  v.  Shepherd,  1222 
Trust  Co.  v.  Souther,  1220,  1222 
Trust  Company  v.  Thomason,  1229 
Trustees  v.  Greenough,  1183,  1232 
Trustees,  etc.,  v.  Shoemaker,  49 
Trustees  of  Belleview  v.  Holm,  446 
Trustees  of  First  Presbyterian  Church 

in  Newark  v.  National  State  Bank 

of  Newark,  511 
Trustees  of  Paris  v.  Cherry,  49,  446 
Trustees  of  Schools   v.   Rautenberg, 

357,  359 

Trustees  of  Smith  Charities  v.   Con- 
nolly, 580 
Trustees  of  University  v.  Moody,  98 
Try  on  v.  White  &  Corbin  Co.,  234 
Tucker  Manufg.  Co.  v.  Fairbanks,  359 
Tuller  v.  Arnold,  151 
Tunno  v.  Lague,  681 
Turnbull  v.  Lumber  Company,  1115 
Turnbull  v.  Payson,  772 
Turner  v.  Bank  of  Fox  Lake,  648 
Turner  v.  Chillicothe  &  Des  Moines  R. 

R.  Co.,  217 

Turner  v.  Cruzen,  440 
Turner  v.  First  Nat.  Bank,  511,  636, 

711 

Turner  v.  Richardson,  1203 
Turner  v.  Woodson  County,  54 
Tuscaloosa  Manufg.  Co.  v.  Cox,  317 
Tuskaloosa  Cotton  Seed   Oil  Co.   v. 

Perry,  234 

Tuttle  v.  Frelinghuysen,  711 
Tutt  v.  Sand  Hills  Hotel  Co.,  1233 
Twin-Lick  Oil  Co.  v.  Marbury,  168, 

214,  254,  268,  270,  278,  2a5,'l084 
Twiss  v.  Guaranty  Life  Assn.  of  Iowa, 

469 

Tyler  v.  E.  &  P.  R.  R.  Company,  46 
Tyler  v.  Hamilton,  1176,  1237 
Tyler  v.  Savage,  291 
Tyng  v.  Clark,  394 
Tyson  v.  State  Bank,  686 

u. 

Underbill  v.  Gibson,  135 

Underbill   v.    Santa     Barbara    Land, 

Building  &  Improvement  Co.,  99, 

382 


TABLE  OF  CASES. 


XCVll 


[The  references  are  to  pages:  vol.  I  contain*  pp.  1-707;  vol.  II,  pp.  708-lWf.] 


rixli-rhill  v.  Sonora,  846 

Union  Bank  v.  Bagley,  176 

Union  Bank  v.   Board  of  Corare.   of 

Town  of  Oxford,  1012 
Union  Bank  v.  Cochran,  689 
Union  "Bank  v.  Corcoran,  527 
I  ni. .n  B.mk  v.  Jacobs,  75,  102 
Union  Hank  v.  Jones,  176 
Union  Bank  v.  Kansas  City  Bank,  1114 
Union  Bank  v.  Laird,  526 
I'nion  Bank  v.  Hidgely,  145 
Union  Bank  v.  State.  1307 
Union  Bank  v.  Tutt.  597 
Union  Bank  v.  United  States  Bank, 

657 
Union  Bank  v.  Wando  Mining  &  Mfg. 

Co.,  562 
Union  Bank  of  Georgetown  v.  Mac-kail, 

595,  596 

Union  Bank  of  Quincy  v.  Tutt,  638 
Union  Bridge  Co.  v.  Troy  &  Lansing- 
burgh  R.  R.  Co.,  285 
Union  Gold  Mining  Co.  v.  Rocky  Mt. 

Nat.  Bank,  73,  102,  152,  191,  193, 

648 

Union  Insurance  Co.  v.  Keyser,  158 
Union  Loan  &  Trust  Co.  v.  Southern 

California  Motor  Road  Co.,  1015, 

1038,  1077, 1222,  1233 
Union  Mut.  Life  Ins.    Co.  v.  Frear 

Stone  Mfg.  Co.,  258 
Union  Mut.  Life  Ins.  Co.  v.  White, 

154,  194,  263 

Union  Nat.  Bank  v.  Hunt,  493,  517 
Union  Nat.  Bank  v.  Oceana  County 

Bank,  645 

Union  Nat.  Bank  v.  Rowan,  506 
Union  Nat.  Bank  of  Chicago  v.  Goctz. 

750 

Union    Pacific  Railroad  v.   Commis- 
sioners, 917 
Union  Pacific    Railroad    v.   Lincoln, 

55 
Union  Pac.  Ry.  Co.  v.  Chicago,  R.  I. 

&  P.  Ry.  Co.,  82,  458 
Union  Pac.  R.  R.  Co.  v.  United  States, 

432,  815 
Union  School  Furniture  Co.  v.  School 

District  No.  60,  etc.,  115,  440 
Union  School  Township  v.  First  Nat. 

Bank  of  Crawfordsville    133,  427, 

698 
Union  Stock  Yards  Bank  v.  Gillespie, 

808 
Union    Stock    Yards   Nat.    Bank  v. 

Duinond,  607 

I'nion  Township  v.  Gibboney,  24 
Union  Trust  Co.  v.  Illinois  Midland 

Hy.  Co.,  1207,  1212,  1222 
In  ion"  Trust  Co.  v.  Missouri.  Kansas, 

etc.,  Ry.  Co.,  1103 
Union  Trust  Co.  v.  Souther,  1239 

xiii 


Union  Trust  Co.   of   New    York  v 

Nevada  &  O.  R  R.  Co.,  1044 
Union  Turnpike  Co.  v.  Jenkins,  163 
Union  Water   Co.   v.    Murphy's  Flat 

Flaming  Co.,  478,  494 
United    Electric     Securities    Co.    v. 
Louisiana  Electric  Light  Co.,  1123 
United  Lines  Tel.  Co.  v.  Boston  Safe 

Deposit  &  Trust  Co.,  470 
United  Lines  Telegraph  Co.  v.  Safe 

Deposit  &  Trust  Co.,  458 
United  Society  of  Shakers  v.  Under- 
wood, 241,  553,  685 
United  States  v.  Allen,  776 
United  States  v.  Babbit,  1058 
United  States  v.  Bank,  674 
United  States  v.  Britton,  778,  777.  778 
United  States  v.  City  Bank  of  Colum- 
bus, 111,  177,  570,  578,  588 
United  States  v.  Dandridge,  233,  80& 
United  States  v.  Dodge  County,  917 
United  States  v.  Eno,  778 
United  States  v.  Eque,  776,  778 
Uiflted  States  v.  French,  779 
United  States  T.  Graves,  779,  781 
United  States  v.  Hughitt,  776 
United  States  v.  Linn,  990 
United  States  v.  Means,  553,  776 
United  States  v.  Mooney,  715 
United  States  v.  National  Exchange 

Bank,  673 

United  States  v.  New  Orleans.  795 
United  States  v.  New  Orleans  &  O. 

R.  R.  Co.,  1102 
United  States  v.  Northway,  773,  774, 

778 

United  States  v.  Potter,  777.  778,  782 
United  States  v.  Railroad  Co.,  1276, 

1277 

United  States  v.  Shaw,  715 
United     States     v.      Trans-Missouri 

Freight  Assn.,  1178 
United  States  v.  Union  Pac.  R.  R.  ( '<• . . 

301 
United  States  v.  Western  Union  T  I 

Co  ,  475 

United  States  Bank  v.  Caracal,  6»1 
United  States  Bank  v.  Dunn,  177 
United  States  ex  rel.  v.  Board,  etc., 

800 
United  States  ex  rel.  Huidekoper  v. 

Macon  County  Court,  808 
United  States  ex  rel.  Portsmouth  Sav- 
ings Bank  v.  Board  of  Auditors  of 
the  Town  of  Ottawa,  795,  796 
United  States  Electric  Power  &  Light 

Co.  v.  State,  1800 
United  States  Express  Co.  v.  Ellyson, 

lays 

United  States  Rolling  Stock  Co.  v. 
Atlantic  &  G.  W.  R  Co.,  233, 
250 


XCV111 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  70&-1807.] 


United  States  Trust  Co.  of  New  York 

v  Wabash,  St.  Louis  &  Pac.  Ry. 

Co.,  1097 
United  States  Trust  Co.  v.  Mayor,  etc., 

of  New  York,  1288,  1290 
Upton  v.  South  Heading  Bank,  512 
Upton  v.  Tribilcock,  1028,  1108 
Upton  v.  Vail,  294 
Usher  v.  Raymond  Skate  Co.,  78 
Utica   Water  Works  Co.  v.   City  of 

Utica,  66 

V. 

Vaglino  v.  Bank  of  England,  344 

Vafi  v.  Hamilton,  1067 

Vail  v.  Newark  Savings  Institution, 
711 

Vairin  v.  Hobson,  643 

Van  Allen  v.  Assessors,  1274.  1296 

Van  Brocklin  v.  Tennessee,  1277 

Van  Cott  v.   Van  Brunt,   275,    1031, 
1033 

Van  Courtlandt  v.  Underbill,  348    • 

Vandall  v.  Dock  Company,  88 

Vandegrift  v.   Delaware  R.   R.   Co., 
805 

Vanderpoel  v.  Gorman,  1112,  1290 

Vanderwerken  v.  Glenn,  772 

Van  Dresser  v.  Navigation  Co.,  465 

Vane  v.  City  of  Evanston,  1269 

Vane  v.  Newcombe.  1251 

Van  Epps  v.  Van  Epps,  251,  263 

Van  Etten  v.  Van  Eaton,  416 

Van  Hoffman  v.  City  of  Quincy,  909 

Van  Leuven   v.  First  Nat.   Bank  of 
Kingston,  634 

Van  Slyke  v.  Wisconsin,  1296,  1299 

Van  Vechten  v.  Terry,  1158 

Van  Vleet  v.  Jones,  410 

Van  Weel  v.  Winston,  1142 

Van  Wagoner  v.  Gas  Ligbt  Co.,  712 

Van  Wart  v.  Wooley,  681 

Van  Weel  v.  Winston,  290 

Vaughn  v.  School  Dist.  No.  3,  etc., 
1264 

Veazie  Bank  v.  Fenno,  1274 

Ve&zie  Bank  v.  Nims,  702 

Veazie  Bank  v.  Winn,  659 

Veeder  v.  Baker,  398 

Veeder  v.  Mudgett,  400 

Venango  Nat.  Bank  v.  Taylor,  713, 
720 

Vermilye    v.   Adams    Express    Com- 
pany, 1043 

Vermont  &  Canada  R.  R.  Co.  v.  Ver- 
mont Central  R.  R.  Co.,  487 

Vermont    Mining    Co.    v.    Windham 
County  Bank,  583 

Verplanck    v.    Mercantile    Insurance 

Co.,  76,  305 
Verzan  v.  McGregor,  205 


Vicksburg  &  Meridian  R.  R.  Co.  v. 
Bradfey,  J282 

Vicksburg  8.  &  T.  R.  R.  Co.  v. 
Ouachita,  49 

Victory  Webb  Printing  Co.  v.  Beecher, 
390,  396 

Vidal  v.  Girard'sExcrs.,  494 

Viets  v.  Union  Nat.  Bank  of  Troy, 
610 

Vigers  v.  Pike,  168 

Vilas  v.  Milwaukee,  etc.,  Railway, 
1.73 

Vilas  v.  Page,  1212,  1215 

Village  of  Oneida  v.  Board  of  Super- 
visors of  Madison  County,  996 

Vincent  v.  Chapman,  350 

Vincent  v.  Inhabitants  of  Nantucket, 
33.  790 

Vincent  v.  Lincoln  County,  847 

Vincent  v.  Mecosta  County  Supervis- 
ors, 128 

Vincent  v.  Snoqualmie  Mill  Co.,  1081 

Vining  v.  Bricker,  520 

Vionet  v.  Municipality  No.  1,  30 

Virginia  v.  Chesapeake  &  Ohio  Canal 
Co.,  1014,  1047 

Virginia  Development  Co.  v.  Crozer 
Iron  Co.,  1244 

Virginia,  Tenn.  &  Carolina  Steel  & 
Iron  Co.  v.  Wilder,  1123 

Volger  v.  Siddner,  1271 

Von  Roun  v.  Superior  Court,  726 

Von  Schmidt  v.  Widber,  City  Treas- 
urer, 32 

Voris  v.  Renshaw,  210 

Vosburgh  v.  Diefendorf,  620 

w. 

Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

Ham,  1109 
Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

Illinois,  1293 
Wabash,  St.  Louis  &  Pac.  Ry.  Co.  v. 

McKissock,  1100 
Wachob  v.  Bingham  School  District, 

138 
Waco  Water  &  Light  Co.  v.  City  of 

Waco,  442 
Wade  v.   Am.    Colonization  Society, 

494 
Wade  v.  Chicago,   Springfield  &  St. 

Louis  R.  R.  Co.,  1040,  1095 
Wade  v.  Donau  Brewing  Co.,  1100 
Wagner  v.  Cleveland  &  Toledo  Rail- 
road, 1221 

Wahl  v.  Milwaukee,  109 
Wahlig  v.  Standard   Pump  Manufg. 

Co.,  78,  223 

Wait  v.  Nashua  Armory  Assn.,  182 
Waite  v.  Dowley,  733 
Waite  v.  Mining  Company,  162,  247 


TAKI.K 


. 


M  MX 


[The  references  are  to  paged:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 


Wakefleld  Bank  v.  Truesdell,  571 
Wakeman  v.  Dalley,  410,  558 
Waltmni  \.  [ngilby,  294 
Waldo  v.   Chicago,  St.  P.  &  Fond  du 

Lac  H.  II  Co.,  95.  468 
Walk. TV.  Hunk  of  State  of  New  York, 

696 

\Valk.-r  v.  Bin-hard,  885 
Walker  v.  City  of  Cincinnati,  58,  877, 

964 
Walk.-r  %-.  D.-troit  Transit  H.  Co.,  148, 

162 

Walk,  i  v.  Linn  County,  129 
Walker  v.  Miller,  1120 
Walker  v.  Oswald,  808 
Walker  v.  Richards,  734 
Walker  v.  St.  Louis  Nat.  Bank,  596 
Wall  v.  Monroe  County,  1004 
Wall  v.  Spurlock,  597 
Wallace  v.  Agry.  702 
Wallace  v.  Exchange  Bank  of  Spencer, 

ris-j 

Wallace  v.  Loomis,  1093,  1212 
Wallace  v.   Mayor,  etc.,  of  San  Jose, 

5,  63,  445 

Wallace  &  Sons  v.  Walsh,  391 
Walling  v.  Miller,  726,  1120 
Wallis  v.  Johnston  School  Township, 

i:::i,  134.  426,  427 
Walnut  v.  Wade,  946 
Walsh  v.  Barton,  1096 
Walsh  v.  Dart,  702 
Walter  v.  Kirk,  641 
Walt  era  v.  Anglo-American  Mortgage 

&  Trust  Co.,  1191 
Walters  v.  Town  of  Lake,  1269 
Wul t lu-r  v.  Seven  Corners'  Bank,  1123 
Walton  v.  Godwin,  408,  411 
Walton  v.  Hake,  249 
Walton  v.  Oliver,  872 
Walton  v.  Rilcy,  54 
Wai  worth  County  Bank  v.  Farmers' 

Loan  &  Trust  Co.,  180,  182,  236 
Ward  v.  Allen,  670 
Ward  v.  Davidson,  245,  262,  278 
Ward  v.  Johnston,  488 
Wardcll  v.  Railroad  Co.,  242,  243,  259, 

268,  275,  284 
Warden  of  St.  James  v.  Rector,  etc., 

Church  of  the  Redeemer,  288 
Warder,    Bushnell  &   Glesner  Co.  v. 

Jock.  470 
Ware  v.  Grand  Junction  Water  Works 

Co..  300,  348 

Wartield  v.  Canning  Company,  1074 
Warner  v.  De  Witt  County  Nat.  Bank, 

BOB 

Warner  v.  Littlefleld,  1081 
Warner  v.  Martin,  589 
Wnrnerv.  Mower,  1112 
Warren  v.  First  Nat.  Bank  of  Colum- 
bus, 1115,  1117 


Warren  v.  Cilinan.  571 

Warren  v.  Ocean  Insurance  Co.,  144 

Warren  Count}'  v.  Marcy,  1037 

Warren  County  Agr.  Joint  Stock  Co. 
v.  Barr.  -J ; 

Warrensburg  Co-op.  Building 
v.  Zoll,  650 

Wasatch   Mining  Co.  v.  Jennings,  '.2U3 

Washburn  v.  Hlake,  580 

Washburn  v.  Board,  etc.,  81 

Washington  v.  Lewis,  571 

Washington  County  Court  v.  Thomp- 
son, 127 

Washington    Mut.    Fire  Ins.   Co.   v. 
Seminary.  45.  184 

Washington  "National  Bank  of  Tacoma 
v.  Eckels,  714 

Washington,  Ohio  &  W.  R.  R.  Co.  v. 
Lewis,  1176 

Washington  Savings  Bank  v.  Butch- 
ers', etc..  Bank,  198 

Wasson  v.  Hawkins,  023,  624 

Waterbury  v.  City  of  Laredo,  64 

Waterhouse  v.  Comer,  1208 

Waters  v.  Ouimby,  417 

Waters  v.  Trovillo,  57 

Watertown  v.  Cady,  48 

Waterworks  v.  Yeomans,  1051 

Watson  v.  Bennet,  575 

Watson  v.  New  Jersey  Chemical  Co., 
1144 

Watson  v.  Sutherland,  874 

Watson  v.  Tarpley,  982 

Watt's  Appeal,  88,  244,  245,  283,  802, 
817 

Watts  v.  Shipman,  636 

Watts- Campbell    Co.   v.    Yucngling, 
490,  822 

Waverly    Company    v.   Worthlngton 
Company,  1123 

Waxahachie  Nat.   Bank  v.  Vickery, 
567 

Waymirc  v.  Powell,  122 

Wayne  County  v.  Benoit,  798 

Wayne  Pike  Co.  v.  Hammons,   279, 
281,  315 

Wear  v.  Lee,  660 

Weatherford,  M.  W.  &  N.  W.  R.  Co. 
v.  Granger,  234,  300 

Webb  v.  Spokane  County,  283 

Webber    v.    Williams    College,   146, 
227 

Weber  v.  Ohio  &  Mississippi  Ry.  Co., 
1271 

Weber  v.  Spokane  Nat.  Bank,  509 

Webster  v.  Howe  Machine  Co.,  464 

Webster  v.  School  District,  139 

Webster  v.  Upton,  763.  1O 

Webster  ('. unity  v.  Taylor,  -IT.' 

Weckler  v.  First  Nat.  Bunk  of  1  lagers- 
town,  508 

Weeks  v.  Love.  880 


TAJiLJi  OF  CASES. 


[Tire  references  are  to  pages:  vol.  I  contains  pp.  1-707;  vol.  II,  pp.  708-1807.) 
Weeks  v.  Silver    Islet    Consolidated  i  "Western  Union  Telegraph  Co.  v.  Mas- 


Mining  Co.,  193 

Weeks  v.  Texarkana,  799 

Weiner  v.  Sturgis,  1131 

Weirick  v.  Manoning  County  Bank, 
608 

Weismer  v.  Village  of  Douglas,  43,  44 

Wejsser  v.  Denison,  604,  673,  679 

Welch  v.  Sage,  1014 

"Weld  v.  Gorham,  690 

Welles  v.  Graves,  557,  558 

Welles  v.  Stout,  772 

Welhesburg,  etc.,  Co.  v.  Young,  74 

Wells  v.  Jewett,  287 

Wells  v.  Morrow.  569 

Wells  v.  Supervisors,  71,  872,  920, 1000 

Wells  v.  Town  of  Salina,  8 

Welsh  v.   Ferd  Heim  Brewing  Co., 
470 

Welsh  T.  German- American  Bank,  667, 
668,  679 

Welsh  v.  St.  Paul  &  Pac.  R.  R.  Co., 
1047,  1048 

Welton  v.  Missouri,  1267 

Wentworth  v.  Lloyd,  168 

Wentworth  v.  Whittemore,  69 

Werk    v.   Mad    River   Valley  Back, 
697 

Werner  v.  Murphy,  1204 

Wesley  Church  v.  Moore,  198 

West  v.  Caroden,  268 

West  v.  City  of  Utica,  112 

West  v.  Errol,  135 

West  v.  First  Nat.  Bank  of  Elmira, 
628 

West  v.  Menard  County  Agr.  Board. 
488 

West  v.  St.  Paul  National  Bank,  682 

Westburg  v.  City  of  Kansas,  798 

Westchester  Bank  v.  Donner,  521 

Westchester    Gas  Co.    v.    County  of 
Chester,  1266 

Westchester,  etc.,  R.  R.  Co.  v.  Jack- 
son, 485 

Westerfield  v.  Radde,  103,   182,   192, 
223,  392 

Western  Bank  of  Missouri  v.  Gilstrap, 
169 

Western  College  of  Medicine  v  Cleve- 
land, 446 

Western  M.  R.  Co.  v.  Franklin  Bank, 
334 

Western  Organ  Co.  v.  Reddish,  489 

Western  R.  R.  Co.  v.  Bayne,  167,  182, 
193,  260 

Western  Saving  Fund  Society  of  Phila- 
delphia v.  City  of  Philadelphia,  29 

Western  Union  v.  Smith,  359 

Western    Union    Telegraph    Co.    v. 
Alabama  1268 

Western  Union  Tel,  Co.  v.  American 
Union  Tel.  Co.,  1178 


sachusetts,  1294 
Western  Union  Telegraph  Co.  v.  Pen- 

dleton,  1293 
Wescern     Union    Telegraph    Co.    v. 

Texas,  1293 
Western     Union    Telegraph    Co.     v. 

Yopst,  155 

Weston.  v.  City  of  Syracuse,  30,  69 
Weston  v.  Charleston,  1276 
West  Salem  Land  Co.  v.  Land  Co.,  234 
West  St,  Louis  Sav.  Bank  v.  Shawnee 

Co.  Bank,  250,  568,  571,  576,  S79, 

588 

West  School  District  v.  Merrills,  790 
West  Virginia  Transportation  Co.  v. 

Ohio  River  Pipe  Line  Co.,  1178 
Wetherbee  v.  Fitch,  146,  190,  191 
Wetmore  v.  Railroad  Company,  1158 
Whaley,  etc.,  Co.  v.  Green,  299 
Wheeler  v.  Alton,  140 
Wheeler  v.  County  of  Wayi^e,  5 
Wheelei  v.  Northwestern  Sleigh  Co., 

816 

Wheeler  v.  Reed,  359 
Wheeler  v  San  Francisco  &  A  R.  Co., 

819 

WheelocK  v.  Kost,  709,  757,  772 
Wheelwright  v.  8t.  Louis,  N.  O.  &  O. 

Transportation    Co.,    1042,   10TO, 

1A56 

Whelan  v.  McCreary,  569 
Whelen's  Appeal,  955 
Whelpdale  v.  Cookson,  243 
Wherry  v.  Hale,  512 
Whetstone  v.  Ottawa  University,  88, 

461 

Whilden  v.  Bank,  655 
WYiita'Ker  v.  Grummqnd,  162  • 
Whitaker  v.  Hartford,  Prov.  &  F.  R. 

R.  Co.,  1048 

Whitaker  v.  Kilroy,  156,  210,  233 
WhiiaKer  v.  Masterton,  393,  415 
Whitbecfc  v.  Mercantile  Bank,  757 
White  v.  City  of  Rahway,  114 
White  v.  Hosford,  385 
White  v.  Knox,  727,  729,  759 
White  v.  Madison,  369,  372 
White  v.  Mechanics'  Nat.  Bank,  667 
White  v.  National  Bank,  706,  744 
White  v.  People,  1268 
White  v.  Syracuse  &  Utica  R.  R.  Co., 

76 
White  v.   Vermont  &  Massachusetts 

Railroad,  1000, 1014,  1043 
White  v.    Westport   Cotton  Manufg. 

Co.,  150,  152,  157,  193 
White,  etc.,  Manufg.  Co.  v.  Pette  Im- 
porting Co.,  254,  274,  1087 
Whitchead  v.  Vineyard,  1098 
White  Mountains  Railroad  v.  White 

Mountains  (N.  H.)  Railroad,  245 


TABLE  OF  CASES. 


Cl 


[The  reference*  nra  to  page*?  ToL  I  contains  pp.  1-707:  vol.  II,  pp.  704-1387.] 


White-side  v.  United  States,  448 
White  Water  Valley  Canal  Co.  v.  Val- 

k-tte,  1014,  1008 
Whiting  v.  Railroad  Co.,  49 
Whiting  v.  Town  of  Weot  Point,  1264 
Whiting  v.  Wellington,  180,  827 
Whitman  Mowing  Co.  v.  Baker,  494 
Whitiiey  v.  Butle.-,  766,  768 
W '  itnev  T.  Cammnnn,  392 
Whitney  v.  Fairbanks.  808,  818 
Whitney  v.  National  Bank  of  Brattle- 

boro,  684,  686 
Whitney  v.  South  Paris  Manufg.  Co., 

148 

Whitney  T.  Union  Trust  Co..  1071 
Whituey   Arms   Co.   v.  Barlow,  894. 

3!!6,  898,  899,  415,  467,  469,  489, 

495,  497,  942 
WlUtaker  v.  Amwell  Nat.  Bank,  1085, 

1086,  llfiO 

WhiUenton  Mills  v.  Upton,  499,  501 
Whitwell  v.  Johnson,  685 
Whitwell  v.  Warner.  150    180    1084, 

1108,  1112 

Whyte  v.  Mayor,  etc.,  59 
Wi.-hita  Nat.  Bank  v.  Maltby,  607 
Wickens  v.  Foster,  413 
Wirkersham  v.  Chicago  Zinc  Co.,  570 
Wk-kham  v.  Hull.  769 
Wiggins  v.  Burkham,  673,  676 
Wiggins  Ferry  Co.  v.  East  St.  Louis, 

1293 

Wiggins  Ferry  Co.  v.  Ohio  &  Missis- 
sippi Ry.  Co.,  1174,  1221 
Wilbur  v.  Lynde.  196 
Wilcombe  v.  Dodge,  641 
Wil.-ox  v.  Bickel.  316 
Wild  v.  Bank  of  Passamaquaddy,  176 
Wild  v.  New  York,  etc.,  M.  Co..  234, 

188 
Wile  &  Brickner  Co.  v.  Rochester  & 

K.  F.  Land  Co.,  157,  167,  260 
Wiles  v.  Suydam,  898,  400 
Wiley  v.  Silliman,  972 
Wiley  v.  Starbuck,  530,  534 
Wilhelm  v.  Cedar  County,  124 
Wilkins  v.  State,  1272    ' 
Wilkinsburgh  Borough  v.  Home  for 

Aged  Women,  1266 
Wilkinson  v.  Albany,  135 
Wilkinson  v.  Babbitt,  858 
Wilkinson  v.  Bauerle,  272,  356,   1084, 

li  W8,  1112,  1114 
Wilkinson  v.  City  of  Peru,  950 
Wilkinson  v.  Johnson,  670 
Willamette,  etc.,  Co.v.  Bank  of  British 

Columbia,  478 
Willard  v.  D.-nise,  239 
Willard  v.  Killiugworth,  5 
Willard  v.  NY\vh'ur\  port,  88,  85 
Willeta  v.  1'hu-iiix  Bank.  051 


Wilk-tts  v.  Paine.  605,  648,  659 

Williams  v.  American  Bank,  1241 

Williams  v.  Cheney,  296 

Williams  v.  I)..rri«-r,  676 

Williams  v.  Hood,  661 

Williams  v.  Jackson  County  Patrouj 

of  Husbandry,  247 
Williams  v.  Jones,  254 
".Villlams  v.  McKay.  554 
Williams  v.  Manufacturing  Co.,  296 
Williams  v.  Miami  Powder  Co.,  857 
Williams  v.  Morgan,  1184 
Williams  v.  People,  911,  940 
Williams  v.  Riley,  865 
Williams  v.  Town  of  Albion,  22 
Williams    v.   Town  of  Roberts,  876, 

963 
Williams   v.  Town  of  Duanesburgh, 

1007 
Williams  v.  State  Board  of  Assessors, 

1302 
Williams  v.  Uncompahgre  Canal  Co., 

LSI 
Williams  v.  Western  Union  Tel.  Co., 

815,  1289 

Willluns  v.  Wood.  294 
Williamsburg  City  Fire  Ins.   Co.   T. 

Frothingham,  1071 
Williamsburprh  Sav.  Bank  v.  Town  of 

Solon,  987 
Williamson  v.  Keokuk,  852 
Williamson  v.   Wash.  City.  Va.  Mid. 
&  Great  Southern  R.  R.  Co.,  1239 
Williamson.   Trustee,  v.  New  Jersey 

Southern  Railroad,  1082,  1248 
Willim  v.  Bernheimer,  857 
Willink  v.   Morris  Canal  &  Bkg.  Co., 

1054,  1096,  1097 
Wilmington  &   Weldon    Railroad   v. 

Alsbrook,   1282 
Willis  v.  Philadelphia  &  Darby  R.  R. 

Co.,  338,  1079 
Willis  v.  St.  Paul  Sanitation  Co.,  114, 

236 
Williston  v.  Mich.  So.  &  No.  Ind.  R. 

R.  Co.,  485 
Willmarth  v.  Crawford,  74 
Willoughby  v.  Chicago  Junction  Rys. 
&  Union    Stock-Yards  Co.,   456, 
503 

Wilmer  v.  Railroad  Company,  1195 
Wilmington,  O.  &  E.  C.  R.  R.  Co.  v. 
Board     of     Comrs,     Of    Onslow 
County,  948 
Wilson  v.  Bank,  588 
Wilson  v.  Bcckwith.  1098 
Wilson  v.  Boyce,  1098 
Wilson  v.  Brett.  348 
Wilson  v.  City  Council,  1012 
Wilson  v.  Coburn,  622 
Wilson  v.  Dawson,  636 
WiUou  v.  Gaines.  1807 


Cll 


TABLE  OF  CASES. 


[The  references  are  to  pages:  vol.  I 

Wilson  v.  Kings  County  Elevated  R. 
R  Co.,  238 

Wilson  v.  M.  E.  R.  Co.,  342 

Wilson  v.  Rocke,  620 

Wilson  v.  Salamanca,  880,  935,  938 
Wilson  v.  Supervisors.  l',VH 

Wilson  v.  Union  Savings  Assn.,  973 

Wilson  v.  Williman,  641 

Wilson  Mfg.  Co.  v.  Schwincl,  394 

Wilson  Sewing  Machine  Co.  v.  Boy- 
ington.  153,  195 

Winchester  v.  Baltimore  &  Susque- 
hannaR.  R.  Co.,  154 

Winchester  v.  Railroad  Co.,  570 

Wind  v.  Fifth  Nat.  Bank,  671 

Windham  Provident  Inst.  v.  Sprague, 
387 

Winn  v.  City  Council  of  Macon,  53 

Winona  v.  Minnesota Ry.  Constr.  Co., 
961 

Winsor  v.  La  Fayette  County  Bank, 
153 

Winter  v.  Bank  of  New  York,  602 

Winter    v.    City    Council    of  Mont- 
gomery, 48,  51,  52,  950 

Winters  v.  Hub  Mining  Co.,  300 

Winton  v.  Little,  509 

Wisconsin  v.  Pelican  Insurance  Co., 
413 

Wisconsin  Central  R.  R.  Co.  v.  Corn- 
stock,  1282 

Wiser  v.  Blachly,  991 

Witherow  v.  Slayback,  397 

Witter  v.  Grand  'Rapids  Flouring  Mill 
Co.,  821 

Witters  v.  Bowles,  558,  771 

Wolf  v.  Aroninus  Copper  Mine  Co., 
470 

Wolff  v.  Walter,  681 

Wood  v.   Commissioners  of  Oxford, 
906,  974 

Wood  v.  Dummer,  1106,  1113,  1133 

Wood  v.  Guarantee  Trust  &  Safe  De- 
posit Co.,  1046,  1246,  1256,  1260 

Wood   v.    Holly  Manufacturing  Co., 
1100 

Wood   v.    Oregon  Development  Co. 
1126 

Wood  v.  Whelen,  163,  236,  1075,  1100 

Wood  v.    Wiley  Construction   Com- 
pany, 151 

Woodbridge  v.  City  of  Duluth,  862 

Woodhall  v.  Rosenthal,  1101 

Wood  Hydraulic  Hose  Mining  Co.  v. 
King,  92 

Woodin  v.  Frazee,  656 

Woodley  v.   Town  Council  of  Clio, 
1012 

Woodroof  v.  Howes,  273 

Woodruff  v.  Comrs.  of  Noble  Countv 
123,  442 

Woodruff  v.  Merchants'  Bank,  656 


contains  pp.  1-707;  vol.  II,  pp.  706-1807.] 

Woodruff  v.  Plant,  658 

Woodruff  v.  Okalona,  1001 

Woods  v.   Board    of    Supervisors  of 

Madison  County,  995 
Woods  v.  Lawrence  County,  904 
Woods  v.  Louisiana,  857 
Woods  v.  People's  Bank,  509 
W.    &  Mt.    St.    T.   R.    Co.    v.    Clark 

County  Court,  46,  899 
Woodstock  Iron  Co.  v.  Richmond  & 

Danville  Extension  Co.,  268 
Woodward  v.  Reynolds,  874 
Woolverton  v.  Taylor,  403,  1124 
Worcester  v.  Railroad  Company,  958 
Worcester  Nat.  Bank  v.  Cheeney,  510 
Workhouse  v.  Moore,  157,  166 
Worthern  v.  Griffith,  1111 
Wray  v.  Insurance  Company,  754 
Wright  v.  Bundy,  471 
Wright  v.  First  National  Bank,  1081 
Wright  v.  Hughes,  89,  97,  1075 
Wright  v.  Pipe  Line  Co.,  1079 
Wright    v.    Oroville  Gold,    Silver    <fc 

Copper  Mining  Co.,  306 
Wright's  Appeal,  182,  287 
Wullenwaber  v.  Dunigan,  883 
Wyandotte  v.  Zeitz,  850 
Wylie  v.  Northampton  Bank,  635 
Wyman  v.  Colorado  Nat.  Bank,  524 

Y. 

Yale  Gas  Stove  Co.  v.  Wilcox,  297 

Yancey  v.  Hopkins,  446 

Yardley  v.  Clothier,  712,  716,  717,  72O 

Yardley  v.  Dickson,  715 

Yardley  v.  Philler,  722 

Yardley  v.  Wilgus,  765 

Yarish  v.  Cedar  Rapids,  I.  F.  &  N.  W. 

Ry.  Co.,  906 

Yarnell  v.  City  of  Los  Angeles,  736 
Yazoo  &  M.  V.  R.  R.  Co.  v.  Board  of 

Levee  Comrs.,  1282 
Yellow  Jacket  Silver  Mining  Co.  v. 

Stevenson,  172 
Yoakum  v.  Kroeger,  1232 
York  Buildings  Co.  v.  Mackenzie,  243, 

251 

York  Co.  v.  Mackenzie,  1039 
York  &  Maryland  Railroad  v.  Winans, 

473 
York  &  North  Midland  Ry.  Co.   v. 

Hudson,  301 
Young  v.  Board  of  Education  of  Ind. 

School  Dist,  No.  47,  895 
Young  v.  Camden  County,  873 
Young  v.  Clarendon,  17 
Young  v.  Clarendon  Township,  425, 

1000 

Young  v.  Hudson,  574 
Young  v.  McKay,  766 
Young  v.  Railroad  Company,  907,  920) 


TABLE  OF  CASES. 


CU1 


[The  references  are  to  pagee:  vol.  I.  contains  pp.  1-707;  vol.  II,  pp.  708-1807.] 

Zrarfnss  v.  Farmers  &  Mechanics'  In- 
stitute of  Northampton  CouLty, 
161 

X«  llcrbach  v.  Allenberg,  815 
/die  v. 'German  Sav.  Inst.,  660 
Ziegler  v.  Hank,  628 
Ziegler  v.  Hoagland,  280 
Zieverink  v.  Kemper,  1128 
Ziblman    v.   Cumberland   Glass  Co., 

807 
Zook  v.  Spray,  379 


v.  \\Ympr.  772 

iiKin  v.  Klmiru  &  Williamsport 
H.  K.  Co.,  ln'.Mi 
Young  Men's  Christian  Association  v. 

Donobugb,  1266 
Youngs  v.  Hull,  847 

z. 

Zabriskit-  v.  Railroad,  49,  79,  473,  895, 
1018 


COKPOKATE  FINANCE 


THE  FINANCIAL  OPERATIONS  AND  ARRANGEMENTS 
OF  PUBLIC  AND  PRIVATE  CORPORATIONS 


CHAPTER  I. 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY  —  PUBLIC 
CORPORATIONS. 


§  1.  General  rules  applicable  to  pub- 
lic corporations. 

2.  Distinction  between  public  and 
private  corporations. 

8.  Borrowing  money. 

4.  The    United     States     Supreme 

Court  on  borrowing  money. 

5.  The  New  Jersey  Court  of  Errors 

and   Appeals  on   borrowing 
money. 
8.  Issue  of  negotiable  securities. 

7.  Power  of  Indiana  cities  to  issue 

bonds. 

8.  Miscellaneous  rules  us  to  issuing 

bonds. 

9.  Bonds  issued  for  the  erection  of 

a  county  court  house. 

10.  Funding    county     indebtedness 

by    Issuing    interest-bearing 
bends. 

11.  Issue  of  bonds  to  pay  subscrip- 

tion to  stock  of  railroad  cor- 
porations. 

12.  Notes  or  warrants  to  cover  funds 

to   be    set    aside    in    future 
taxation. 
18.  The  issue  of  scrip. 

14.  Purchase  of  real  estate  for  erec- 

tion of  public  buildings   on 
time. 

15.  Erection  of  town  buildings. 

16.  Purchase  of  sites  for  erection  of 

and  repair  of   school  build- 
ings. 

17.  The  same  subject  continued. 

18.  Purchasing  on  credit. 

19.  Building  and  repair  of  bridges. 

20.  Incurring   liability  under   Cali- 

fornia statutes. 

21.  Incurring  liability  under  Indiana 

statutes. 


§  22.  Incurring  liability  under  Kansas 
•  statutes. 

23.  For    lighting    the  streets   of   a 

city. 

24.  Contract  on  time  for    lighting 

streets. 

25.  Caring  for  the  indigent,  etc. 

26.  Employment  of   physicians  for 

the    poor  —  Indiana    statute 
construed. 

27.  Expenses  connected    with    epi- 

demic diseases. 

28.  For  what  towns  may  not  be  made 

liable. 

29.  Expenses  of  a  committee  to  se- 

cure legislation. 

80.  For  the  payment  of  bounties  to 

volunteers. 

81.  Validating  a  contract  of  village 

trustees. 

32.  Illustrations    of    liabilities    in- 

curred for  a  "corporate  pur- 
pose." 

33.  Purchase  of    fire    engines    and 

apparatus. 

84.  Illustrations  of   wrongfully  in- 

curred liability. 

85.  Purchase  of  cemetery  grounds. 

86.  Erection     of      crematory      for 

garbage. 

87.  Use    of    private    property    for 

sewers. 

88.  Detection  of  criminals. 

39.  Aiding  private  corporations. 

40.  Subscription  to  capital  stock  of 

railroad  corporation. 

41.  Power  of  the  legislature  as  to 

compensations  in  such  mat- 
ters. 

42.  Constitutionality  of   legislation 

authorizing  such  aid. 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


§  48.  In  what  respect  the  power  of  the 
municipality  is  restricted. 

44.  Subscription  for  less  than  the 
amount  voted. 

46.  The  effect  of  subsequent  legisla- 
tion upon  such  a  subscription. 

46.  Statutory  authority  to  construct 

a  railroad. 

47.  Constitutional    provisions    con- 

strued. 

48.  What  is  not  a  work  of  "  internal 

improvement "  in  the  mean- 
ing of  Nebraska  statutes. 

49.  What  is  such  a  work. 
60.  Contracts  of  guaranty. 

51.  Employment  of  agents  or  at- 
torneys. 

62.  Contracts  for  legal  services  — 
when  allowed. 

53.  Contracts  for  legal  services  — 
how  made. 


§  54.  When  a  public    corporation  is 
bound  for  legal  services. 

55.  Employment  of  counsel  for  de- 

fense of  officers. 

56.  Indemnity  for  expenses  of  liti- 

gation. 

57.  When  a  public  corporation    is 

not  bound  for    professional 
services  of  an  attorney. 

58.  The  same  subject  continued. 

59.  What  contracts   with   attorneys 

are  contrary  to  public  policy. 

60.  Limitations  upon  the  indebted- 

ness to  be  incurred. 

61.  The  same  subject  continued. 

62.  Limitations  upon  power  to  incur 

indebtedness  —  procuring    a 
supply  of  water. 

63.  The  same  subject  continued. 

64.  Donation  of  bonds  to  aid  in  de- 

veloping water  power. 


SECTION  i.  General  rules  applicable  to  public  corporations. 

— All  public  corporations  are  limited  to  the  exercise  of  those  pow- 
ers which  are  expressly  granted  or  which  are  necessarily  or  fairly 
implied  in  or  incident  to  the  powers  expressly  granted,  or  which 
are  essential  to  the  declared  objects  and  purposes  of  such  cor- 
porations.1 Corporations  and  their  officers  can  only  act  within 
the  scope  of  the  powers  conferred  by  their  charters,  and  such 
powers  are  to  be  construed  strictly.2  A  municipal  corporation 


'Town  of  Harwood  v.  Hamilton, 
(1883)  13  Bradw.  358;  Cook  County 
v.  McCrea,  93  111.  236;  People  v.  Vil- 
lage of  Crotty,  93  111.  180;  Petersburg 
«.  Metzker,  21  111.  205;  Schott  v.  People, 
89111.195.  In  Law  v.  People,  (1877)  87 
HI.  385,  the  Supreme  Court  of  Illinois 
said  upon  the  power  of  municipal  cor- 
porations: "  The  law  is,  and  all  persons 
are  presumed  to  know  it,  that  munici- 
pal bodies  am  only  exercise  such  pow- 
ers as  are  conferred  upon  them  by 
their  charters,  and  all  persons  dealing 
with  them  must  see  that  the  body  h:is 
power  to  perform  the  proposed  act. 
Such  corporations  are  created  for 
governmental  and  not  for  commercial 


purposes.  Hence  power  to  borrow 
money  or  create  indebtedness  is  not 
an  incident  to  such  local  governments, 
and  the  power  cannot  be  exercised  un- 
less it  is  conferred  by  their  charter, 
and  no  one  has  the  right  to  presume 
the  existence  of  such  power,  and  per- 
sons proposing  to  loan  money  to  these 
bodies  must  see  that  the  power 
exists." 

*Minturn  t.  Larue,  23  How.  435; 
Thomson  v.  Lee  County.  3  Wall.  327; 
Thomas  v.  City  of  Richmond,  12  WalL 
349;  Clark  T.  Davenport,  14  Iowa,  494; 
Merriam  t>.  Moody 's  Exrs.,  25  Iowa, 
163;  Nichol  v.  Mayor,  etc.,  9  Humph. 
252;  Leonard  v.  Canton,  35  Miss.  189; 


§2] 


PUBLIC  CORPORATIONS. 


has  no  general  authority  to  exchange  promises  with  other  cor- 
porations or  persons ;  its  contracts  to  be  valid,  must  be  within  the 
scope  of  the  authority  conferred  upon  it  by  law  and  for  munici- 
pal purposes.1  A  municipal  corporation,  as  a  general  rule,  can- 
not incur  any  liability  not  authorized  by  the  statute  or  charter  by 
which  it  is  created.3  Counties,  in  the  absence  of  legislative 
authority,  have  no  power  to  borrow  money  and  execute  their 
obligations  for  the  loan,  notwithstanding  a  purpose  to  apply  the 
money  to  the  use  of  the  public.8  The  statutory  grant  in  Kansas 
to  county  commissioners  to  borrow  money  to  meet  current 
expenses,  when  a  deficit  exists  in  the  county  revenue,  only  author- 
izes a  borrowing  when  the  deficit  has  actually  occurred.4 

§  2.  Distinction  between  public  and  private  corporations. 

—  Political  corporations,  in  their  organization  and  purposes,  are 
essentially  different  from  private  corporations.  The  former  are 
created  to  aid  in  the  government  of  the  people,  the  latter  to  pro- 
mote trade,  manufactures  and  a  variety  of  other  interests.  Pri- 
vate corporations  are  usually  endowed  with  all  the  powers  and 
rights  of  an  individual,  so  far  as  they  can  be  conferred.  And  the 
power  to  contract  debts  and  to  issue  evidences  of  the  same  is  an 
incident  equally  attending  their  creation.  When  authorized  to 
perform  an  act,  unless  restricted  by  the  charter,  they  may  employ 
the  means  and  perform  the  act  in  the  same  manner  that  might  be 
done  by  a  private  individual.  This  is  necessarily  so  to  effectuate 
the  purpose  of  their  foundation  with  most  private  corporations. 
Municipal  corporations,  however,  being  created  for  purposes  of 
government,  and  authorized  as  it  were  to  exercise,  to  a  limited 
extent,  a  portion  of  the  power  of  the  state  government,  have 


Douglass  r.  Placerville,  18  Cal.  643; 
Argenti  ».  San  Francisco,  16  Cal.  255, 
282;  Wallace  r.  San  Jose,  29  Cal.  180; 
City  of  Lafayette  «.  Cox,  5  Ind.  88; 
Bank  t>.  Chillicothe,  7  Ohio,  31,  pt.  II; 
Collins  r.  Hatch,  18  Ohio,  523;  Kylet. 
Malin,  8  Ind.  34;  Willard  t>.  Killing- 
worth,  8  Conn.  247;  Brady  c.  Mayor, 
etc.,  20  N.  Y.  812;  Hodges  e.  Buffalo, 
ii  DC  nio,  110;  Halstead  r.  Mayor,  etc.,  8 
N.  Y.  480;  Boom  t>.  Utica,  2  Barb.  104. 
•COOLEY,  J.,  in  Thomas  r.  City  of 
Port  Huron,  (1878)  27  Mich.  820 


» Wheeler  r.  County  of  Wayne,  (1890) 
132  111.  599;  s.  c.,24  N.  E.  Hep.  625, 
affg.  31  111.  App.  299;  Cook  County  t>. 
McCrea,  93  111.  236;  City  of  Cham- 
paign v.Harmon,  98  111.  491;  Schott 
t>.  People,  89  111.  195;  People  ».  Vil- 
lage of  Crotty,  93  111.  180. 

*  Crittcnden  County  Court  r.  Shanks, 
(1888)  88  Ey.  475;  8.  c.,  11  8.  W. 
Rep.  468. 

4  Lewis  c.  Comanche  County,  35  Fed. 
Rep.  843. 


6  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  3 

always  been  held  to  act  strictly  within  their  charter.  It  is  to  them 
their  fundamental  law,  and  their  power  is  only  co-extensive  with 
the  power  granted.  Not  being  essential  to  the  purposes  and 
object  of  their  creation,  without  an  express  grant  of  power  for 
the  purpose,  they  have  no  authority  to  contract  debts,  binding 
upon  the  body  or  individual  residing  within  their  limits.  Such 
a  power  being  unusual  when  they  are  created,  and  usually  being 
conferred,  if  at  all,  by  special  enactment,  and  all  persons  familiar 
with  the  fact,  it  is  but  natural  that  those  who  deal  with  them,  or 
in  their  obligations,  should  see  to  it  that  the  body  possesses  the 
power  to  bind  itself  for  their  payment.  On  the  other  hand,  the 
object  of  private  corporations  usually  renders  it  necessary  that 
they  should  transact  such  business  as  may  involve  the  necessity  of 
incurring  debt. 

§  3.  Borrowing  money. —  In  a  case  arising  in  Ohio,  frequently 
cited  as  authority,  the  Supreme  Court  of  that  state  held  that  a 
town  corporation,  invested  with  the  powers  usually  conferred 
upon  such  bodies,  could  enter  into  a  contract  for  a  loan  of 
money  to  be  used  by  the  town,  which  would  bind  the  corporation 
for  repayment,  although  no  express  power  to  borrow  money  be 
given  in  the  law  incorporating  the  town.1  The  court  upheld  the 

4 

1  President,  etc.,  Bank  of  Chillicothe  be,  as  is  insisted  by  counsel,  a  substan- 
ce. Mayor,  etc.,  Town  of  Cbillicothe,  tial  legislative  power,  or,  according  to 
(1836)  7  Ohio  (Pt.  II)  31.  It  was  said  my  apprehension  of  tbe  subject,  an  in- 
by  HITCHCOCK,  J.,  delivering  tbeopin-  cident  to  legislative  power,  and,  if  it 
ion  for  the  court,  after  referring  to  became  necessary  for  the  safety  and 
certain  provisions  in  the  charter  of  the  convenience  of  the  town,  or  to  carry 
town:  "From  these  extracts  it  will  be  into  effect  the  power  granted  to  pur- 
seen  that  this  corporation,  as  by  that  chase  real  or  personal  estate,  or  to 
law  constituted,  had  legislative  power;  erect  or  repair  public  buildings,  to  bor- 
this  power,  it  is  true  was  restricted  to  row  money,  there  could  be  no  objec- 
such  powers  as  should  seem  necessary  tion  to  passing  a  law  or  ordinance  to 
for  the  internal  safety  and  convenience  that  effect.  When  passed,  it  would  be 
of  said  town  of  Chillicothe,  and  re-  obligatory  on  the  corporation,  and  the 
stricted,  too,  so  far  that  the  laws  made  money  procured  would  constitute  a 
and  published  should  not  be  contrary  debt  which  the  corporation  must  dis- 
to  the  laws  of  the  state  or  of  the  United  charge.  Such  law  would  contravene 
States.  It  had  the  power  further  '  to  no  principle  of  the  Constitution  or  laws 
purchase,  receive,  possess  and  convey  of  the  state  or  of  the  United  States,  or 
any  real  or  personal  estate  for  the  use  any  principle  contained  in  the  charter 
of  the  town,  to  erect  and  repair  public  of  incorporation.  To  effect  other  sub- 
buildings  for  the  benefit  of  said  town,'  jects  [objects?]  than  those  specified  in 
etc.  If  the  power  to  borrow  money  the  charter,  money  could  not  with  pro- 


§  4]  PUBLIC  CORPORATIONS.  7 

power  of  the  corporation  to  borrow  money  as  incident  to  the 
powers  expressly  granted  in  the  charter  of  the  town.  But  a 
municipal  corporation  in  Ohio  lias  no  power  to  borrow  money 
except  in  conformity  with  the  statute  of  that  state,  which  pro- 
vides that  "all  bonds  issued  under  authority  of  this  chapter  shall 
express  upon  their  face  the  purpose  for  which  they  were  issued, 
;m<l  under  what  ordinance,"  and  another  statutory  provision  that 
such  bonds  shall  be  advertised  and  sold  at  auction  to  the  highest 
bidder.1 

§  4.  The  United  States  Supreme  Court  on  borrowing 
money. —  A  majority  of  the  Supreme  Court  of  the  United  States 
has  held  that  the  power  to  borrow  money  does  not  belong  to  a 
municipal  corporation  as  an  incident  of  its  creation.  To  be  pos- 
sessed, it  must  be  conferred  by  legislation  either  express  or 
implied.  Indebtedness  may  be  incurred  to  a  limited  extent  in 
carrying  out  the  objects  of  the  incorporation.  For  its  payment, 
however,  the  corporation  must  look  to  and  rely  on  taxation,  the 
legitimate  mode  of  raising  the  funds  for  the  purpose.3 

priety  be  borrowed  *  *  *  An  ter  than  by  borrowing.  And  really,  I 
amendment  to  the  charter  conferred  cannot  seethe  great  difference  whether 
upon  the  mayor  and  common  council  a  corporation  shall  be  indebted  to  A. 
the  power  to  pass  and  publish  all  such  for  labor  in  repairing  streets  or  build- 
Li  ws  and  ordinances  as  to  them  shall  ap-  ings,  or  to  B.  for  money  borrowed  to 
pear  necessary  for  regulating  the  pay  A.  for  the  same  labor.  The  moral 
streets,  alleys  and  highways,  and  for  obligation  to  pay  would  be  the  same  in 
cleansing,  raising,  draining,  paving,  either  case." 

turn  piking  or  otherwise  keeping  the  '  Mt.  Adams,  etc.,  Inclined  Ry.  Co. 
same  in  repair.  *  *  *  If,  in  effecting  v.  City  of  Cincinnati,  25  Wkly.  Law 
any  of  these  objects,  it  become  neces-  Bull.  91;  Rev.  St.  Ohio,  §§2703,2709. 
sary  to  borrow  money,  the  corporation  *  Mayor  r.  Ray,  (1873)  19  Wall.  468. 
might  with  propriety  do  it.  In  one  of  Justice  BRADLEY  in  the  opinion  ren- 
the  cases  now  before  the  court  the  dered  by  him  for  the  majority  of  the 
money  was  borrowed  expressly  for  ira-  court,  said:  "A  municipal  corpora- 
proving  one  of  the  streets.  For  the  pur-  tion  is  a  subordinate  branch  of  the 
pose  of  purchasing  real  estate,  erecting  domestic  government  of  a  state.  It  is 
and  repairing  public  buildings,  cleans-  instituted  for  public  purposes  only  ; 
ing,  raising,  paving,  draining,  turnpik-  and  has  none  of  the  peculiar  qualities 
ing  and  otherwise  keeping  streets  in  re-  and  characteristics  of  a  trading  cor- 
pair  contracts  must  necessarily  be  poration,  instituted  for  purposes  of 
made.  Ultimate  payment,  it  is  true,  private  gain,  except  that  of  acting  in 
must  be  made  from  taxation.  But  a  corporate  capacity.  Its  objects,  its 
until  money  could  be  thus  raised  it  responsibilities,  and  its  powers  arc 
seems  to  the  court  that  it  might  be  different.  As  a  local  governmental 
provided  otherwise,  and  in  no  way  bet-  institution  it  exists  for  the  benefit  uf 


8 


GENERAL  POWEB  TO  INCUR  PECUNIARY  LIABILITY. 


[§« 


§5-  The  New  Jersey  Court  of  Errors  and  Appeals  on 
borrowing  money. —  Soon  after  this  ruling  of  the  Supreme 
( 'ourt  of  the  United  States,  the  Court  of  Errors  and  Appeals  of 
New  Jersey  held  that  municipal  corporations,  in  the  absence  of  a 
specific  grant  of  power,  do  not,  in  general,  possess  the  power  of 
borrowing  money,  and  that  a  note  given  by  a  town  in  New  Jer- 
sey for  an  unauthorized  loan  could  not  be  enforced,  even  though 
the  money  borrowed  had  been  expended  for  municipal  purposes.1 


the  people  vrithin  its  corporate  limits. 
The  legislature  invests  it  with  such 
powers  as  it  deems  adequate  to  the 
ends  to  be  accomplished.  The  power 
of  taxation  is  usually  conferred  for 
the  purpose  of  enabling  it  to  raise  the 
necessary  funds  to  carry  on  the  city 
government  and  to  make  such  public 
improvements  as  it  is  authorized  to 
make.  As  this  is  a  power  which 
immediately  affects  the  entire  con- 
stituency of  the  municipal  body  which 
exercises  it,  no  evil  consequences 
<are  likely  to  ensue  from  its  being  con- 
ferred ;  although  it  is  not  unusual  to 
affix  limits  to  its  exercise  for  any  single 
year.  The  power  to  borrow  money  is 
different;  when  this  is  exercised  the 
citizens  are  immediately  affected  only 
by  the  benefit  arising  from  the  loan ; 
its  burden  is  not  felt  till  afterwards. 
*  *  *  The  system  of  local  and  mu- 
nicipal government  is  copied  in  its  gen- 
eral features  from  that  of  England .  No 
evidence  is  adduced  to  show  that  the 
practice  of  borrowing  money  has 
been  used  by  the  cities  and  towns  of 
that  country  without  an  act  of  Parlia- 
ment authorizing  it.  We  believe  no 
such  practice  has  ever  obtained."  See 
Wells  t.  Town  of  Salina,  119  N.  Y. 
280;  B.  c.,  23  N.  E.  Rep.  870. 

'Town  of  Hackettstown  t>.  Swack- 
hamer,  (1874)  37  N.  J.  Law,  191.  BEAS- 
LEY,  Ch.  J.,  in  an  elaborate  opinion, 
discussed  the  question  in  the  follow- 
ing language:  "  At  the  present  time  it 
seems  to  be  generally  conceded  that  a 
private  corporation,  constructed  with 


a  view  to  pecuniary  profit,  has,  by 
implication,  when  not  in  this  particu- 
lar specially  restricted,  the  power  in 
question.  The  law  was  so  held  in 
this  state,  in  the  case  of  Lucas  v.  Pit- 
ney, 27  N.  J.  Law,  221,  and  the  same 
rule  has  been  repeatedly  recognized  in 
other  decisions.  And  this  result  is 
the  appropriate  product  of  the  princi- 
ple that  corporate  powers  which  are 
the  necessary  accompaniments  of  pow- 
ers conferred,  will  be  implied.  In 
these  instances  the  ability  to  borrow 
money  is  so  essential  that  without  it 
the  business  authorized  could  not  be 
conducted  with  reasonable  efficiency, 
and  as  it  cannot  be  supposed  that  it 
was  the  legislative  intent  to  leave  the 
company  in  so  imperfect  a  condition, 
the  inference  is  properly  drawn  that 
the  power  to  raise  money  in  this  mode 
is  inherent  in  the  very  constitution  of 
such  corporate  bodies.  Such  a  deduc- 
tion is  simply,  in  effect,  a  conclusion 
that  the  lawmaker  designed  to  author- 
ize the  use  of  the  means  fitted  to  ac- 
complish the  purpose  in  view.  It  has 
been  often  said  that  the  means  which 
can  be  thus  raised  up  by  implication 
must  be  necessary  to  the  successful 
prosecution  of  the  enterprise,  and  that 
the  circumstance  that  they  are  conven- 
ient will  not  deputize  their  introduc- 
tion. But  the  necessity  here  spoken 
of  does  not  denote  absolute  indispen- 
sableness,  but  that  the  power  in  ques- 
tion is  so  essential  that  its  non-existence 
would  render  the  privileges  granted 
practically  inoperative  or  incomplete. 


PUBLIC  CORPORATIONS. 


§  6.  Issue  of  negotiable  securities. — A  majority  of  the 
Supreme  Court  of  the  United  States,  while  conceding  that 
vouchers  for  money  due,  certificates  of  indebtedness  for  services 
rendered  or  for  property  furnished  for  the  uses  of  a  municipality, 
orders  or  drafts  drawn  by  one  city  officer  upon  another,  or  any 
other  device  of  the  kind  used  for  liquidating  the  amounts  legiti- 
mately due  to  public  creditors,  are,  of  course,  necessary  instru- 
ments for  carrying  on  the  machinery  of  municipal  administration 
and  for  anticipating  the  collection  of  taxes,  looked  upon  the 
investing  of  such  documents  with  the  character  and  incidents  of 
commercial  paper  so  as  to  render  them  in  the  hands  of  lona  fide 
holders  absolute  obligations  to  pay,  however  irregularly  or  fraud- 


It  is  consequently  obvious  that  a  pre- 
sumption, resting  on  such  a  basis  as 
this,  must  spring  up  in  favor  of  al- 
most the  entire  mass  of  commercial 
and  manufacturing  corporations,  for 
without  the  franchise  to  effect  loans 
the  chartered  business  could  be  but 
imperfectly  transacted.  And,  yet, 
even  in  such  instances,  the  usual  in- 
ference that  such  an  implied  power 
exists  may  be  repelled  by  the  language 
of  the  particular  charter  or  the  pecu- 
liar circumstances  of  the  case.  In  a 
word,  the  rule  of  law  in  question  is 
nothing  but  the  discovery,  by  the 
courts,  of  the  legislative  intent,  such 
intent  having  been  ascertained  by  a 
construction  of  charters,  as  applied  to 
the  subject-matters.  Taking  this  as 
the  ground  of  our  reasoning  I  am  at  a 
loss  to  perceive  how  it  can  be  inferred 
that  a  power  to  borrow  money  is  an 
appendage  to  the  usual  franchises 
given  to  municipal  corporations. 
Such  a  right  cannot,  in  any  reasonable 
sense,  be  said  to  be  necessary  within 
the  meaning  of  that  term  as  already 
defined.  Under  ordinary  circum- 
stances it  is  not  certainly  indispensable 
as  common  experience  demonstrates. 
In  the  great  majority  of  instances  the 
municipal  affairs  are,  with  case  and 
completeness,  transacted  without  it. 
I  do  not  wish  to  be  understood  as  indi- 

2 


eating  that  under  certain  special  con- 
ditions an  opposite  deduction  may  not 
be  legitimately  drawn.  It  is  plain 
that  it  is  practicable  to  impose  a  duty 
on  a  municipality  requiring  the  imme- 
diate use  of  sums  of  money,  and  in 
such  a  situation  the  inference  may  be- 
come irresistible  that  it  was  intended 
that  funds  were  to  be  provided  by 
loans.  My  remarks  are  to  be  restricted 
to  that  class  of  cases  where  charters 
arc  granted  containing  nothing  more 
than  the  usual  franchises  incident  to 
municipal  corporations,  and  under 
such  conditions  it  seems  clear  to  me 
that  the  power  to  borrow  money  is 
not  to  be  deduced.  I  have  already 
said  that  it  does  not  appear  to  be  a 
necessary  incident  to  the  powers 
granted,  for  such  powers  can  be 
readily  and  efficiently  executed  in  its 
absence.  It  would  be  to  fly  in  the 
face  of  all  experience  to  claim  that  the 
ordinary  municipal  operations  cannot 
be  efficiently  carried  on  except  with 
the  assistance  of  borrowed  capital. 
Without  any  help  of  this  kind,  it  is 
well  known  that  our  towns  and  cities 
have  long  been,  and  arc  now  being, 
improved  and  governed.  For  the  at- 
tainment of  these  ends  it  has  not  gen- 
erally been  found  necessary  to  resort 
to  loans  of  money.  The  supplies  de- 
rivnl  annually  from  taxation  have 


10 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§« 


ulently  issued,  as  an  abuse  of  their  true  character  and  purpose  ; 
as  having  the  eftect  of  converting  a  municipal  organization  into  a 
trading  company  and  putting  it  in  the  power  of  corrupt  officials 
to  involve  a  political  community  in  irretrievable  bankruptcy. 
They  held  that  no  such  power  legally  existed,  unless  conferred 
by  legislative  enactment,  either  express  or  clearly  implied.1  The 


been  found  amply  sufficient  for  these 
purposes.  Consequently  I  am  unable 
to  perceive  any  necessity  to  borrow 
money,  under  these  conditions,  from 
which  the  gift  of  such  power  to  bor- 
row is  to  be  implied.  It  undoubtedly 
is  clear  that  if,  as  has  been  asserted, 
the  ends  of  the  municipal  charter  can 
be  conveniently  reached,  without  a  re- 
sort to  the  device  of  raising  money  by 
loan,  there  is  not  the  least  legal  basis 
for  a  claim  of  the  power  to  obtain 
funds  in  that  way.  Granted  the  fact 
that  the  charter  can  be  executed  with 
reasonable  ease  and  with  completeness, 
the  conclusion  is  inevitable  that  the 
power  in  question  cannot  be  called 
into  existence  by  intendment,  and,  as 
I  claim  the  fact  to  exist,  I  must,  of 
necessity,  reject  the  right  of  implica- 
tion in  question." 

1  Mayor  v.  Ray,  (1873)  19  Wall.  468. 
Mr.  Justice  BRADLEY,  in  the  opinion 
delivered  by  him,  said:  "  There  are 
cases,  undoubtedly,  in  which  it  is 
proper  and  desirable  that  a  limited 
power  of  this  kind  should  be  conferred, 
as  where  some  extensive  public  work 
is  to  be  performed,  the  expense  of 
which  is  beyond  the  immediate  re- 
sources of  reasonable  taxation,  and  ca- 
pable of  being  fairly  and  justly  spread 
over  an  extended  period  of  time.  Such 
cases,  however,  belong  to  the  exercise 
of  legislative  discretion,  and  are  to 
be  governed  and  regulated  thereby. 
Where  the  power  is  clearly  given,  and 
securities  have  been  issued  in  con- 
formity therewith,  they  will  stand  on 
the  same  basis  and  be  entitled  to  the 
same  privileges  as  public  securities 


and  commercial  paper  generally.  But 
where  the  power  has  not  been  given, 
parties  must  take  municipal  orders, 
drafts,  certificates  and  other  documents 
of  this  sort  at  their  peril.  Custom  and 
usage  may  have  so  far  assimilated  them 
to  regular  commercial  paper  as  to  make 
them  negotiable;  that  is,  transferable 
by  delivery  or  indorsement.  This 
quality  renders  them  more  convenient 
for  the  purposes  of  the  holder,  and  has 
undoubtedly  led  to  the  idea  subse- 
quently, but,  we  think,  erroneously, 
entertained,  that  they  are  invested  with 
that  other  characteristic  of  commercial 
paper  —  freedom  from  all  legal  and 
equitable  defenses  in  the  hands  of  a 
bonafide  holder.  But  every  holder  of 
a  city  order  or  certificate  knows  that  to 
be  valid  and  genuine  at  all  it  must 
have  been  issued  as  a  voucher  for  city 
indebtedness.  It  could  not  be  law- 
fully issued  for  any  other  purpose. 
He  must  take  it,  therefore,  subject  to 
the  risk  that  it  has  been  lawfully  and 
properly  issued.  His  claim  to  be  a 
bonafide  holder  will  always  be  subject 
to  this  qualification.  The  face  of  the 
paper  is  notice  to  him  that  its  validity 
depends  upon  the  regularity  of  its  is- 
sue. The  officers  of  the  city  have  no 
authority  to  issue  it  for  any  illegal  or 
improper  purpose;  another's  acts  can- 
not create  an  estoppel  against  the  city 
itself,  its  taxpayers,  or  people.  Per- 
sons receiving  it  from  them  know 
whether  it  is  issued  and  whether  they 
receive  it  for  a  proper  purpose  and  a 
proper  consideration.  Of  course,  they 
are  affected  by  the  absence  of  these  es- 
sential ingredients,  and  all  subsequent 


§6] 


PUBLIC  CORPORA!  I 


11 


Supreme  Court  of  Louisiana  has  held  that,  in  the  absence  of 
express  legislative  authority,  a  municipal  corporation  lias  no  power 
to  titter  unconditional  obligations  to  pay  money.  Such  a  corpo- 
ration may,  however,  issue  evidences  of  liability  for  consideration 
received  for  ultimate  payment,  depending  upon  contingencies 
which  must  have  happened  before  any  right  of  action  can  accrue.1 


huh  It-re  take  cumonere  and  are  affected 
by  the  same  defect.     Much  less  can 
any   precedent    be   found  (except  of 
modern  dute  and  in  this  country)  for 
the  issue,  by  local  civil  authorities,  of 
promissory  notes,   bills  of   exchange 
and    ofher    commercial   paper.     At  a 
period  within  the  memory  of  man  the 
proposal  of  such  a  thing  would  have 
been    met    with    astonishment.     The 
making  of  such  paper  was  originilly 
confined  to  merchants.     But  its  great 
convenience;  was  the  means  of  extend- 
ing its  use,  first,  to  all  individuals,  and 
afterwards  to  private  corporations  hav- 
ing occasion  to  make  promises  to  pay 
money.     Beiug    only    themselves  re- 
sponsible for  the  paper  they  issue,  no 
evil  consequences  can  follow  sufficient 
to  counterbalance  the  conveniences  and 
benefits  derived  from  its  use.     They 
know  its  immunity  in  the  hands  of  a 
bona  fide  holder  from  all  defenses  and 
equities.    Knowing  this,  if  they  choose 
to  issue  it,  no  one  is  injured  but  them- 
selves.    But  if  city  and  town  officials 
should  have  the  power  thus  to  bind 
their  constituencies  it  is  easy  to  see 
what  abuses  might  and  probably  would 
ensue.     We    know    from    experience 
what  abuses  have  been  practiced  where 
the  power  has  been  conferred.     Fraud- 
ulent issues,  peculations  and  embezzle- 
ments  and  the   accumulation  of  vast 
amounts  of  indebtedness  without  any 
corresponding  public  benefit  have  been 
rendered  easy  and  secure  from  merited 
punishment.     The  purpose  and  object 
of  a  municipal  corporation  do  not  or- 
dinarily   require  the    exercise  of  any 
»uch    power.     They  are  not    trading 
corporations  and  ought  not  to  become 


such.  They  are  invested  with  public 
trusts  of  n  governmental  and  adminis- 
trative character;  they  are  the  local 
governments  of  the  people,  established 
by  them  as  their  representatives  in  the 
management  and  administration  of 
municipal  affairs  affecting  the  peace, 
good  order  and  general  well-being  of 
the  community  as  a  political  society 
and  district,  and  invested  with  power 
by  taxation  to  raise  the  revenues  nec- 
essary for  those  purposes.  The  idea 
that  they  have  the  incidental  power  to 
issue  an  unlimited  amount  of  obliga- 
tions of  such  a  character  as  to  be  irre- 
trievably binding  on  the  people,  with- 
out a  shadow  of  consideration  in  re- 
turn, is  the  growth  of  u  modern  mis- 
conception of  their  true  object  and 
character.  If,  in  the  exercise  of  their 
important  trusts,  the  power  to  borrow 
money  and  »,o  issue  bonds  or  other  com- 
mercial securities  is  needed,  the  legis- 
lature can  easily  confer  it  under  the 
proper  limitations  and  restraints,  and 
with  proper  provision  for  future  re- 
payment. Without  such  authority  it 
cannot  be  legally  exercised.  It  is  too 
dangerous  a  power  to  be  exercised  by 
all  municipal  bodies  indiscriminately, 
managed  as  they  are  by  persons  whose 
individual  responsibility  is  not  at 
stake." 

1  Newgass  t.  City  of  New  Orleans, 
(1890)  42  La.  Ann.  168;  8.  c.,  7  So. 
Rep.  565.  That  a  municipal  corpora- 
tion has  not  an  incidental  or  implied 
power  to  make  or  issue  negotiable  pa- 
per, see  New  Orleans,  M.  &  C.  R.  R. 
Co.  '•.  Dunn,  51  Ala.  128;  Blackman  r. 
L.-IUIKIII.  68  Ala.  547. 


12  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.     [§§  7,  8 

§7.  Power  of  Indiana  cities  to  issue  bonds. —  A  city  in 
Indiana  has  power,  under  a  charter  authorizing  it  "to  borrow 
money  for  the  use  of  the  city,"  to  issue  bonds  for  money  so 
borrowed.1 

§  8.  Miscellaneous  rules  as  to  issuing  bonds. —  Municipal 
corporations  in  which  power  is  vested  by  legislative  grant  to  make 
expenditures  for  purposes  of  a  certain  kind,  unless  prohibited  by 
law,  may  make  contracts  for  the  accomplishment  of  those  pur- 
poses, thereby  incur  indebtedness  and  issue  proper  evidences  of 
indebtedness  in  payment  for  the  same.3  A  county  in  Kansas  has 
power  to  borrow  money  for  the  erection  of  county  buildings,  and 
to  issue  its  bonds  for  the  money  borrowed.8  The  officials  of  a 
municipal  corporation,  which  is  vested  with  the  usual  power  of 
such  bodies,  are  authorized  to  issue  bonds  or  promissory  notes  to 

"City  of  Evansville  •».  Woodbury,  note  that  the  Supreme  Court  of  the 

(1894)  60  Fed.  Rep.  718;  s.  c.,  9  C.  C.  United  States  held  directly  the  same 

A.  244,  following  Railroad  Co.  v.  Ev-  construction  upon  a  grant  of  power 

ansville,  15  Ind.  395,  which  adopted  the  'to    borrow    money  for    any    public 

following  from  Slack  v.  Railroad  Co.,  purpose'  in  Rogers  n.  Burlington,  3 

13  B.  Mon.  (Ky.)l,  to  wit:  "Moreover,  Wall.  654,  and  Mitchell  v.  Burlington, 
the  first  act  under  which  the  debt  was  4  Wall.   270.     These  decisions  were 
created  gave  full  power  to  the  County  five  and  six  years  after  that  in  Indiana; 
Court  to  provide  for  its  payment  either  and  although  they  appear  to  have  been 
by    taxation    or    by    borrowing    the  overruled  in  recent  years,  they  would 
money,  which,  of  course,  implied  the  constitute  some  justification,   if  any 
power,  as  it  did  the  necessity,  of  fur-  were    needed,    for   reliance    by  pur- 
nishing  some  evidence  of  indebtedness,  chasers  upon  the  Indiana  interpreta- 
another  court  might  doubtless  have  tiou.     The  federal  courts  have  main- 
issued  the  bonds  of    the    county  in  tained  a  rule  from  their  organization 
some  form  to  the  lender."     In  City  of  that  in  all  cases  depending  upon  a 
Evansville  v.    Woodbury,  supra,  the  state  statute,  they  will  adopt  and  fol- 
Uni ted  States  Circuit  Court  of  Appeals,  low  the  adjudications  of  the  court  of 
speaking  through  SEAMAN,  D.  J.,  had  last  resort  in  its  construction,  when 
this  to  say  as  to  the  rule  declared  in  that  construction  is  well  settled,  and 
the  text:  "The  borrowing  of  money  without  in  jury  as  to  its  original  sound- 
to  pay  outstanding  indebtedness  of  the  ness.     *    *    *    Therefore,  the  recent 
city  was  clearly  a  borrowing  for  the  decisions  in  Merrill  v.  Monticello,  138 
use  of  the  city;  and  if  this  ruling  (in  U.  S.  673;  s.  c.,  11  Sup.  Ct.  Rep.  441, 
Railroad  Co.  v.  Evansville,  supra)  must  and  Brenham  v.  Bank,  144  U.  S.  173; 
govern  here,  the  power  to  issue  the  s.  c.,  12  Sup.  Ct.  Rep.  559,    *    *    * 
bonds  is  well  shown.     That  decision  are  not  applicable." 

appears  to  have  remained  undisturbed,  8  Police  Jury  v.  Britton,  15  Wall.  566. 

and  is  in  accord  with  the  doctrine  con-  8  Comanche  County    v.   Lewis,    133 

stantly  held  by  that  court.     Dill,  on  U.  S.  198. 
Mun.   Corp.  §  119.     It  is  worthy  of 


§  8]  PUBLIC  CORPORATIONS.  18 

evidence  the  credit  price  of  any  works  for  which  they  are 
authorized  to  contract,  which  in  the  hands  of  a  bona  fide  holder, 
will  be  protected  by  the  law  mercliant.1  A  city,  by  the  issue  of 
its  bonds  according  to  law,  having  created  a  debt  against  itself, 
has  power,  like  any  other  debtor,  to  enter  into  negotiations  con- 
cerning such  bonds,  and  to  have  them  delivered  up  for  cancella- 
ation  and  new  bonds  issued  in  exchange  for  them,  without  any 
special  grant  of  authority  therefor.3  The  charter  of  a  city 
empowering  it  "  to  borrow,  on  the  credit  of  the  city,  a  sum  of 
money  not  exceeding  [a  sum  named]  ;  to  issue  bonds,  scrip,  or 
certificates  of  indebtedness  therefor,"  etc.,  with  a  provision  that 
"  with  the  money  so  borrowed  the  city  council  shall  first  liqui- 
date and  discharge  all  legal  indebtedness  of  the  city,"  may  issue 
such  bonds  as  they  deem  proper  within  the  terms  of  the  charter, 
and  with  the  proceeds  take  up  the  floating  indebtedness  of  the 
corporation.8  Towns  in  Maine  must  be  expressly  or  implied ly 
authorized  by  statute,  or  they  cannot  borrow  money  and  issue 
notes  of  a  commercial  character  for  the  execution  of  their  ordi- 
nary business.4  The  governing  powers  of  counties  are  not 
authorized  by  the  statutes  of  Illinois  which  empower  them  "  to 
make  all  contracts  and  do  all  other  acts  necessary  to  the  exercise 
of  its  corporate  powers,"  and  "  to  manage  the  coun  ty  funds  and 
county  business,  except  as  otherwise  specifically  provided,"  to 
issue  bonds  without  a  vote  of  the  people.5  A  grant  of  authority 
to  a  municipal  corporation  to  issue  "  refunding  bonds  "  or  original 
bonds  to  procure  money  for  use  in  the  "  legitimate  exercise  of 
the  corporate  powers,"  and  for  the  payment  of  legitimate  cor- 
porate debts  does  not  carry  with  it  power  to  issue  bonds  to 
replace  in  the  treasury  money  already  used  in  paying  prior 
bonds.8  A  municipal  corporation  having  statutory  power  to  issue 
bonds  for  loans  lawfully  made  has,  by  necessary  implication,  also 

1  Holmes  t>.  City  of  Shreveport,  (1887)       •  Rogan  ».  City  of  Watertown,  (1872) 
81  Fed.  Rep.  113,  in  which  case  the   80  Wis.  259. 

bonds  sued  upon  were  issued  for  pub-  *  City  of  East  St.  Louis  r.  Maxwell, 
lie  improvements.  As  to  authority  of  (1881)  99  111.  439. 
corporations  to  give  notes  to  evidence  4  Parsons  t>.  Monmoutb,  70  Me.  262. 
indebtedness,  see  Brode  v.  Firemen's  '  Locke  c.  Davison,  111  111.  19.  As  to 
Ins.  Co..  8  Rob.  (La.)  244;  Edey  o.  authority  to  issue  bonds,  see  Bannock 
City  of  Shreveport.  26  La.  Ann  636;  County  t>.  Bunting.  (Idaho)  87  Pac. Rep. 
City  of  Shreveport  v.  Flournoy.  26  La.  277;  Hotchkisst.  Marion,  12  Mont.  218. 
Ann.  709;  Desmond  v.  Jefferson,  19  'Coffin  r.  City  of  Indianapolis, 
Fed.  Rep.  483.  (1894)  59  Fed.  Rep.  221. 


14  GENERAL  POWEB  TO  INCUB  PECUNIARY  LIABILITY.  [§  8 

the  power  to  make  the  bonds  negotiable.1  A  County  Court  in. 
Missouri  with  statutory  authority  to  make  bonds  issued  for  the 
purpose  of  improving  public  roads  transferable  in  such  manner 
as  by  its  order  it  might  direct,  may  issue  negotiable  bonds  ;  and 
this  may  be  done  by  the  issue  of  such  bonds,  without  an  order 
prescribing  their  form.2  And  under  the  statutory  authority  to 
issue  bonds  to  pay  for  improving  public  roads,  and  "  building 
culverts  and  bridges  to  secure  permanent  and  good  roads,"  the 
county  may  issue  bonds  to  pay  for  riprapping  around  the  abut- 
ment of  a  bridge  to  prevent  its  becoming  a  wreck.3  Under  the 
laws  of  Washington  giving  municipal  corporations  authority  to 
provide  means  for  constructing  works  of  public  utility  by  issuing 
and  selling  negotiable  bonds  there  is  authority  to  make  such 
bonds  payable  in  gold  coin  of  the  present  standard  weight  and 
fineness.4  Municipal  corporations  may  issue  new  bonds  with 
coupons  for  future  interest  for  the  purpose  of  funding  debts,  with 
accrued  interest  existing  prior  to  the  adoption  of  the  amendment 
of  the  State  Constitution  of  Indiana  prohibiting  municipal  cor- 
porations from  becoming  indebted  to  an  amount  in  the  aggregate 
exceeding  two  per  centum  on  the  value  of  their  taxable  property, 
and  providing  that  all  obligations  in  excess  of  such  amount  shall 
be  void,  as  the  amendment  is  only  prospective  in  its  operation.5 

1  City  of    Cadillac    v.    Woonsocket  of    bonds,    see    Francis    v.    Howard 

Inst.  for  Savings,  (1893)  58  Fed.  Rep.  County,  50  Fed.   Rep.  44,   following 

935;   s.  C.,  7  C.  C.  A.   574;  LtmTON,  Russell  v.  Cage,  66  Tex.  428;  8.  c.,  1 

Ch.  J.,  said:  "The  case  of  Brenham  v.  S.  W.  Rep.  270. 
Bank,  144  U.  8.  173;  s.  c.,  12  Sup.  Ct.       4  Moore  «.   City    of   Walla  Walla, 

Rep.  559,  has  no  bearing  upon  this  (1894)  60  Fed.  Rep.  961. 
question.    Nothing  more  is  there  de-       s  Powell  v.  City  of  Madison,  (1886) 

cided  than  that  an  act  empowering  a  107  Ind.  106.    The  court  said:  '•  The 

city  to  "  borrow  for  general  purposes  issuing  of  new  bonds  to   provide,  at 

not  exceeding  §15,000  on  the  credit  of  their  par  value,  for  the  payment  of  an 

the  city  "  did  not  authorize  the  issu-  old  debt  or  the  substitution  of  new 

ance  of  negotiable  obligations  for  the  evidences  of  a  pre-existing  debt,  is 

money  so  borrowed.  not,  in  any  legal  or  proper  sense,  the 

8  Catron  v.    LaFayette  County,  106  creation,  of  a  new  indebtedness.     Nor 

Mo.  659;  s.  c.,  17  S.  W.  Rep.  577.  is  the  funding  of  interest  already  due, 

•Ibid.  As  to  the  power  of  counties  or  the  execution  of  coupons  for  the 
to  issue  negotiable  securities,  see  payment  of  interest  which  will  there- 
Francis  «.  Howard  County,  50  Fed.  after  accrue  upon  a  pre-existing  in- 
Rep.  44,  following  Nolan  County  v.  debtedness,  either  the  creation  of  a 
State,  83  Tex.  182;  8.  c.,  17  8.  W.  Rep.  new  debt,  or,  in  legal  contemplation. 
823 ;  Robertson  «.  Breedlove,  61  Tex.  an  increase  of  such  pre-existing  ia« 
816.  As  to  a  limitation  upon  the  issue  debtedness." 


§  9]  PUBLIC  CORPORATIONS.  15 

§  9.  Bonds  issued  for  the  erection  of  a  county  court 
house. —  A  statute  authorizing  the  electors  of  a  county  to 
empower  the  commissioners  of  such  county  to  "borrow  money" 
for  the  erection  of  a  court  house  does  not  authorize  them  to 
empower  such  commissioners  to  issue  bonds  for  that  purpose.1 
The  authority  to  issue  bonds  as  an  evidence  of  indebtedness  might 
perhaps  follow  as  an  incident  of  the  right  to  borrow  money,  but 
in  that  case  the  amount  of  money  borrowed  should  equal  the 
amount  for  which  the  bonds  call.  There  is  no  right  to  issue 
them  and  sell  them  for  what  they  will  bring."  County  warrants 
issued  for  the  purpose  of  erecting  a  county  court  house  in 
Nebraska  have  been  held  void  where  their  issue  was  not  author- 
ized by  a  vote  of  the  qualified  electors  of  the  county,  and  no 
benefit  whatever  resulted  to  the  county  from  the  issuing  of  such 
warrants.8 

§  10.  Funding  county  indebtedness  by  issuing  interest- 
bearing  bonds. — There  is  no  authority  of  law  for  a  county 
board  in  Illinois  to  fund  county  indebtedness  or  issue  ihterest- 
bearing  bonds  for  money  with  which  to  take  up  outstanding 
county  orders  and  obligations  without  a  vote  of  a  majority  of  the 
legal  voters  of  the  county ;  and  such  a  vote  having  been 
obtained,  the  interest  on  the  bonds  is  limited  to  eight  per  cent. 
Such  boards  are  not  given  by  the  statute  which  provides  that  they 
shall  have  power  "  to  manage  county  funds  and  county  business, 
except  as  otherwise  specially  provided,"  an  absolute  and  unlim- 

1  Lewis  v.  Board  of  County  Comrais-  that  they  were  issued  conformably  to 

sinners  of  Sherman  County,  (1881)  2  law,  were,  however,  held  valid  in  the 

McCrary,  464,  holding  certain  bonds  hands  of  an   innocent   purchaser  for 

issued  by  the  commissioners  for  erect-  value  in  open    market,   the    bridges 

ing  a  court  house  invalid,  on  the  fol-  having  been  built  in  the  county  by 

lowing  grounds:    Because  of  the  lack  direction  of  the  county,  for  the  county, 

of  statutory  authority  to  vote  for  such  and  having  been  paid  for  by  such  bonds 

bonds;    because  no  bonds  had    ever  or  their  proceeds,  although  they  were 

been  voted  for  any  such  purposes;  be-  not  in  fact  authorized  by  the  vote  of 

cause  none  of  the  bonds  or  the  pro-  the  people  as  the  law  required, 

ceeds  thereof  were  ever  used  to  build  *  Lewis  v.  Board  of  County  Commis- 

a  court  house  or  were  ever  used  for  sinners  of  Sherman  County,  (1881)  2 

any  other  purpose  by  the  county;  and  McCrary,  464,  supported  by  Scipio  r. 

because  the  bonds  contained  no  recitals  Wright,  101  U.  8.  665. 

showing   that  they  had  been  issued  '  Brown  r.  Board  of  County  Commis 

conformably  to  law.     Certain  bridge  sinners  of  Sherman  County,  (1881)  2 

bonds  Issued  by  the  county,  reciting  McCrary,  469. 


16  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  11 

ited  power  of   management  of   county  funds,  there  being  an 
absence  of  any  specific  provision  of  law  to  the  contrary.1 

§  ii.  Issue  of  bonds  to  pay  subscriptions  to  stock  of  rail- 
road corporations. —  There  has  not  been  uniformity  in  the 
decisions  of  the  state  and  federal  courts  as  to  whether  or  not  the 
grant  of  legislative  authority  to  subscribe  carried  with  it  as  an 
incident  the  power  to  issue  bonds  in  payment  of  the  subscriptions. 
The  Supreme  Court  of  Connecticut,  at  an  early  date,  held  that  a 
city  empowered  to  subscribe  to  the  stock  of  a  railroad  corpora- 
tion and  to  effect  loans  of  money  as  a  means  of  paying  its  sub- 
scriptions, upon  the  proper  vote  of  its  tax-paying  citizens,  had 
authority  to  issue  its  bonds  to  the  railroad  corporation  in  payment 
of  such  subscriptions;8  this  upon  the  established  principle  in 
the  law  of  corporations,  that  they  may  exercise  all  the  powers 
within  the  fair  intent  and  purpose  of  their  creation  which  are 
reasonably  proper  to  give  effect  to  powers  expressly  granted.8 
The  following  are  the  views  entertained  by  the  Supreme  Court 
of  Pennsylvania :  The  power  given  a  municipal  corporation  to 

1  Locke  v.  Davison,  (1884) 111  El.  19,  They  further  said;  "It  was  held  in 

affirming  a  decree  granting  an  in  June-  Commissioners  of  Highways  v.  Newell, 

tion  against  the  payment  of  ten  per  80  111.  587,  that  more  was  said  in  that 

cent  interest  on  the  funding  bonds  case  than  the  subject  justified,  and 

issued  by  this  county  board;  follow-  that  it  needed  modification  confining 

ing  County   of  Hardin  v.  McFarlan,  it  to  cases  where  the  charter  of  the 

(1876)  82  111.  138,  holding  that  under  corporation  expressly  grants  a  power, 

the   act    which  enabled    counties  to  for  a  corporation  cannot  exercise  any 

liquidate  their  debts,  providing  that  powers  save  those  granted  or  neces- 

the  County  Courts  or  boards  of  super-  sarily  implied  in  order  to  carry  into 

visors  might  levy  a  special  county  tax  effect  a  granted  power."    Upon  the 

for  that  purpose,  those  debts  could  be  subject  of  contracting  for  interest  on 

discharged  by  the  levy  of  such  tax,  the  part  of  counties,  see  also  Madison 

and  the  county  board  had  no  authority  County  t>.   Bartlett,  1  Scam.  (Ill)  67; 

to  take  up  its  outstanding  orders  and  County  of  Pike  v.  Hosford,  11 11L  170; 

give  bonds  in  lieu   thereof,   bearing  Hall  t.  Jackson  County,  95  111.  352; 

interest,  as  such  obligations  could  not  County  of  Jackson  v.  Rendleman,  100 

be  issued  in  the  absence  of  statutory  111.  379. 

authority.     The  court  in  this  case  dis-  s  City  of  Bridgeport  r.  Housatonuc 

tinguished  City  of  Galena  v.  Corwith,  R.  R.  Co.,  (1843)  15  Conn.  475. 

48  111.423,  in  that  "the  decision  in  "Seybert    v.   City  of   Pittsburg,   1 

that  case  was  based  upon  the  ground  Wall.  272;    R.   R.  Co.   v.   County  of 

that  the  city,  by  its  charter,  had  power  Otoe,  16  Wall.  667;    Evansville,  etc., 

to  borrow  money,  and  not  having  been  R.  R.  Co.   r>.  City  of  Evansville,  15 

restricted  as  to  the  means  of  exercis-  Ind.  395. 
ing  this  power,  could  issue  the  bonds." 


§  11]  PUBLIC  CORPORATIONS.  17 

subscribe  for  stock  of  a  railroad  company  gives  the  power  to 
create  a  debt,  and  to  give  an  evidence  of  it.  The  power  to  exe- 
cute and  issue  bonds,  contracts  or  other  certificates  of  indebted- 
ness belongs  to  all  corporations,  public  as  well  as  private,  and  is 
inseparable  from  their  existence.  For  a  legal  and  authorized 
debt  a  municipal  corporation  may  give  its  bond  under  its  general 
corporate  powers.  A  municipal  bond  in  payment  of  a  subscrip- 
tion to  stock  of  a  railroad  company,  if  invalid,  is  so,  not  because 
the  corporation  has  no  power  to  issue  bonds,  but  because  the  sub- 
scription to  the  stock  is  outside  of  the  power  of  the  corporation ; 
and  when  a  city  has  been  authorized  to  make  such  a  subscription 
by  the  legislature  it  becomes  a  debt  like  any  other,  and  may  be 
evidenced  in  the  same  way.  Bonds  issued  in  payment  of  the 
debt  are  valid  obligations  of  the  corporation.1  The  Supreme 
Court  of  the  United  States  has  held  to  the  doctrine  that  grants 
of  power  to  municipal  corporations  to  subscribe  for  stock  in  rail- 
ways should  be  construed  strictly  and  not  be  extended  beyond 
the  terms  of  the  statute ;  and  as  there  is  no  power  in  a  municipal 
corporation  to  become  a  stockholder  in  a  railroad  corporation 
unless  expressly  conferred  by  the  legislature,  the  power  to  issue 
negotiable  bonds  to  pay  such  a  subscription  must  be  expressly,  or 
by  reasonable  implication,  conferred  by  statute.2  Neither  is  the 
issuing  of  negotiable  bonds  authorized  by  a  grant  to  a  municipal 
corporation  of  power  to  appropriate  moneys  in  aid  of  construction 
of  a  railroad,  directing  levy  and  collections  of  taxes  to  meet  suoh 
appropriation,  and  prescribing  no  other  mode  of  payment.3  Con- 
sidering the  difference  of  opinion  existing  in  these  two  jurisdic- 
tions upon  this  question,  it  seems  that  it  would  be  well  for  the 
legislature  hereafter  in  granting  powers  to  municipal  corporations 
to  aid  in  the  construction  of  public  works  by  subscription  to  the 
stock  of  the  corporations  organized  for  the  purpose,  to  expressly 
include  the  power  to  issue  negotiable  bonds  for  the  payment  of 
snch  subscriptions. 

1  Commonwealth  ex  rel.  Reinboth  e.  'Concord  r.  Robinson,  121  U.  8. 

Councils  of  Pittsburgh,  (1861)  41  Pa.  165.  See,  also,  Scott's  Exrs .«.  Shreve- 

8t.  278.  port,  20  Fed.  Rep.  714;  Katzenberger 

1  Kelley  t>.  Milan,  127  U.  8.  189,  af-  «.  City  of  Aberdeen,  16  Fed.  Rep.  745; 

firming  Kelk-y  «.  Town  of  Milan,  21  Board  of  Comrs.  of  Delaware  County 

Fed.  Rep.  842;  Norton  ».  Dyersburg,  v.  McClintock,  Auditor,  (1875)51  Ind. 

127  U.  8.  160;  Young  t> .  Clarendon,  825;  La  Fayette,  M.  &  B.  R.  R  Co.  t. 

182  U.  8.  840;  Hill  t>.  Memphis,  184  Geiger,  84  Ind.  185;  Harney  v.  Indian- 

U.  8.  198.  apolis,  C.  &  D.  R  R.  Co.,  83  Ind.  244. 
8 


18  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§§  12,  13 

§  12.  Notes  or  warrants  to  cover  funds  to  be  set  aside  in 
future  taxation. —  The  Supreme  Court  of  Louisiana  has  held 
that  the  police  juries,  the  governing  boards  of  the  parishes  in 
that  state,  have  the  undoubted  authority  to  construct  bridges, 
repair  the  same  and  to  open  roads  and  to  keep  the  same  in  order. 
But  they  have  no  power  to  contract  an  indebtedness  for  this  pur- 
pose in  advance  and  to  issue  promissory  notes  or  warrants  to 
cover  funds  which  may  be  set  aside  for  this  purpose  in  future 
taxation  without  express  authority  from  the  supreme  political 
power  of  the  state.1 

§  13.  The  issue  of  scrip. —  Under  a  statute  authorizing  the 
city  council  to  issue  scrip  to  a  certain  amount,  bearing  interest  at 
a  rate  not  exceeding  six  per  cent  per  annum,  and  providing  that 
the  statute  should  be  void  unless  approved  by  a  majority  of  the 
voters  of  the  city  present  and  voting  at  meetings  held  on  a  cer- 
tain day,  the  council  issued  and  sold  scrip  with  principal  and 
interest  payable  in  coin.  A  statute  enacted  afterwards  author- 
ized the  city  to  contract  for  the  payment  in  coin  of  the  principal 
and  interest  of  this  scrip  and  ratified  all  acts  of  the  city  or  any 
officer  in  the  matter  of  making  payment  in  coin  of  this  scrip,  not 
providing  for  any  new  submission  of  the  matter  to  the  voters  of 
the  city.  The  issue  of  the  scrip  as  it  had  been  issued  payable  in 
coin  was  held  to  be  legal.2  And  a  city  authorized,  for  the  pur- 

1  Snellingfl.  Joffrion,  President  Police  promissory  note,  draft  or  warrant  in 

Jury,  (1890)  43  La.  Ann.  886;  s.  c.,  8  advance  to  cover  this  amount  which 

So.  Rep.  609,  in  which  case  the  court  may  go  into  the  treasury.     It  must  be 

affirmed  the  judgment  in  favor  of  the  there  before  the  warrant  issues,  unless 

taxpayers  who  brought  the  action  to  by  legislative  authority  they  are  auth- 

annul    the    ordinance  of    the    police  orized  to  issue  the  same  in  advance, 

jury  authorizing  the   giving   of  ten  Sterling  v.  Parish  of  West  Feliciana, 

notes  of  equal  amounts  payable  one  26  La.  Ann.  59." 

in  each  of  the  ten  years  to  come  from  2  Foote  r.    City  of  Salem,  (1867)  14 

the  date,  to  a  bridge  company  which  Allen,  87,  BIOELOW,  Ch.  J.,  said  :  "It 

had  contracted  to  build  the  bridge,  was  clearly  competent  for  the  legisla- 

The  court  said,  however:  "  We  do  not  ture  to  grant  such  power  and  to  give 

mean  to  say  that  police  juries  cannot  validity  to  contracts  into  which  the 

contract  for  improvements  which  they  city  had  entered  without  the  requisite 

are  authorized  to  make,  to  be  paid  out  legislative    authority.     No    legal    or 

of  the  taxes  which  they  are  authorized  constitutional     right,     either     public 

to  levy  for  parochial  expenses,   and  or    private,    was    violated    by    such 

which  are  set  apart  for  this  special  im-  enactment." 
provement,  but  they  cannot  issue  any 


§14] 


PUBLIC  CORPORATIONS. 


19 


pose  of  defraying  the  expense  of  a  public  work,  to  issue  scrip 
may  lawfully  issue  the  same  all  at  once,  and  invest  the  money 
not  required  for  immediate  use  upon  the  work  in  United  States 
securities.1  The  issue  of  change  bills  or  promises  in  tiie  simili- 
tude of  currency  are  prohibited  in  Georgia  by  statute,  and  no 
recovery  can  be  had  upon  such  change  bills  issued  by  a  city.8 

§  14.  Purchase  of  real  estate  for  erection  of  public  build- 
ings on  time. —  The  statutes  of  Indiana  *  conferring  on  cities  the 
general  power,  with  restrictions,  to  purchase  real  estate,  for  the 
purpose  of  constructing  public  buildings  thereon,  by  implication, 
gives  the  exclusive  right  to  determine  the  expediency  of  the  pur- 
chase, the  power  to  purchase  on  credit  and  to  issue  negotiable 
bonds  of  the  city  for  the  purchase  money.4  And  the  purchase  of 
real  estate  by  a  city  for  construction  of  public  buildings  thereon 
on  a  credit  of  ten  years  is  not  a  loan  within  the  meaning  of  the 
Indiana  statute,5  prescribing  that  "  loans  may  be  made  by  a  vote 
of  two-thirds  of  the  council,  in  anticipation  of  the  revenue  of 
the  current  and  following  year,  and  payable  within  that  period  ; 
but  the  aggregate  amount  of  such  loan  in  any  fiscal  year  shall  not 
exceed  the  levy  and  tax  authorized  by  this  act  for  municipal 
expenses,"  and  is  not  prohibited  by  that  statute.8 


1  Foote  v.  City  of  Salem,  (1867)  14 
Allen,  87. 

»  Cothran  r.  City  of  Rome,  77  Ga. 
882. 

»Ind.  R.  8.  1881.  §  3106,  clause  4. 

4  City  of  Richmond  v.  McGirr, 
(1881)  78  Ind.  192.  That  courts  can- 
not interfere  with  the  exercise  by  gov- 
erning authorities  of  their  discretion  in 
such  matters,  as  a  general  rule,  see 
Kelley  ».  City  of  Milwaukee,  18  Wis. 
88;  Baker  v.  Boston,  12  Pick.  184; 
Ex  partc  Fay,  15  Pick.  243;  Parks  v. 
Boston,  8  Pick.  218;  Benjamin  r. 
Wheeler,  8  Gray,  409;  Evansville,  etc., 
R  R.  Co.  r.  City  of  Evansville,  15 
Ind.  395;  Macy  v.  City  of  Indianapolis, 
17  Ind.  267;  City  of  Greencastlc  t. 
Hazelett,  23  Ind.  186;  Brinkmeyer  «. 
City  of  Evansville,  29  Ind.  187. 

»Ind.  R.  8.  1881,  §3159. 

•City  of  Richmond  v.  McGirr,  (1881) 
78  Ind.  192.  As  to  the  distinction  be- 


tween a  transaction  like  this  and  bor- 
rowing money,  the  court  referred  to 
Gelpcke  v.  City  of  Dubuque,  1  WalL 
175,  221,  where  it  was  held  that  the  ex- 
ecution of  bonds  to  pay  an  existing  in- 
debtedness of  the  city  was  not  within 
the  prohibition  of  the  charter  against 
the  borrowing  of  money,  and  distin- 
guished Mayor,  etc.,  of  Baltimore  t>. 
Gill,  81  Md.  375,  and  Jonas  t>.  City  of 
Cincinnati,  18  Ohio,  818.  There  was 
a  limitation  in  the  charter  of  this  city 
upon  the  borrowing  of  money,  but  no 
restriction  upon  the  creation  of  indebt- 
edness. The  court  said:  "The  charter 
expressly  grants  to  the  council  the 
power  to  purchase  the  real  estate; 
*  *  *  and  in  the  absence  of  any 
statutory  mode  being  pointed  out  for 
the  exercise  of  such  power,  it  may 
tontract  with  reference  to  such  power 
as  a  natural  person;  and  such  power 
is  implied  from  the  general  unlimited 


20  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  15 

§  15.  Erection  of  town  buildings. —  As  incident  to  its  power 
to  build  a  town  house,  a  town  has  a  right,  in  its  discretion,  to 
make  additional  compensation  to  a  person  for  labor  done  by  him 
in  building  it  as  a  contractor  under  another  person  with  whom 
the  town  had  contracted  to  build  it  for  a  tixed  sum.1  The 
Massachusetts  statute  authorizing  towns  and  cities  to  estab- 
lish public  libraries  and  in  so  doing  to  "appropriate  money 
for  suitable  buildings  or  rooms  "  and  for  "  the  foundation  of  a 
library  a  sum  not  exceeding  one  dollar  for  each  of  its  votable 
polls "  has  been  construed,  and  the  court  determined  that  the 
words  "  not  exceeding  "  did  not  necessarily  qualify  and  limit  the 
entire  first  clause  ;  that  on  the  contrary  they  were  intended  to 
restrict  the  latter  provision  with  which  they  were  immediately 
connected  ;  that  the  intention  of  the  legislature  was  to  put  a 
precise  limit  on  the  sum  to  be  expended  for  books,  and  not  on 
that  to  be  appropriated  for  buildings  or  rooms.2 

power  granted.  This  rule,  we  think,  of  towns  to  raise  and  appropriate 
arises  from  the  necessity  of  the  case,  money  is  derived  wholly  from  statutes, 
and  is  in  harmony  with  the  general  The  statutes  do  not  attempt  to 
rule  of  the  law  as  established  by  the  enumerate  all  the  purposes  for  which 
authorities.  Citing  Ketchum  v.  City  money  may  be  raised,  but  after 
of  Buffalo,  14  N.  Y.  356;  Brady  v.  specifying  some  of  the  more  promi- 
Mayor,  etc.,  Brooklyn,  1  Barb.  584;  nent  ones  provide  that  towns  may 
Ilalstead  v.  Mayor,  etc.,  New  York,  5  grant  and  vote  such  sums  as  may  be 
Barb.  218;  JVIott  v.  Hicks,  1  Cow.  513;  required  "  for  all  other  necessary 
Moss  v.  Oakley,  2  Hill,  265;  Kelley  v.  charges  arising  therein."  Gen.  St. 
Mayor,  etc.,  Brooklyn,  4  Hill,  263;  Mass.  chap.  18,  §  10.  It  is  under  this 
Field  on  Corp.  §  271;  City  of  Galena  general  provision  that  towns  have  the 
v.  Corwith,  48  111.  423;  City  of  Wil-  power  to  vote  money  for  the  erection 
liamsport  v.  Commonwealth,  84  Pa.  of  town  houses.  Stetson  v.  Kempton, 
St.  487;  City  of  Lafayette  v.  Cox,  5  13  Mass.  272.  The  right  to  build  car- 
Ind.  38;  Hardy  v.  Merriweather,  14  ries  with  it  by  implication  the  power 
Ind.  203;  Daily  t>.  City  of  Columbus,  to  make  contracts,  to  waive  or  alter 
49  Ind.  169;  Kyle  v.  Malin,  8  Ind.  34;  them  and  to  make  arrangements  for 
Dill,  on  Mun.  Corp.  §  55,  note  1,  and  the  payment  of  those  who  furnish 
§§  81-85.  As  to  the  kind  and  form  of  labor  and  materials." 
evidences  and  obligations  to  be  exe-  9  Dearborn  v.  Brookline,  (1867)  97 
cuted  in  such  contracts  by  the  authori-  Mass.  466.  In  Inhabitants  of  West- 
ties,  see  Sheffield  School  T'p  T.  An-  brook  v.  Inhabitants  of  Deering, 
dress,  56  Ind.  157;  School  Town  of  (1874)  63  Me.  231,  the  words  "neces- 
Monticello  v.  Kendall,  72  Ind.  91;  sary  charges"  in  the  statute  as  to 
Bicknell  t>.  Widner  School  T'p,  73  the  powers  of  towns  to  incur  expense 
Ind.  501.  received  a  full  discussion  from  the 
1  Friend  t>.  Gilbert,  (1871)  108  Mass,  court  in  these  words :  "  The  construc- 
408,  MOKTON,  J.,  said:  "The  power  tion  of  this  clause  came  before  this 


§  16]  PUBLIC  CORPORATIONS.  21 

§  16.  Purchase  of  sites  for,  erection  of,  and  the  repairs  of 
school  buildings. —  The  school  trustees  of  an  incorporated  town, 
under  the  general  law  of  Indiana,  having  filed  with  the  board  of 
trustees  of  such  town  a  verified  report,  showing  that  they  have 
contracted  for  the  purchase  of  real  estate  on  which  to  erect  school 
buildings,  and  showing  the  amount  of  the  debt  incurred  for  such 
realty,  and  other  estimated  cost  of  the  buildings,  and  asking  tho 
issue  of  bonds,  the  board  of  trustees  under  the  statute  relating  to 
such  bodies  may,  by  ordinance,  authorize  the  issue  and  sale  of  the 
bonds  of  the  town  equal  in  amount  to  the  cost  of  the  real  estate 
and  the  estimated  cost  of  the  projected  school  buildings,  not 

court  three  years  after  the  separation  clearly  have  not.  *  *  *  The  gen- 
in  Bussey  r.  Gilmore,  3  Me.  191,  by  erality  of  this  phrase  has  received  in 
which  a  tux  for  the  discharge  of  a  con-  the  case  above  referred  to  a  reasonable 
tract  between  a  town  and  a  toll  bridge  limitation.  Without  enumerating  the 
corporation  for  the  free  passage  of  objects  which  this  term  may  be  under- 
the  bridge  by  the  citizens  of  the  town  stood  to  embrace,  it  may  in  general  be 
was  held  illegal  upon  the  ground  that  considered  as  extending  to  such  ex- 
the  power  to  niise  money  for  '  neces-  pensea  as  are  clearly  incident  to  the 
sary  charges'  extends  only  to  those  execution  of  the  power  granted  or 
expenses  which  arc  incident  to  which  necessarily  arise  in  the  fulfil- 
the  discharge  of  corporate  duties. "  ment  of  the  duties  imposed  by  law." 
WESTON,  J.,  says  :  "The  construction  The  Maine  Supreme  Court  of  Judica- 
of  the  statutes  in  relation  to  the  au-  ture  in  1863  in  answer  to  questions 
tbority  of  towns  to  raise,  assess  and  submitted  by  the  governor  said : 
collect  money  is  so  clearly  stated  and  ' '  The  words  '  other  necessary  town 
so  fully  illustrated  in  Stetson  v.  Kemp-  charges'  do  not  constitute  a  new  and 
ton,  13  Mass.  272,  that  we  have  little  distinct  grant  of  indefinite  and  un- 
occasion  to  say  more  than  that  we  are  limited  power  to  raise  money  for  any 
entirely  satisfied  with  the  principles  purpose  whatsoever,  at  the  will  and 
of  that  case  and  the  deductions  there  pleasure  of  the  majority.  They  em- 
drawn.  The  court  remark  that  '  it  is  brace  only  all  incidental  expenses 
important  that  it  should  be  known  arising  directly  or  indirectly  in  the 
that  the  power  of  the  majority  over  due  and  legitimate  exercise  of  the 
the  property  and  even  the  persons  of  various  powers  conferred  by  statute, 
the  minority  is  limited  by  law  to  such  While  towns  may  raise  money  to  dis- 
eases as  are  clearly  provided  for  and  charge  all  liabilities  in  the  performance 
denned  by  the  statute  which  describes  of  their  multiplied  duties,  they  can- 
the  powers  of  these  corporations.'  By  not  (unless  new  powers  are  conferred, 
that  decision  this  principle  did  become  or  an  excess  of  power  receives  a  sub- 
known  ;  and  believing  that  it  is  justi-  sequent  legal  ratification)  transcend 
fled,  as  wel\  from  considerations  of  their  authority  and  incur  expenses  in 
public  policy  as  from  &  sound  con-  no  way  arising  in  its  exercise." 
struct  ion  of  the  law,  we  have  no  dis-  Opinion  of  the  Justices,  52  Me.  595, 
position  to  modify  or  change  it  if  wo  598. 
had  tho  power  to  do  so,  which  we 


22  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  17 

exceeding  a  limit  specified  in  the  statute.1  The  general  power 
given  a  common  council  of  a  city  by  its  charter  to  purchase  land  for 
the  necessary  purposes  of  the  corporation,  would  be  qualified  by 
another  provision  that  the  board  of  education  shall  have  power, 
with  the  consent  of  the  common  council,  to  buy  sites  for  school- 
houses  in  such  city,  and  a  valid  purchase  of  a  site  for  a  school- 
house  could  be  made  only  by  the  concurrent  action  of  the  two 
bodies.8  And  these  two  bodies  cannot  delegate  the  power  of 
purchasing  a  schoolhouse  site  to  a  board  of  commissioners  of  such 
city  without  an  express  grant  from  the  legislature  of  authority  to 
do  so.8  A  tax  for  the  erection  of  a  new  schoolhouse  may  be 
voted  by  the  electors  of  a  school  district  before  any  site  for  the 
house  has  been  selected.4  And  the  electors  of  such  a  district  have 
been  held  to  have  been  warranted  in  voting  a  tax  for  the  erection 
of  a  new  schoolhouse  at  the  center  of  the  district  in  a  case  where 
the  district,  two  miles  wide  from  east  to  west,  had  one  school- 
house  situated  one-half  mile  east  of  the  center,  which  was  about 
thirty  years  old,  but  in  reasonably  good  condition,  yet  too  remote 
for  some  of  the  children  of  the  district  to  attend  school.5  Under 
the  constitutional  limitation  of  Indiana  upon  municipal  corpora- 
tions, a  town  cannot  issue  bonds  to  obtain  funds  with  which  to 
rebuild  a  schoolhouse,  should  the  issuance  of  the  bonds  create  a 
debt  in  excess  of  two  per  centum  of  the  taxable  value  of  the  prop- 
erty within  the  limits  of  the  town.6  Petitions  from  property 
owners  are  not  necessary  to  authorize  the  board  of  trustees  of 
incorporated  towns  in  Indiana  to  issue  bonds  or  procure  money 
with  which  to  build  schoolhouses.7 

§  17.  The  same  subject  continued. — A  statute  conferring 
express  authority  upon  a  municipal  corporation  "  to  aid  in  the 

1  Williams  v.  Town  of  Albion,  (1877)  lie  corporation  is  not  an  obligation  pay- 

58  Ind.  329.  able  out  of  specific  funds,  but  is  a  con- 

*  Lauenstein  t.  City  of  Fond  du  Lac,  tract  to  pay  money  generally,  and 

(1871)  28  Wis.  336.  hence  this  case  is  not  within  the  doc- 

1  Ibid  trine  of  such  cases  as  Quill  v.  City  of 

4 Seaman  e.  Baughman,  (1891)  82  Indianapolis,  124  Ind.  292;  s.  c.,  23  N. 

Iowa,  216;  s.  c.,  47  N.  W.  Rep.  1091.  E.  Rep.  788;  Strieb  v.  Cox,  111  Ind. 

5  Ibid.  299;  s.  c.,  12  N.  E.  Rep.  481;  and 

•Town  of  Winamac  v.  Huddleston,  Board,  etc.,  ®.  Hill,  115  Ind.  316;  s.  c., 

(1882)    132  Ind.  217;   s.  c.,  31  N.  E.  16  N.  E.  Rep.  156. 

Rep.  561 .     The  court  said :  ' '  The  debt  '  Clark  v.  Town  of  Noblesville,  (1873) 

created  by  a  bond  executed  by  a  pub-  44  Ind.  83. 


§  17]  PUBLIC  CORPORATIONS.  28 

building  up  of  such  schools  and  institutions  of  learning  as  they 
may  think  proper,"  clearly  implies  the  power  to  build  a  house  for 
that  purpose.1  Unless  there  is  something  in  the  charter  of  a 
municipal  corporation,  such  as  a  city  or  town,  which  forbids  it, 
such  a  corporation,  without  express  authority,  may  incur  liability 
for  the  building  of  a  school  house,  it  being  clearly  within  the 
scope  of  the  general  power  of  such  corporations.3  The  applica- 
tion of  corporate  funds,  or  creating  a  corporate  debt,  for  the 
purchase  of  the  interest  in  a  building  to  be  used  as  a  public 
school  or  college  for  the  accommodation  of  the  people  of  a  town 
is  within  the  purposes  and  scope  of  the  corporation.3  And 
should  it  appear  that  the  enterprise  is  not  for  any  private  gain, 
and  that  a  board  of  trustees  not  elected  by  the  municipal  cor- 
poration contract  to  keep  up  in  the  building  a  public  school,  the 
fact  that  the  superintendence  of  the  school  is  left  in  the  hands  of 
such  trustees  would  not  render  the  appropriation  of  the  cor- 
porate funds  or  the  debt  created  illegal.4  The  charter  of  a  board 
of  public  schools  in  Missouri  gave  the  board  power  "  to  purchase, 
receive  and  hold  property  real  and  personal ;  to  lease,  sell  or  dis- 
pose of  the  same,  and  do  all  other  acts  as  natural  persons"  and 
also  "  generally  to  do  all  lawful  acts  which  may  be  proper  and 
convenient  to  carry  into  effect  the  objects  of  the  corporation." 
These  provisions,  taken  in  connection  with  the  whole  charter, 
have  been  construed  not  to  authorize  the  board  to  create  a  debt 
for  building  a  school  house  and  to  issue  bonds  to  pay  the  debt.5 
Besides  the  provision  in  the  charter  of  the  board  authorizing  it 
to  make  an  annual  estimate  of  the  amount  of  money  to  be  raised 
for  the  purpose  of  building,  repairing  and  furnishing  school 
houses  and  requiring  the  County  Court  to  cause  the  same  to  be 
levied  and  collected  upon  all  taxable  property  in  the  school  dis- 
trict was  a  limitation  upon  the  power  of  the  board  regarding  the 
building  of  school  houses,  and  did  not  authorize  the  board  to  cre- 
ate a  debt  for  that  purpose  and  issue  bonds  for  the  payment  of 
the  debt.6 

'Mayor,    etc.,    of     Carteraville     c.  4Ibid. 

Baker,  (1884)  73  Ga.  686.  • Erwin  c.  St.  Joseph  Board  of  Pub- 

1  Ibid;  citing  Frederick  v.  City  Coun-  lie  Schools,  (1880)  2  McCrary,  608. 

oil  of  Augusta  (1848)  5  Ga.  561;  Dan-  'Ibid;  approving  the  reasoning  in 

icily  v.  Cabaniss,  (1874)  52  Ga.  211.  Guuse  c.  Clarkaville,   19  Alb.   L.   J. 

*  Danlelly  c.  Cabanias,  (1874)  52  Ga.  253. 
211. 


24  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.     [§§  18-19 

§  18.  Purchasing  on  credit. — The  trustees  of  towns  in  Indi- 
ana being  prohibited  by  statute  from  borrowing  money  or  con- 
tracting a  debt  except  upon  the  petition  of  five-eighths  of  the 
citizen  taxpayers  of  the  town,  in  the  absence  of  such  a  petition 
cannot  purchase  cemetery  grounds  on  credit.1 

§  19.  Building  and  repair  of  bridges  and  roads. — Where 
the  statute  not  only  authorizes  the  supervisors  of  a  township  to 
repair  the  roads  and  build  the  bridges,  but  makes  it  their  impera- 
tive duty  to  do  so,  and  subjects  them  to  fine  and  imprisonment 
for  neglecting  to  keep  the  roads  and  bridges  in  a  safe  and  pass- 
able condition,  money  is  a  necessary  means  to  execute  this  power 
and  perform  this  duty,  and  where  it  can  only  be  obtained  by 
borrowing  it  the  power  to  do  so  is  necessarily  implied  and  passes 
as  an  incident  to  the  execution  of.  the  general  powers  given  and 
the  performance  of  the  duties  required.2  An  incorporated  town 
charged  with  the  control  of  its  streets  and  the  duty  to  improve 
them  may  legitimately  contract  for  the  construction  of  free 
bridges  over  a  stream  dividing  its  streets,  and  by  an  issue  of  war- 
rants or  bonds  raise  the  money  necessary  for  the  purpose.3  But 
a  municipal  corporation  cannot  erect  a  toll  bridge  unless  qxpressly 
authorized  by  law ;  nor  has  it  power  to  lend  its  credit  or  make  its 
accommodation  paper  for  the  benefit  of  citizens  to  enable  them 

1  Pratt  T.  Luther,  (1873)  45  Ind.  250.  *  Maneval  v.  Jackson  Township, 
See  Ketchum  v.  City  of  Buffalo,  14  N.  (1889)  9  Pa.  Co.  Ct.  Rep.  28.  The 
Y.  356,  holding  that  if  the  charter  of  court  distinguished  Union  Township 
the  city  or  the  general  law  of  the  state  v.  Gibboney,  94  Pa.  St.  534,  and  Gib- 
did  not  forbid  the  purchase  of  ground  son  v.  Poor  District,  122  Pa.  St.  557. 
for  a  market  place  to  be  made  on  In  Mills  v.  Gleason,  11  Wis.  470,  the 
credit  the  city  could  purchase  such  Wisconsin  Supreme  Court  held  that 
grounds  on  credit.  The  court  said:  "where  the  charter  of  a  municipal 
"A  municipal  corporation,  therefore,  corporation  confers  the  power  to  pur- 
may  at  common  law,  unless  restrained  chase  fire  apparatus, cemetery  grounds, 
by  some  statute,  purchase  and  hold  all  to  establish  markets  and  to  do  many 
such  real  estate  as  may  be  necessary  other  things  for  the  execution  of  which 
to  the  proper  exercise  of  any  power  money  would  be  a  necessary  means,  it 
specifically  conferred,"  etc.  And  af-  also,  in  the  absence  of  any  positive  re- 
terwards:  "I  think  it  must  be  con-  striction,  confers  the  power  to  borrow 
ceded  that  the  city  had  power  to  pur-  money  as  an  incident  to  the  execution 
chase  ground  for  a  public  market.  If  of  these  general  powers." 
0o  there  is  nothing  in  the  charter  or  z  Mullarky  v.  Town  of  Cedar  Falls, 
general  law  of  the  state  forbidding  the  (1865)  19  Iowa,  21. 
purchase  to  be  made  on  credit." 


§  20]  PUBLIC  CORPORATIONS.  25 

to  execute  private  enterprises.1  Authority  being  given  by  a 
charter  of  a  city  to  its  common  council  "  to  appropriate  in  any 
one  year,  over  and  above  the  ordinary  expenses  needed  on  the 
bridges  in  said  city,  an  expenditure  not  to  exceed  ten  thousand 
dollars,  for  the  building  of  a  new  bridge  in  said  city,  or  for  any 
extraordinary  repairs  on  any  bridge,  and  for  the  payment  of  the 
eame  in  whole  or  in  part,"  and  the  charter  declaring  further  that 
"  the  council,  instead  of  collecting  the  same  in  the  next  tax  roll, 
may  issue  its  bonds,"  etc.,  these  provisions  would  not  prevent  the 
council  letting  by  a  single  contract  the  work  of  constructing  a 
bridge  at  a  greater  price  than  $10,000.  The  provisions  merely 
limit  the  amount  to  be  raised  by  taxation,  or  the  amount  of  the 
bonds  to  be  issued,  in  any  one  year  to  pay  for  such  work.8  A 
statute  authorizing  two  of  the  counties  of  Alabama  to  erect  a 
bridge,  which  might  be  either  a  free  foot  and  wagon  bridge  for 
the  traveling  public,  or  a  railroad  bridge,  or  both  combined,  has 
been  held  to  contravene  the  constitutional  provision  which  deni&s 
to  the  legislature  power  to  authorize  any  county  to  lend  its  credit 
or  to  grant  public  money  or  a  thing  of  value  in  aid  of  or  to  any 
individual,  association  or  corporation.3  The  governing  authori- 
ties of  a  county,  having,  under  authority  from  the  legislature, 
purchased  certain  bridges  from  private  parties,  and  changed  them 
from  toll  to  free  bridges,  upon  their  being  destroyed  by  freshets, 
or  otherwise,  may  rebuild  them.4 

§  20.  Incurring  liability  under  California  statutes. —  The 
power  to  levy  and  collect  a  tax  in  the  charter  of  a  city  "  for  any 
object  whatever  within  the  provision  of  the  corporate  powers 
before  given,"  will  not  authorize  the  levy  and  collection  of  a  tax 
for  making  a  survey  of  a  railroad  route  from  the  city  to  another.5 
The  power  granted  to  a  city  to  take  stock  "  in  any  public  improve- 
ment, or  effect  a  loan  for  any  purpose,"  upon  obtaining  the  con- 

1  Clark  v.  City  of  DCS  Moines,  (1805)  to  build  a  bridge  at  its  own  cost  across 

19  Iowa,  199.  a  boundary  creek,  one  end  of  the  bridge 

'  Howard  v.  City  of  Osbkosb,  (1878)  extending  into  the  territory  of  another 

33  Wis.  309.  county,  in  which  the  Supreme  Court 

*  Garland  r.  Board  of  Revenue,  87  of    the  United   States  construed  the 

Ala.  223;  s.  c.,  6  So.  Rep.  402.  Kentucky  statutes  relating  thereto. 

4  Elliott  v.  Gammon,  (1886)  76  Ga.  766.       •  Douglass  «.  Mayor  and  Common 

See  Washer  r.  Bullitt  County,  (1884)  Council  of  Placerville,  (1861)  18  CaL 

110  U.  8.  658,  involving  the  question  643. 
of  the  power  of  a  county  in  Kentucky 


26  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  21 

sent  of  the  people  at  an  election  held  for  the  purpose  cannot  be 
extended  to  improvements  other  than  municipal  in  their  char- 
acter. Under  such  a  power,  for  instance,  a  city  cannot  subscribe 
to  stock  in  a  navigation  company.1 

§  21.  Incurring  liability  under  Indiana  statutes. —  The 
board  of  commissioners  of  a  county  in  Indiana,  under  their 
power  "  to  make  all  orders  respecting  the  property  of  the  county 
*  *  *  and  to  take  care  of  and  preserve  such  property,"  may 
contract  for  insurance  upon  the  public  buildings  of  the  county.8 
While  at  the  time  of  the  passing  of  an  order  by  an  Indiana 
board  of  county  commissioners,  making  a  donation  for  the  pur- 
pose of  securing  the  location  of  an  agricultural  college  within 
their  jurisdiction  and  making  an  appropriation  to  pay  the  same, 
the  Supreme  Court  of  that  state  held  that  the  order  was  not 
void,  but  was  capable  of  ratification  by  the  legislature.  And 
this  order  was  ratified  and  rendered  valid  by  subsequent  legisla- 
tion accepting  the  donation  and  locating  the  college  in  that 
county.  And  the  law  authorizing  a  collection  by  taxes  of  the 
amount  donated  for  this  purpose  was  not  objectionable  as  being 
local  or  special  when  a  general  law  could  have  been  made  appli- 
cable.8 There  is  no  power  in  an  Indiana  board  of  county  com- 
missioners to  furnish  aid  to  a  gravel  road  or  turnpike  company  in 
building  or  repairing  its  road  at  the  expense  of  the  county, 
neither  can  they  enter  into  a  contract  with  such  companies  for 
the  future  repairs  of  a  bridge  or  the  approaches  to  such  bridge 
on  the  line  of  its  road.4  Such  a  board  cannot  make  a  contract 

1  Low  v.  Mayor  and  Common  Coun-  patent  or  their  own   usurpation,  we 

cil  of  Marys ville,   (1855)  5  Cal.  214.  understand  the  powers  of  municipal. 

The  court  said:  "  The  words  '  public  corporations  to  be  limited,  particularly 

improvements'    when    applied    to    a  in  the   United  States,  to  the  express 

municipal  government  must  be  taken  grant  of  their  charters,  the  object  of 

in  a  limited  sense  as  applying  to  those  their  creation  to  be  governmental  and 

improvements  which  are  the  proper  not  commercial." 

subject  of  police  and  municipal  regu-  s  Potts  v.  Bennett,  (Ind.  1895)  39  N. 

lation  —  such    as    gas,    water,    alms-  E.  Rep.  518. 

houses,  hospitals,  etc. —  and  cannot  be  3  Marks,   Treasurer   of   Tippecanoe 

extended  to  subjects  foreign  to  the  ob-  County  ».   Trustees  of  Purdue  Uni- 

ject  of  the  incorporation  and  beyond  versity,  (1871)  37  Ind.  155;  see  Cash  v. 

its  territorial  limits.     Without  refer-  Auditor  of  Clark  County,  7  Ind.  237; 

ring  to  the  many  privileges  exercised  Stocking  «.  The  State,  7  Ind.  326. 

by  the  free  cities  of  Europe,  some  of  *  Driftwood  Valley  Turnpike  Co.  v, 

which  exercised  almost  all  the  power  Board    of    Comrs.    of   Bartholomew 

of   sovereignty    by    virtue    of   royal  County,  (1880)  72  Ind.  226. 


§  22]  PUBLIC  CORPORATIONS.  27 

conditionally  to  pay  certain  expenses  of  boring  wells  for  oil  and 
digging  for  minerals.1  Neither  can  it  appropriate  the  funds  of 
the  county  to  the  payment  of  the  debts  of  a  county  agricultural 
joint-stock  company  or  to  the  building  of  schoolhouses.1  It  is 
not,  under  the  Indiana  laws  regulating  the  incorporation  of  cities, 
etc.,  within  the  power  of  a  city  council  to  contract  to  pay  its 
marshal  any  sum  of  money  for  the  performance  of  any  dutiet 
outside  of  his  official  duties.3 

§  22.  Incurring  liabilities  under  Kansas  statutes. —  The 
grant  of  power  by  the  Kansas  statutes  to  townships  to  issue  bonds 
"  to  aid  in  the  construction  of  railroads  or  water  power  by  dona- 
tion thereto,  or  the  taking  stock  therein  or  for  other  works  of 
internal  improvement"  includes  authority  to  assist  in  the  con- 
struction of  depots  and  sidewalks  of  a  railroad.4  A  statute 
authorizing  a  municipal  corporation  to  issue  bonds  which  can 
only  be  paid  by  taxation,  for  the  benefit  of  a  manufacturing 
enterprise  of  private  persons  has  been  held  to  be  void  as  violat- 
ing the  fundamental  rights  of  property,  the  purpose  being  essen- 
tially private  in  its  nature,  though  the  public  may  be  incidentally 
benefited.5  In  the  same  federal  court  municipal  bonds  issued 
under  legislative  authority  to  be  paid  by  taxation  as  a  bonus  or 
donation  to  secure  the  location,  or  aid  in  the  erection  of  a  manu- 
factory or  foundry  owned  by  private  individuals  were  held  to  be 
void  even  in  the  hands  of  holders  for  value.8  County  commis- 
sioners in  Kansas  may  employ  counsel  to  take  charge  of  litigation 
on  behalf  of  the  county  where  the  county  is  interested  in  the 
result  of  the  action,  either  in  its  own  behalf,  or  in  that  of  some 
township  of  the  county,  where  the  suit  is  brought  against  the 
representatives  of  the  county,  and  is  beyond  the  limits  of  the 
county.7  Though  made  their  duty,  unless  the  charter  of  munic- 
ipal corporations  expressly  permits  it,  they  cannot  levy  a  tax  for 
the  erection  of  schoolhouses.8  A  trustee  of  a  town  in  Kansas 

1  Burnett  v.  Abbott,  51  Ind.  254.  *  Citizens'    Savings    Association    r. 

*  Warren  County  Agricultural  Joint  Topeka,  (1874)  8  Dill.  876. 

Stock  Co.  r.  Barr,  55  Ind.  30;  Roth-  '  Commercial  National  Bank  t.  lola, 

rock  v.  Carr,  55  Ind.  884.  (1878)  2  Dill.  858. 

•City  of  Brazil  P.  McBridc,  (1879)  'Thacher  t.   Jefferson   Ccunty,   18 

69  Ind.  244.  Kans.  182. 

4  Township  of  Rock  Creek  v.  Strong,  '  Leaven  worth   r.  Norton,   1   Kans. 

(1877)  96  U.  S.  271.  482. 


28  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  23 

has  no  power  to  bind  the  county  by  a  contract  with  a  physician 
for  treatment  of  persons  sick  with  smallpox.  The  power  to  do  so 
is  alone  in  the  commissioners  of  the  county.1  Neither  is  a  county 
in  Kansas  bound  to  pay  a  physician  for  medical  services  rendered 
by  him  in  attending  on  prisoners  confined  in  the  county  jail, 
except  when  authorized  by  the  county  commissioners.8 

§  23.  For  lighting  the  streets  of  a  city. —  The  contention  in 
an  Indiana  case  was  that  to  regulate  the  lighting  of  the  streets  of 
a  city  is  a  legislative  power  which  cannot  be  delegated  away,  sur- 
rendered or  restricted  by  contracts  or  otherwise,  and  that,  there- 
fore, the  contract  made  by  the  city  authorities  with  a  gas  company 
for  lighting  its  streets  for  a  term  of  years  was  a  restriction  upon 
that  legislative  power,  and,  therefore,  invalid.  The  Supreme 
Court  of  the  state  held  the  contract  binding  upon  the  city,  and 
enforceable  in  the  same  manner  as  the  contract  of  a  person  or  a 
business  corporation ;  also,  that  it  could  not  be  repealed,  impaired 
or  changed  by  the  city  by  ordinance  or  otherwise.3 

1  Smith  v.  Shawnee  County,  21  Kans.  to  legislate  within  the  authority  dele- 
669.  gated  to  them  by  law  is  distinct  from 

*  Roberts  v.  Pottawatomie  County,  the  power  to  contract,  although  exer- 
10  Kans.  29.  cised  by  the  same  corporation.  They 

*City  of  Indianapolis  v.  Indianapo-  cannot,  by  contract,  delegate  or  re- 
lis  Gas  Light  &  Coke  Co.,  (1879)  66  strict  their  legislative  power,  nor  can 
Ind.  396.  As  to  the  power  to  con-  they,  merely  by  their  legislative  power, 
tract,  it  was  said  by  BIDDLE,  J.,  make  a  contract.  These  two  powers 
speaking  for  the  court:  "  No  corpora-  need  not  be  confounded.  The  exer- 
tion can  construct  unless  the  power  is  cise  of  the  legislative  power  requires 
granted  by  law.  This  power  is  gen-  the  consent  of  no  person  except  those 
erally  granted  to  business  corporations,  who  legislate,  while  it  is  impossible  to 
as  for  banking,  manufacturing,  ship-  make  a  contract  without  the  consent 
ping;  and  such  corporations  generally  of  another,  or  others.  We  think,  there- 
have  no  legislative  or  governmental  fore,  that  when  [this  city]  made  the 
powers,  except  the  power  to  make  by-  contract  in  question  with  the  gas  light 
laws  for  their  own  government;  they  company  it  made  it  in  the  exercise  of 
cannot  pass  ordinances  for  the  govern-  its  power  to  contract,  and  not  in  the 
ment  of  others.  Municipal  corpora-  exercise  of  its  power  to  legislate,  al- 
tions,  besides  the  power  to  contract,  though  the  power  to  make  the  con- 
which  is  generally  granted  to  them  tract  was  authorized  by  an  ordinance; 
within  certain  limits,  have  legislative  and  having  the  power  to  make  a  con- 
or  governmental  powers  by  which  they  tract  touching  the  subject-matter,  it 
make  by-laws  to  govern  themselves  had  the  right  to  make  it  according  to 
and  pass  ordinances  to  govern  others,  its  own  discretion  as  to  its  prudence 
or  the  citizens  of  a  town  or  city  within  or  good  policy  within  the  limits  of  its 
their  geographical  limits.  This  power  franchise."  The  court  commented 


§24] 


PUBLIC  CORPORATIONS. 


§  24.  Contract  on  time  for  lighting  streets. —  A  municipal 
corporation  may  contract  on  time  with  a  gas  or  other  lighting  com- 
pany for  a  supply  of  gas  or  light  for  several  years,  as  it  would  not 
be  the  contracting  of  a  debt  within  the  scope  of  section  2448  of 
the  Revised  Statutes  of  Louisiana,  which  provides  that  the  "  police 
juries  of  the  several  parishes  and  other  constituted  authorities  of 
incorporated  towns  and  cities  in  this  state  shall  not  hereafter 
have  power  to  contract  any  debt  or  pecuniary  liability  without 
fully  providing  in  the  ordinance  creating  the  debt  the  means  of 
paying  the  principal  and  interest  of  the  debt  as  contracted."1  The 


upon  Roll  r.  City  of  Indianapolis,  52 
Ind.  547,  and  distinguished  Kitten- 
house  r.  Mayor  &  City  Council  of 
Baltimore,  25  Md.  836;  Gale  r.  Village 
of  Kalnmazoo,  23  Mich.  844,  and  City 
of  Oakland  t>.  Carpentier,  13  Cal.  540. 
They  considered  their  views  to  be  sus- 
tained by  the  main  consent  of  the  fol- 
lowing authorities:  Evansville,  Ind.  & 
Cleveland  Straight  Line  R.  R.  Co.  t>. 
City  of  Evansville,  15  Ind.  395;  Nel- 
son v.  City  of  La  Porte,  83  Ind.  258; 
City  of  Indianapolis  n.  Ely,  39  Ind. 
873;  City  of  Crawfordsville  v.  Hays, 
42  Ind.  200;  State  Board  of  Agricul- 
ture P.  Citizens'  St.  Ry.  Co.,  47  Ind. 
407;  Board  of  Comrs.  of  Tippecanoe 
County  t>.  Everett,  51  Ind.  543;  San 
Francisco  Gas  Co.  v.  City  of  San  Fran- 
cisco, 9  Cal.  453;  Roll  t>.  City  of  In- 
dianapolis, 52  Ind  547;  Davenport  <\ 
Inhabitants  of  Hallo-well,  10  Me.  817; 
Bailey  t».  Mayor,  etc.,  City  of  New 
York,  8  Hill,  581;  Masterton*.  Mayor, 
etc.,  City  of  Brooklyn,  7  Hill,  61;  Mil- 
hau  ».  Sharp,  27  N.  Y.  611;  Rich- 
mond County  Gas  Light  Co.  r.  Town 
of  Middletown,  59  N.  Y.  228;  Devlin 
v.  Mayor,  etc.,  City  of  New  York,  68 
N.  Y.  8;  Mayor  &  Council  of  Rome  r. 
Cabot.  28  Ga.  50;  Intcndant  &  Town 
Council  of  Livingston  r.  Pippin,  81 
Ala.  542;  State  of  New  York  t>.  Mayor. 
etc.,  City  of  New  York,  3  Duer,  119; 
Unit  ton  t>.  Mayor,  etc.,  New  York,  21 
How.  Pr.  251;  Louisville  City  Ry.  Co. 
t>.  City  of  Louisville,  8  Bush,  415; 


Harlem  Gas  Light  Co.  r.  Mayor,  etc., 
New  York,  83  N.  Y.  309;  Illinois  & 
St.  Louis  R.  R.  &  Canal  Co.  v.  City  of 
St.  Louis  &  Pacific  Elevator  Co.,  2 
Dill.  70;  State  of  Ohio  t>.  Cincinnati 
Gas  Light  &  Coke  Co.,  18  Ohio  St. 
262;  Gall  t>.  City  of  Cincinnati,  18 
Ohio  St.  563;  Minturn  r.  Larue,  23 
How.  485;  Memphis  City  t>.  Dean,  8 
Wall.  64;  Chicago  t>.  Sheldon,  9  Wall. 
50;  Hitchcock  r.  Galveston,  96  U.  8. 
341;  Edwards  v.  Kearzey,  96  U.  8. 
595;  People  v.  Common  Council  of  De- 
troit, 28  Mich.  228;  Mayor,  etc.,  of 
Jackson  v.  Bowman,  89  Miss.  671; 
Davenport  Gas  Light  &  Coke  Co.  «. 
City  of  Davenport,  13  Iowa,  229;  State 
of  Wisconsin  r.  Milwaukee  Gas  Light 
Co.,  29  Wis.  454;  Norwich  Gas  Light 
Co.  t>.  Norwich  City  Gas  Co.,  25  Conn. 
19;  Western  Saving-Fund  Society  of 
Philadelphia  v.  City  of  Philadelphia, 
81  Pa.  St.  175;  Philadelphia  t?.  Fox, 
64  Pa.  St.  169. 

1  New  Orleans  Gas  Light  Co.  «.  City 
of  New  Orleans,  (1890)  42  La.  Ann. 
188;  8.  c.,  7  So.  Rep.  559.  The  court 
said:  "  There  is  no  stipulation  or  ex- 
pression, either  in  the  contract  or  ordi- 
nance, on  which  to  ground  the  con- 
tention that  the  city  thereby  intended 
to  contract  a  debt.  The  agreement 
imparts  no  absolute  and  binding  obli- 
gations on  the  part  of  the  city  to  pay 
any  sum  of  money  for  a  consideration 
pre-existing  or  executed  on  the  part  of 
the  obligee  which  is  of  the  essence  of  a 


30  GENERAL  POWEE  TO  INCUR  PECUNIARY  LIABILITY.          [§  25 

court  held  further  that  in  the  absence  of  a  special  statutory  limi- 
tation or  restriction  the  power  given  to  the  city  to  make  contracts 
for  lighting  its  streets,  landings,  etc.,  was  sufficient  to  authorize 
a  contract  for  more  than  one  year  for  such  commodity.1 

§  25.  Caring  for  the  indigent,  etc. —  There  is  inherent  in 
every  municipal  corporation  the  power  to  relieve  sick  persons 
indigent  in  their  circumstances,  especially  in  times  of  epidemic 
diseases,  and  to  provide  for  poor  persons  who  are  unable  to  labor.2 
A  city  with  power  delegated  to  it  to  provide  for  foundlings,  the 
insane,  the  indigent,  infirm  and  helpless,  and  for  the  correction 
of  the  vicious  and  vagrant  portions  of  its  population,  if  it  has  not 
provided  for  such  persons,  or  if  they  can  be  better  cared  for  and 
trained  in  other  institutions  than  in  those  of  the  city,  may  con- 
tract for  such  care  and  training  by  such  other  institutions.  But 
the  exercise  of  the  power  of  making  such  contracts  must  be  with 
the  limitation  that  the  subject-matter  of  the  contract  be  kept 
within  the  power  and  control  of  municipal  authority,  and  that 
complete  accountability  be  provided  for,  and  thus  make  the  insti- 
tution contracted  with,  pro  hoc  vice,  municipal  officers.3 

debt.  The  obligation  of  the  city  for  of  Valparaiso  v.  Gardner,  97  Ind.  1;  8. 
future  disbursements  in  favor  of  the  c.,  7  Am.  &  Eng.  Corp.  Cas.  626. 
company  is  conditioned  on  the  per-  J  New  Orleans  Gas  Light  Co.  v.  City 
fonnance  on  the  part  of  the  latter  of  of  New  Orleans,  (1890)  42  La.  Ann. 
its  part  of  the  contract,  a  fact  to  be  188;  s.  c.,  7  So.  Rep.  559;  citing  in 
ascertained  under  the  terms  of  the  con-  support  of  the  ruling  City  of  Indian- 
tract  itself  from  month  to  month,  apolis  v.  Indianapolis  Gas  Light  Co. ,  66 
Although  the  eventual  disbursements  Ind.  396;  Weston  ».  Syracuse,  17  N.  Y. 
to  be  made  by  the  city  may  amount  to  110;  City  of  Valparaiso  v.  Gardner,  97 
several  hundred  thousand  dollars,  it  is  Ind.  1;  Atlantic  Water  Works  v.  Atlan- 
certainly  not  correct  to  argue  that  the  tic  City,  15  Am.  &  Eng.  Corp.  Cas.  327. 
effect  of  the  contract  was  to  place  it  in  s  Vionet  v.  Municipality  No.  1,  4 
debt  to  that  amount.  If  under  the  La.  Ann.  42. 

terms  of  the  contract  the  company  fur-  8St.  Mary's  Industrial  School  for 
nishes  and  operates  in  quality  and  Boys  v.  Brown,  (1876)  45  Md.  310.  It 
quantity  the  lights  contemplated  and  was  said  by  the  court:  "The  author- 
agreed  upon,  and  if  payments  are  ity  (to  provide  for  such  persons)  that 
made  therefor  by  the  city  from  month  is  held  and  exercised  in  this  behalf  is 
to  month,  as  stipulated  in  the  contract,  a  trust,  as  well  for  those  who  become 
the  city  would  certainly  never  be  in  the  objects  of  it,  as  those  who  support 
debt  to  the  company.  Hence  we  con-  it  by  contribution  in  the  form  of  taxes 
elude  that  no  indebtedness  was  con-  levied  upon  their  property,  and  being 
templated  to  flow  from  or  was  created  an  important  public  trust  it  cannot  be 
by  the  contract."  On  authority  of  delegated  beyond  the  power  and  dis- 
Weston  v.  Syracuse,  17  N.  Y.  110;  City  cretion  of  those  to  whom  it  is  confided." 


§§  26,  27]  PUBLIC  CORPORATIONS.  31 

§  26.  Employment  of  physicians  for  the  poor  —  Indiana 
statute  construed. —  The  Indiana  statute l  makes  it  the  doty 
of  the  board  of  commissioners  of  a  county  "  to  contract  with  one 
or  more  skillful  physicians,  having  knowledge  of  surgery,  to 
attend  upon  all  persons  confined  in  jail,  or  paupers  in  the  county 
asylum,  and  may  also  contract  with  physicians  to  attend  upon 
the  poor  generally  in  the  county.  Provided  that  this  sec- 

tion shall  not  be  so  construed  as  to  prevent  the  overseers  of  the 
poor,  or  any  one  of  them,  in  townships  not  otherwise  provided 
for,  from  employing  such  medical  or  surgical  services  as  paupers 
within  his  or  their  jurisdiction  may  require."  The  Supreme 
Court  has  held  that  a  county  is  not  liable  to  a  physician  for  med- 
ical services  rendered  by  him  to  a  poor  person,  when  the  physi- 
cians employed  by  the  board  of  county  commissioners  to  attend 
the  poor,  as  required  by  this  statute,  refused  to  act,  and  when 
the  town  trustee,  who  by  statute  is  the  overseer  of  the  poor, 
declined  to  employ  this  physician.2 

§27.  Expenses  connected  with  epidemic  diseases. —  The 
Supreme  Court  of  Alabama  has  held  that  a  contract  by  a  city 

1  Ind.  Rev.  St.  (1881)  §  5764.  104  fnd.  321;  s.  c.,  3  N.  E.  Rep.  757; 

'Morgan  County  v.  Seaton,  (1889)  see,  also,  Comrs.,  etc.,  v.  Hoi  man,  34 
122  Ind.  521;  8.  c.,  24  N.  E.  Rep.  213.  Ind.  256.  As  to  the  powers  of  town 
The  holding  of  the  court  has  been  trustees  under  this  statute,  see  Robbins 
uniform  that  the  overseer  of  the  poor,  r.  Board  of  Comrs.  of  Morgan  County, 
under  this  statute,  has  power  to  em-  (1888)91  Ind.  537.  As  to  the  terms,  etc., 
ploy  a  physician  only  in  the  event  the  of  a  contract  with  a  physician  under 
board  of  commissioners  fail  to  make  this  statute,  see  Board  of  Comrs.,  etc., 
suitable  provision  for  attendance  upon  r.  Ritter,  (1883)  90  Ind.  362.  As  to  the 
the  poor  by  contract.  Board,  etc..  t.  duty  and  power  of  a  town  trustee 
Boynton,  30  Ind.  359;  Board,  etc.,  r.  under  Ind.  Rev.  St.  (1881)  §  6089, 
Hon.  87  Ind.  356.  But  the  overseer  in  providing  for  persons  in  need  of 
of  the  poor,  in  case  the  physician  em-  temporary  relief,  see  Board  of  Comrs., 
ployed  by  the  board  in  not  accessible,  etc.,  p.  Jennings,  (1885)  104  Ind. 
and  an  emergency  is  deemed  to  exist,  108;  s.  c.,  3  N.  £.  Rep.  619.  The 
or  if  he  refuses  for  any  reason  to  act,  mere  fact  that  a  board  of  commission- 
may  employ  a  physician  in  case  of  ur-  ers  employs  physicians  to  attend  the 
gent  necessity  to  treat  one  in  need  of  poor  of  a  county  will  not  operate  as  a 
medical  aid,  and,  in  the  absence  of  limitation  upon  the  power  of  a  town- 
fraud,  the  county  will  be  bound  by  ship  trustee  as  overseer  of  the  poor  to 
his  judgment  and  liable  for  the  medi-  employ  others  in  case  of  emergency, 
cal  services,  notwithstanding  the  em-  Board  of  Comrs.  of  Perry  County  e. 
ployment  of  a  regular  physician  by  Lomax,  (1892)  5  Ind.  App.  567;  a.  c.. 
the  county.  Board,  etc.,  v.  Beaton,  90  82  N.  E.  Rep.  800. 
Ind.  158;  Washburn  t.  Board,  etc., 


32  GENERAL  POWEE  TO  INCUR  PECUNIARY  LIABILITY.         [§  28 

•with  a  physician,  entered  into  during  the  late  war,  to  attend  to 
indigent  persons  sick  witli  the  smallpox,  whether  belligerents  or 
non-belligerents,  was  not  such  a  contract  as  is  forbidden  by  the 
law  of  the  land  or  public  policy.1  A  statute  authorizing  the 
board  of  supervisors  of  a  city  "  to  allow  and  order  paid  out  of 
the  general  fund,  not  to  exceed  six  thousand  dollars  for  any  one 
year,  for  the  support  of "  a  smallpox  hospital,  has  been  held  in 
California  not  to  authorize  the  board  to  purchase  a  site  for  a 
smallpox  hospital.2  Neither  was  the  purchase  of  a  site  for  the 
hospital  authorized  by  the  statute  giving  the  board  power  to  make 
all  regulations  which  may  be  necessary  or  expedient  for  the  pre- 
vention of  contagious  diseases,  nor  by  the  constitutional  provision 
of  the  state  authorizing  a  city  to  make  all  such  police,  sanitary 
and  other  regulations  as  are  not  in  conflict  with  general  laws.1 

§  28.  For  what  towns  may  not  be  made  liable. — A  town 
has  no  authority  to  appropriate  money  for  the  payment  of 
expenses  incurred  by  individuals,  prior  to  its  corporate  existence 

1  City  of  Selma  v.  Mullen,  (1871)  46  the  board  of  supervisors  by  the  statute. 
Ala.  411;  in  this  case,  where  it  appeared  Aside  from  the  fact  that  this  statute 
that  the  usage  of  the  city  authorities  makes  no  mention  of  real  estate,  or  of 
was  to  have  the  city  physician  attend  any  purchase  thereof,  its  language  lim- 
to  smallpox  cases  for  an  extra  com-  its  the  power  to  the  expenditure  of  '  six 
pensation,  and  the  city  physician,  thousand  dollars  for  any  one  year,' 
plaintiff  here,  had  been  told  by  one  of  and  the  money  thus  allowed  to  be  ex- 
the  aldermen  in  the  presence  of  the  pended  is  for  the  'support'  of  the 
others,  no  one  objecting,  to  "go  on,  smallpox  hospital  —  words  which  emi- 
doctor,  with  your  smallpox  cases,  and  nently  refer  to  an  existing  hospital, 
we  will  do  what  is  just  and  right,"  it  rather  than  to  one  to  be  thereafter 
was  held  that  the  city  was  bound  by  brought  into  existence.  It  is  not  to  be 
an  implied  promise  to  pay  him  a  rea-  inferred  that  when  the  legislature  was 
sonable  value  for  his  services  in  this  thus  careful  in  limiting  the  amount  of 
respect.  As  to  an  action  of  assumpsit  money  to  be  expended,  and  in  the  Ian- 
lying  against  corporations  upon  an  guage  in  which  it  described  the  mode 
express  or  implied  promise,  see  Bank  of  its  expenditure,  it  intended  to  con- 
of  Columbian.  Patterson,  7 Cranch,  299;  fer  an  unlimited  Authority  upon  the 
Bank  of  U.  8.  n.  Dandridge,  12  Wheat,  board  of  supervisors  to  expend  any 
64;  Danforth  v.  Schoharie  &  Duanes-  amount  of  money  that  it  might  choose 
burgh  Turnpike  Road,  12  Johns.  227;  for  the  purchase  of  a  site  for  the  hos- 
Montgomery  County  V.  Barber,  45  pital  for  whose  support  it  had  thus 
Ala.  237.  provided." 

8  Von  Schmidt  v.  Widber,  City  Treas-  « Von  Schmidt  v.  Widber,  City  Treas- 
urer, (1894)  105  Cal.  151;  8.  c.,  38  Pac.  urer,  (1894)  105  Cal.  151;  8.  c.,  38  Pac. 
Rep.  683.  The  court  said:  "(Authority  Rep.  683  citing  as  authority  for  the 
to  make  such  a  purchase)  cannot  be  im-  last  proposition,  Ketchum  v.  City  of 
plied  from  the  power  conferred  upon  Buffalo,  14  N.  Y.  356. 


§28] 


PUBLIC  CORPORATIONS. 


as  a  town,  in  procuring  the  passage  of  its  charter.1  In  the  com- 
monwealth of  Massachusetts  towns  have  no  authority  to  expend 
money  or  pledge  their  credit  to  celebrate  the  anniversary  of  the 
surrender  of  Cornwallis.2  Nor  has  it  authority  to  appropriate 
money  for  the  celebration  of  the  Fourth  of  July.8  By  the  stat- 
ute of  1861  (Chap.  165)  cities  are  now  authorized  in  Massachu- 
setts to  appropriate  money  to  celebrate  a  holiday,  but  such  author 
ity  can  be  exercised  only  in  pursuance  of  a  "vote  of  two-thirds 
of  the  members  of  each  branch  of  the  city  council  present  and 
voting  by  yea  and  nay  vote.4 


'Frost  e.  Belmont,  (1868)  6  Allen, 
152. 

«Tash  v.  Adams,  Treasurer,  (1852) 
lOCush.  252. 

«  Hood  r.  Lynn,  (1861)  1  Allen,  103. 
BK.I.I.OW,  Ch.  J.,said,afterreferringto 
the  power  of  towns  to  raise  money  for 
"all  other  necessary  charges":  The 
appropriation  is  neither  necessary  to 
the  exercise  of  any  power  expressly 
grunted  to  the  city;  nor  is  it  inci- 
dental to  any  right  or  authority, 
which,  though  not  expressly  granted, 
has  its  origin  in  well-settled  usage 
and  is  founded  upon  the  necessities, 
convenience,  or  even  the  comfort  of 
the  inhabitants.  This  is  the  extreme 
limit  of  the  power  of  towns  and  cities 
to  grant  money  as  settled  by  repeated 
adjudications  of  this  court.  8t  tson 
r.  K'-tnpton,  13  Mass.  272;  Parsons  r. 
Goshen,  11  Pick.  396;  Willard  v.  New- 
buryport,  12  Pick.  227;  Allen  r. 
Taunton,  19  Pick.  485;  Spaulding 
9.  Lowell,  23  Pick.  71;  Anthony  v. 
Adams,  1  Mete.  284.  See,  also,  Gerry 
t».  Stoneham,  (1861)  1  Allen,  819.  In 
New  London  v.  Brainard,  22  Conn. 
r».~>:{,  an  appropriation  which  had  been 
voted  by  the  city  for  the  celebration 
of  Independence  Day  was  held  to 
luve  been  properly  enjoined  as  be- 
yond the  power  of  the  city  under  its 
charter  and  the  laws  generally.  As 
to  the  power  of  a  city  under  the 
power  given  in  its  charter  to  raise  and 
5 


expend  moneys  "to  defray  the  con- 
tingent and  other  expenses  of  the 
city  "  to  provide  an  entertainment  for 
its  citizens  at  the  expense  of  the  city, 
see  Hodges  v.  Buffalo,  2  Den.  110; 
New  London  r.  Brainard,  22  Conn. 
553. 

4  Morrison,  Admx.,  .c.  Lawrence, 
(1867)  98  Mass.  219.  In  Morton  t. 
City  of  Nevada,  41  Fed.  Rep.  582, 
bonds  issued  by  the  city  for  the  pur- 
chase of  a  right  of  way  and  depot 
grounds  for  a  railroad  were  held  to  be 
void  as  violating  the  constitutional 
provision  of  Missouri  declaring  that 
the  general  assembly  shall  not  author- 
ize any  city  to  loan  its  credit  to  any 
corporation  unless  two  thirds  of  the 
qualified  voters  assented  thereto.  It 
was  further  held  that  the  purchaser  of 
these  bonds  could  not  maintain  an 
action  against  the  city  for  money  paid 
and  received  to  recover  the  amount 
paid  the  city  for  the  bonds,  as  the  city 
having  no  power  to  create  the  debt, 
no  implied  promise  could  arise  for  its 
payment,  notwithstanding  the  general 
statute  of  Missouri,  which  gives  the 
board  of  trust  ITS  power  "to  borrow 
money  for  the  improvement"  of  the 
town,  the  purchase  of  highway  and 
depot  grounds  for  the  railroad  not 
being  for  the  improvement  of  the 
town,  but  a  debt  incurred  for  the 
benefit  of  the  railroad  corporation 
without  the  uropcr  assent  of  voters. 


34  GENERAL  POWER  TO  TNCUK  PECUNIARY  LIABILITY.  [§  29 

§  29.  Expenses  of  a  committee  to  secure  legislation.— 
A  town  cannot  raise  by  taxation  or  by  pledge  of  its  credit,  or 
pay  from  its  treasury,  money  for  the  expenses  of  a  committee 
directed  by  a  vote  of  the  town  to  petition  the  legislature  for  the 
annexation  of  the  town  to  another  town.1  Neither  can  it  raise 

1  Minot  v.  West  Roxbury,  (1873)  the  accommodation  of  the  inhabitants, 
112  Mass.  1.  ENDICOTT,  J.,  a>  t)  sui  h  a.i  town  houses  to  assemble  in 
proper  construction  of  the  \vor  .s  and  market  houses  for  the  stile  of  pro- 
" necessary  charges,"  referred  to  tie  visions,  may  also  be  a  proper  town 
various  Massachusetts  cases  previ  ms  charge,  an  1  may  come  within  the  fair 
to  this  one  as  follows:  "The  lead-  meaning  of  the  term  necessary,  for 
ing  case  is  Stetson  v.  Kernpton.  13  the^e  may  be  essential  to  the  corn- 
Mass.  272.  The  meaning  of  the  word  fort  and  convenience  of  the  citizens. 
'  necessary '  in  the  statute  is  discussed  *  *  *  Wita  re.spect  to  the  defense 
at  length  by  Chief  Justice  PARKER,  of  any  town  against  the  incursions  of 
with  a  fulness  of  illustration  in  regard  an  enemy  in  time  of  war,  it  is  difficult  to 
to  the  various  expenses  which  may  be  see  any  principle  upon  which  that  can 
said  to  fall  within  the  words  '  neces-  become  a  necessary  town  charge.  It  is 
sary  charges/  that  seem  to  exhaust  is  not  a  corporate  duty,' etc.  In  another 
the  subject,  and  has  not  been  mate-  case  *  *  *  Rumford  School  District 
rially  enlarged  by  later  decisions.  He  v.  Wood,  13  Mass.  193,  the  chief  jus- 
says:  '  The  phrase  '  necessary  tice  said  of  towns  that  they  may  be 
charges'  is  indeed  general;  that  the  considered  as  quasi  corporations,  with 
very  generality  of  the  expression  shows  limited  powers  co-extensive  with  the 
that  it  must  have  a  reasonable  limit:i-  duties  imposed  on  them  by  statute  or 
tion.  For  none  will  suppose  that  un-  usages.  The  rule  of  construction  laid 
der  this  form  of  expression  every  tax  dawn  in  these  early  cases  has  been 
would  be  legal  which  the  town  should  strictly  followed  in  the  later  decisions, 
choose  to  sanction.  The  proper  con-  In  Parsons  v.  Goshen,  11  Pick.  396, 
struction  of  the  term  must  be  that  in  Mr.  Justice  WILDE  says :  '  The  im- 
addition  to  the  money  to  be  raised  for  portant  question  in  this  case  is  settled, 
the  poor,  schools,  etc.,  towns  might  and  upon  principles  that  cannot  be 
raise  such  sums  as  should  be  necessary  controverted,  in  Stetson  t.  Kempton.' 
to  meet  the  ordinary  expenses  of  the  In  Anthony  v.  Adams,  1  Mete.  284, 
year,  such  as  the  payment  of  such  mu-  Chief  Justice  SHAW  said  :  '  It  is  now 
nicipal  officers  as  they  should  be  well  settled  that  a  town,  in  its  corpo- 
obligedto  employ,  the  support  andde-  rate  capacity,  will  not  be  bound,  even 
fense  of  such  actions  as  they  might  be  by  an  express  vote  of  a  majority,  to 
parties  to,  and  the  expenses  they  the  performance  of  contracts  or  other 
would  incur  in  performing  such  duties  legal  duties  not  coming  within  the 
as  the  laws  imposed,  as  the  erection  of  scope  of  the  objects  and  purposes  for 
powder  houses,  providing  ammuni-  which  they  are  incorporated.'  In  Vin- 
tion,  making  and  repairing  highways  cent  v.  Nantucket,  12  Cush.  103,  it  was 
and  town  roads,  and  other  things  of  a  said  by  Mr.  Justice  MERRICK  :  '  Their 
like  nature,  which  are  necessary  contracts  will  be  valid  when  made  in 
charges  because  the  effect  of  a  legal  relation  to  objects  concerning  which 
discharge  of  their  corporate  duty,  they  have  a  duty  to  perform,  an  inter- 
The  erection  of  public  buildings  for  est  to  protect,  or  a  right  to  defend. 


§  30]  PUBLIC  CORPORATIONS.  35 

by  taxation,  or  pay  from  its  treasury,  money  for  expenses 
incurred  in  opposing  before  the  legislature  the  annexation  of  the 
whole  or  a  part  of  its  territory  to  another  town.1  A  Maine  town 
cannot  incur  expenses  in  opposing  before  a  legislative  committee 
a  division  of  its  territorial  limits/ 

§  30.  For  the  payment  of  bounties  to  volunteers. —  The 
Illinois  Supreme  Court  sustained  the  constitutionality  of  a  law 
Authorizing  the  towns  in  certain  counties  therein  named  to  levy  a 
tax  to  pay  bounties  to  persons  who  should  thereafter  enlist  or  be 
drafted  in  the  army  of  the  United  States,  a  vote  of  the  township 
being  first  taken.  The  courts  defined  a  tax  for  "corporate  pur- 
poses" to  mean  "a  tax  to  be  expended  in  a  manner  which  shall 
promote  the  general  prosperity  and  welfare  of  the  municipality 
which  levirs  it,"  and  held  that  a  tax  levied  by  the  town  for  the 
purpose  of  paying  bounties  to  such  as  would  volunteer  in  the 
army  during  the  late  war  in  order  thereby  to  exempt  the  town 
from  an  impending  draft  on  conscription  might  be  fairly 
considered  a  tax  for  the  common  good  and  for  a  "corporate 
purpose."  3 

But  here  is  the  extent  at  once  of  their  demnify  its  officers  against  liabilities 

right  and   their  power.     They  cannot  incurred  in  the  bonafide  discharge  of 

enquire  in  enterprises  foreign   to  the  their  official  duties,  as  in  regard  to  the 

purposes  for  which  they  were  incor-  reassessment  of  taxes,  the  repairs  of  a 

porited,    nor  assume    responsibilities  highway,  the  report  of  a  school  com- 

which  involve  undertakings  not  within  mittec,  the  erection  of  a  town  house, 

the  compass  of  their  corporate  pow-  all  incidental  to  and  connected  with 

ers.'     Following  this  rule  of  construe-  the  exercise  of  the  powers  of  a  town 

tion,  this  court  has  held  expenditures  (Nelson  r.  Milford,7Pick.  18;  Bancroft 

to  be  legtil  though  not  within  the  ex-  r.    Lynnflcld,  18  Pick.    566;  Fuller  e. 

terms  of  the  statute,  but  inci-  Groton,  11  Gray,  340;  Hiidsell  r.  Il.in- 

dental  to  and   within  the  scope  of  a  cock,  3  Gray,  526;  Babbitt  v.  Savoy,  3 

power  of  a  town,  as  for  the  erection  of  Cush.  530),  and   may  pay  for  profes- 

markct  and  town  houses,  and  the  con-  sional  services  in  the  defense  of  suits, 

strtt  -lion  of  reservoirs  to  supply  fire  independent  of  the  result  of  the  suit. 

engines.       Sp.mlding   r.    Lowell,     2:j  and  whether  the  town  acted  legally  or 

Pick.  71;  French  r.  Quincy,  8  Allen,  illegally  in  the  matter  i a  controversy, 

9;  Hardy  e.  Waftham,  8  Met.  168.    For  it  being  in  the  ordinary  administra- 

the  support  of  a  public  clock,  as  within  tion    of    town    affairs.       Gushing   v. 

the  jurisdiction  of  a  town,  in  the  same  Stoughton,  6  Cush.  889." 

manner  as  hay  scales,  burying  grounds,  '  Coolidgc   P.   Brooklinc,  (1874)   114 

wells  and  reservoirs,  being  objects  of  Mass.  •'>'.»•.' 

convenience  and  necessity  to  the  in-  *  Inhabitants  of  Westbrook  r.  In- 
habitants. Willard  v.  Newburyport,  habitants  of  Deering,  (1874)  63  Me.  231. 
12  Pick.  227.  A  town  may  also  in-  » Taylor*.  Thompson,  (1866) 43 III  9. 


30  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§  31,  32 

§  31.  Validating  a  contract  of  village  trustees. —  Under  the 
statutes  of  New  York  there  is  required  a  submission  of  a  propo- 
sition for  furnishing  a  water  supply  to  a  vote  of  the  electors 
before  a  contract  can  be  made  by  the  village  trustees,  if  the  cost 
is  to  exceed  a  certain  sum.  In  case  village  trustees  enter  into  a 
contract  for  this  purpose,  not  authorized  by  this  statute,  and 
there  is  an  attempt  to  ratify  it  by  the  electors  of  the  village,  the 
contract  would  not  be  validated  as  of  the  time  when  it  was  made, 
but  simply  rendered  operative  from  and  after  the  date  of  the 
vote.1  And  the  statute  as  to  submission  to  a  vote  of  the  electors  of 
the  matter  in  question  was  not  modified  by  the  subsequent  statute 
providing  for  the  submission  "  to  the  taxpaying  electors,"  at  a 
special  election  of  the  question  of  raising  moneys  for  some  proper 
village  object  additional  to  the  amount  already  authorized,  and 
for  raising  the  same  in  like  manner  with  other  taxes,  and  author- 
izing the  trustees  to  borrow  such  sum  in  emergency  in  anticipa- 
tion of  the  tax,  but  granting  them  no  authority  to  bond  the  village 
otherwise  by  contract.2 

§  32.  Illustrations  of  liabilities  incurred  for  a  "  corporate 
purpose." — The  Illinois  Supreme  Court  has  held  frhat  where  a  tax 
was  voted  by  a  city  to  donate  a  sum  of  money  in  aid  of  normal  school 
in  case  it  should  be  located  therein,  and  it  was  so  located,  and  the 

1  Squire  v.  Preston,  (1894)  82  Hun,  r>.  Cramer,  14  N.  Y.  Wkly.  Dig.  107; 

88;  s.  c.,  31  N.  Y.  Supp.  174.  The  Hassan  v.  City  of  Rochester,  67  N.  Y. 

statute  referred  to  is  N.  Y.  Laws  1873,  528.  As  to  ratification  of  the  contracts 

chap.  737,  §  5,  as  amended  by  N.  Y.  by  a  vote  the  court  considered  appli- 

Laws  1885,  chap.  422.  cable  the  language  of  Judge  DENIO  in 

*  Squire  0.  Preston,  (1894)  82 Hun,  88;  Peterson  v.  Mayor,  etc.,  17  N.  Y.  449, 

8.  c.,  31  N.  Y.  Supp.  174.  The  later  454,  which  was  as  follows:  "No  sort 

statute  referred  to  is  N.  Y.  Laws  1887,  of  ratification  can  make  good  an  act 

chap.  504;  see,  also,  N.  Y.  Laws  1890,  without  the  scope  of  the  corporate 

chap  566,  §  81.  which  re-enacts  in  sub-  authority  So  where  the  charter,  or  a 

stance  the  act  of  1873.  See  In  re  Com-  statute,  binding  upon  the  corporation, 

missioners  of  Central  Park,50N.Y.493;  has  committed  a  class  of  acts  to  par- 

In  re  Evergreens,  47  N.  Y.  216.  The  ticular  officers  or  agents  other  than 

questions  involved  in  Squires.  Preston,  the  general  governing  body,  or  where 

supra,  were  considered  also  in  Squire  it  has  prescribed  certain  formalities  as 

t>.  Cartwright,  (1893)  67  Hun,  218;  s.  conditions  to  the  performance  of  any 

c.,  22  N.  Y.  Supp.  899,  the  contract  description  of  corporate  business,  the 

made  by  the  village  trustees  with  the  proper  functionaries  must  act,  and  the 

water  company  being  for  the  erection  designated  forms  must  be  observed, 

and  supply  of  hydrants.  As  to  the  and  generally  no  act  of  recognition 

points  involved,  the  court  cited:  Smith  can  supply  a  defect  in  these  respects." 


§  33]  PUBLIC  CORPORATIONS.  .          37 

bonds  of  the  city  were  regularly  issued  and  put  in  circulation  to 
that  amount,  such  debt  was  incurred  for  a  "  corporate  purpose," 
within  the  meaning  of  the  constitutional  provision  allowing  taxa- 
tion for  "  corporate  purposes."1  So,  also,  held  as  to  a  certain 
issue  of  the  city's  bonds  under  legislative  authority  and  upon  a 
vote  of  its  legal  voters,  whereby  the  city  was  relieved  from  the 
payment  of  a  larger  amount  of  its  prior  indebtedness.8  The  city 
being  also  authorized  by  the  statute  to  give  bonds  to  aid  in  the 
establishment  and  foundation  of  a  university,  and  for  that  purpose 
having  purchased  grounds  and  submitted  to  vote  of  the  people  the 
question  of  issuing  a  certain  amount  of  bonds  to  make  payment 
for  the  lands,  and  it  being0carried,  these  bonds  were  also  held  to 
be  for  a  "  corporate  purpose,"  there  appearing  no  fraud,  combi- 
nation or  oppression  in  the  transaction.3  The  constitutional  pro- 
vision of  New  York  prohibiting  cities  from  incurring  indebted- 
ness except  for  city  purposes,  does  not  deprive  the  city  of  the 
power  to  construct  and  operate  a  plant  for  a  supply  of  electric 
light  to  the  city  and  its  inhabitants,  as  this  is  a  corporate  purpose 
within  the  meaning  of  the  constitutional  provision.4  Should  a 
municipaf  corporation  issue  negotiable  certificates  of  indebtedness, 
for  instance,  to  a  contractor  for  the  performance  of  work  to  be 
done,  or  done,  for  an  authorized  corporate  purpose,  without  legal 
authority  or  power  to  issue  such  certificates,  the  payee  may  main- 
tain an  action  for  money  had  and  received  ;  and  the  fact  that  the 
payee  was  not  a  party  to  the  contract  would  be  immaterial  if  the 
certificates  are  issued  to  him  at  the  request  of  the  contractor  and 
the  money  received  by  the  city  and  paid  over  to  the  contractor.5 

§  33.  Purchase  of  fire  engines  and  apparatus. —  A  town 
possesses  inherent  power  to  purchase  fire  engines  for  the  protec- 
tion of  the  property  of  its  citizens  from  fire.6  The  statute  of 

1  Burr  r.  City  of  Carbondale,  (1874)  204;    Chapman    «.    Douglas  County, 

76  111.  455.  107  U.  S.  348;  8.  c.,  2  Sup.  Ct.  Rep. 

1  Ibid.  62;  Hitchcock  t>.  Galveston,  96  U.  8. 

1  Ibid.   In  support  of  these  views  the  841. 

court  cited  Merrick  r.  Inhabitants  of  •  Corporation  of  Bluffton  r.  Studa- 

Amheret,  12  Allen,  500.  baker,  (1885)  106  Ind.  129.     The  court 

4  Hequembourg  r.  City  of  Dunkirk,  said:    "The  power  to  purchase  fire 

49  Hun,  550;  8.  c.,  2  N.  Y.  Supp.  447.  engines  by    an   incorporated   city  or 

•  Bangor  Savings  Bunk  r.  City  of  town  does  not,  however,  of  necessity, 

Styi water,   (1892)  49  Fed.  Rep.  721;  depend    upon  the    question   whether 

Louisiana  v.  New  Orleans,  102  U.  8.  the  charter  of  such  city  or  town  has, 


38 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§33 


Indiana  for  incorporating  towns  gives  them  power  in  one 
section  among  other  things  "  to  provide  all  necessary  apparatus 
for  the  extinguishment  of  fires.''  Under  this  section  a  town 
is  authorized  to  purchase  a  fire  engine  for  cash.1  Another 
section  gives  towns  power  "to  incur  a  debt,  on  proper  peti- 
tion from  the  taxpayers  of  the  town  severally.  *  *  * 
Under  this  section  the  town  may  incur  a  debt  for  the  purchase 
of  a  fire  engine  and  apparatus,  or  purchase  it  upon  credit.8 
Another  provision  of  this  law  requires  the  assent  of  five- 
eighths  of  the  taxpaying  citizens  of  the  town  before  there  is 
power  in  the  town  to  borrow  money  or  incur  any  debt  or  liability. 
Upon  a  proper  petition  the  board  of  trustees  in  this  case  passed 
an  ordinance  for  raising  the  money  necessary  to  pay  for  an  engine 
by  sale  of  the  bonds  of  the  town.  The  court  held  that  the  board 
had  the  power  to  disregard  this  ordinance  for  an  issue  and  sale  of 
bonds.  Their  power  to  purchase  an  engine  on  a  credit  was  not 
exhausted  by  the  mere  passage  of  the  ordinance  for  the  issue  and 
sale  of  bonds.  The  engine  might  be  purchased  by  parol  and 


or  has  not,  expressly  granted  such 
power.  In  1  Dill,  on  Man.  Corp. 
(3d  ed.)  §  143.  the  learned  author  says  : 
"The  prevention  of  damage  by  fire  is 
usually  an  object  within  the  scope  of 
municipal  authority,  either  by  ex- 
press grant  or  by  the  power,  in  a 
chartered  town  or  city,  to  make  police 
regulations  or  needful  by  laws,  and 
for  this  purpose  it  may  regulate  the 
mode  and  removal  of  ashes.  And 
where  the  town  or  municipal  body 
has  such  power,  it  is  authorized  to 
appropriate  money  for  the  purchase 
of  engines,  or  for  the  repair  thereof, 
if  to  be  used  for  the  purpose  of  ex- 
tinguishing fires  therein,  and  this, 
whether  they  belong  to  the  corpora- 
tion or  were  purchased  by  private 
subscription."  So  in  Clark  r.  City  of 
South  Bend,  85  Ind.  276;  8.  c.,  44 
Am.  Rep.  13,  the  court  said :  "  A 
municipal  corporation  has  such 
powers  as  are  expressly  granted  and 
also  such  implied  or  incidental  ones 
as  are  necessary  to  carry  into  effect 
the  express  powers  and  effectuate  the 


object  of  the  corporate  existence.  It 
was  long  ago  declared  that  the  power 
to  prevent  danger  from  fire  is  an  in- 
cidental one,  belonging  to  all  munic- 
ipal corporations."  So,  also,  in 
Baumgartner  v.  Hasty,  100  Ind.  575 ; 
s.  c.,  50  Am.  Rep.  830,  the  court 
said :  "The  rule  has  always  been  that 
a  municipal  corporation  has  the  in- 
herent power  to  enact  ordinances  for 
the  protection  of  the  property  of  its 
citizens  against  fire.  *  *  *  The 
exercise  of  such  a  power  is  not  the 
exercise  of  a  new  power,  nor  of  one 
not  connected  with  the  purposes  for 
which  public  corporations  are  organ- 
ized ;  on  the  contrary,  it  is  the 
exercise  of  a  power  long  possessed  by 
municipal  corporations  and  closely  con- 
nected with  the  purposes  for  which 
such  corporations  are  organized." 

1  Second  National  Bank  of  New 
Albany  r.  Town  of  Danville,  (1878)«60 
Ind.  504. 

*  Second  National  Bank  of  New 
Albany  v.  Town  of  Danville,  (1878)  60 
Ind.  504. 


§  34]  PC  BUG  CORPORATIONS.  30 

in  this  case  on  credit,  and  notes  commercial  or  otherwise  might  be 
executed  for  the  price  by  the  board  of  trustees  of  the  town.1 
The  power  to  purchase  fire  engines  and  apparatus  is  necessarily 
or  fairly  to  be  implied  as  incident  to  a  power  granted  a  city's 
common  council  to  pass  ordinances  for  the  prevention  and  MIJ> 
pression  of  fires  and  to  appoint  and  remove  fire  wardens ;  and, 
by  ordinance  to  prescribe  the  powers  and  duties  of  such  fire  war- 
dens and  of  the  fire  engineers  and  firemen ;  and  also  the  right  to 
raise  money  by  taxation  for  supporting  the  fire  department.8 
Under  a  statutory  authority  to  purchase  tire  engines  and  appara- 
tus of  all  kinds  for  the  use  of  the  fire  department  of  a  city,  the 
board  of  fire  commissioners  having  charge  of  such  matters  may 
purchase  hose  carriages.8 

§  34.  Illustration  of  wrongfully  incurred  liability. —  Where 
the  sum  of  $1,500  had  been  voted  by  a  school  district  of  Wyom- 
ing for  contingent  expenses,  the  Supreme  Court  of  that  state 
held  that  the  purchase  of  a  steam-heating  apparatus  for  a  sum 
largely  in  excess  of  that  amount  was  not  within  the  power  of  the 

1  Second    National    Bank    of    New  department  with  apparatus  would  be 

Albany  v.  Town  of  Danville.  (1878)  60  as  futile  as  the  privilege  of  raising  an 

Ind.  504 ;    Sheffield  School  Township  army  without  the  power  to  provide 

«.  Andress,  56  Ind.   157.     See  upon  weapons  or  subsistence.     The  power 

this    subject,  generally,    Evansville,  to  do  either  would  imply  the  power 

etc.,  R.  R.  Co.  t.  City  of  Evansville,  to  effectuate  the  intent  involved  in  the 

15  Ind.  895;    City  of  Indianapolis  r.  grant  by  the  execution  of  its  incidents. 

Miller,  27  Ind.  394  ;  Thompson  v.  City  The    contracts    for    the    purchase  of 

of  Peru,  29  Ind.  305.     On  the  prin-  apparatus     are     clearly    among    the 

ciple,    Halstead   r.    Board    of  Comrs.  incidents  of  the  grant.     The  power  to 

of  I^ake  County,  56  Ind.  363.  purchase  fire  engines    has    been,    in 

*  Green  t».  City  of  Cape  May,  (1879)  several  states,  sustained  under  the  au- 

41  N.  J.  Law,  45.     It  was  said  in  the  thority  of  the  city    to   make    police 

opinion:    "The    power    to  suppress  regulations  for  public  safety,  which, 

fires,  etc.,  would  be  nugatory  without  it  is  held,  confers  the  power  to  take 

tin-    i tower  to  obtain   the    means   by  measures  for  the  prevention  of  fires, 

which  the  suppression  can  be  offected.  Whether  the  power  to  suppress  fires 

The  authority  to  prescribe  the  power  arises  from  the  general  safety  clause; 

and  duties  of  firemen  and  fire  engineers  of  the  charter  or  from  express  grant, 

implies  that  there  shall  be  apparatus,  it  curries  with  it  the  right  to  purchase 

in  the  management  of  which    duties  fire  engines.     1  Dill,  on   Man.   Corp. 

shall  arise  and  become  the  subject  of  §  94." 

municipal  regulation.     The  power  to  'Leonard  r.  Long  Island  City,  (1892) 

organize  a  fire  department  unaccom-  47  N.  Y.  St.  Rep.  761 ;  s.  c.,  90  N.  Y. 

panied  with  the  power  to  equip  the  Supp.  26. 


40  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§35 

district  board.1  The  court  held  the  warrant  issued  by  the  school 
district  for  a  steam-heating  apparatus  to  be  void  for  another 
reason  that  it  was  in  violation  of  the  statute  of  congress  limiting 
the  amount  of  indebtedness  to  be  incurred  by  every  political  or 
municipal  corporation,  county  or  other  subdivision  of  the  terri- 
tories of  the  United  States  to  an  amount  not  exceeding  a  certain 
percentage  on  the  value  of  taxable  property  therein.2 

§  35.  Purchase  of  cemetery  grounds. —  A  charter  of  a 
municipal  corporation  conferring  the  power  to  purchase  fire 

1  School  District  No.  3  in  Carbon  Pac.  Rep.  922;  Acts  49th  Cong.  (1st 
County  n.  Western  Tube  Co.,  (Wyo.  Sess.)  chap.  818,  §  4.  It  was  urged 
1895)  38  Pac.  Rep.  922.  It  was  said  before  the  court  that  the  debt  at- 
by  the  court:  "Certainly  our  statute  tempted  to  be  incurred  by  the  district 
does  not  permit  the  contracting  of  board  for  the  heating  apparatus  was  a 
debts  far  in  excess  of  the  appropriation  necessary  one,  and  that  the  very  exist- 
made  for  contingent  purposes  for  that  ence  and  maintenance  of  the  public 
year,  and  we  doubt  that  such  author-  schools  required  that  they  should  be 
ized  expenditures  would  be  counte-  kept  open  and  the  pupils  comfortably 
nanced  anywhere  in  the  absence  of  a  seated  and  warmed.  The  court  said  to 
statute  giving  a  district  school  board  this:  "But  this  question  is  settled, 
express  powers  to  contract  for  the  dis-  The  provisions  of  the  act  of  congress 
trict  beyond  the  annual  appropriations  were  probably  borrowed  from  the 
made  by  the  annual  school  meeting,  Constitution  of  Illinois,  which  con- 
where  such  meeting  is  made  the  tains  a  similar  restriction,  a  limitation 
source  of  the  power  of  taxation.  It  which  has  been  judicially  interpreted, 
would  authorize  the  creation  of  a  The  clause  shall  not  become  indebted 
floating  indebtedness  which  should  '  in  any  manner  or  for  any  purpose ' 
bind  the  district  the  same  as  a  bonded  in  the  Illinois  Constitution  is  construed 
indebtedness  permitted  by  an  act  of  to  mean  just  what  it  says,  and  not  to 
the  legislature.  In  some  of  the  states  permit  an  exception  that  would  allow 
the  district  board  or  some  of  its  mem-  a  public  corporation  to  incur  indebted- 
bers  are  authorized  either  in  express  ness  for  supplies  to  meet  its  ordinary 
statutory  terms  or  by  implication,  wants  and  necessities,  an  exception 
where  the  board  or  officer  are  charged  which  the  framers  of  the  Constitution 
with  certain  duties,  to  incur  expenses  did  not  see  fit  to  make  and  which  the 
for  the  district  in  limited  sums  for  courts  have  no  power  to  insert.  Prince 
specific  purposes,  but  this  power  to  t.  City  of  Quincy,  105  111.  138,  143, 
bind  the  district  is  strictly  limited  to  216;  City  of  Springfield  v.  Edwards, 
the  purposes  named  in  the  statutes.  84  111.  626;  Law  v.  People,  87  111.  385. 
Conklin  v.  School  District,  22  Kans.  The  same  principle  is  sustained  by  the 
521;  School  District  r.  Snell,  24  Mich.  Supreme  Court  of  the  United  States 
350;  Gibson  v.  School  District,  36  in  construing  a  similar  construction  in 
Mich.  404;  Johnson  r.  School  District,  the  Constitution  of  Colorado.  Lake 
67  Mo.  319."  Co.  v.  Rollins,  130  U.  S.  662;  s.  c.,  9 

1  School  Dist.  No.  3  of  Carbon  Sup.  Ct.  Rep.  651;  Lake  Co.  v. 

County  r.  Western  Tube  Co.,  (1895)  38  Graham,  130  U.  S.  674;  B.  c.,  9  Sup. 


§  36")  PUBLIC  CORPORA!!  41 

apparatus,  cemetery  grounds,  to  establish  markets  and  other 
things,  for  the  execution  of  which  power  money  would  be  a 
necessary  means,  in  the  absence  of  any  positive  restriction,  con- 
fers the  power  to  borrow  money  as  an  incident  to  the  execution 
of  such  general  powers.1  A  power  of  taxation  conferred  in  the 
charter  cannot  be  deemed  to  exclude  the  power  of  borrowing.2 
This  city  having  contracted  to  purchase  a  cemetery  lot,  and  pay 
for  the  same  by  its  corporate  bonds,  it  was  held,  having  acted 
within  the  powers  conferred  by  its  charter,  could  not  be  pre- 
vented by  a  subsequent  act  of  the  legislature  forbidding  the 
issuing  of  bonds.8 

§  36.  Erection  of  crematory  for  garbage,  etc. —  The 
Supreme  Court  of  Wisconsin  has  held  that,  under  the  general 
power  given  by  tbe  statutes  of  Wisconsin  to  prevent  or  abate 
nuisances,  a  village  board  may  contract  for  the  building  of  a 
crematory  for  garbage,  dead  animals,  etc.4 

Ct.  Rep.  654.  It  makes  no  difference  for  destroying  them,  instead  of  foul  - 
for  what  purpose  or  in  what  manner  ing  the  waters  of  a  lake  or  stream  of 
the  debt  was  created;  if  in  excess  of  water  with  them,  to  be  again  cast  up, 
the  statutory  or  constitutional  limit  it  to  the  prejudice  of  the  public,  or  de- 
is  wholly  void."  positing  them  where  they  would  create 

1  Mills  v.  Glcason,  (1860)  11  Wis.  470.  a  new  nuisance.     To  this  end,  if  a 

*Ibid.;  Clarke  r.  School  District,  3  garbage  crematory  becomes  necessary, 

K.  I.  199.  the  board  may,  within  a  fair  and  bona 

1  Mills  v.  Gleason,  (1860)  11  Wis.  470;  fide  exercise  of  their  discretion,  con- 
see  State  T.  Common  Council,  7  Wis.  tract  for  its  construction,  and  the  vil- 
688;  Smith  c.  Appk-ton,  19  Wis.  4G8.  lage  will  be  bound  by  the  contract. 

4Kilvington  v.  City  of  Superior,  Speaking  of  the  powers  of  such  cor- 
(1892)  83  Wis.  222.  The  caurt  said:  porations,  in  Spaulding  v.  Lowell,  23 
"The  power  'to  prevent  or  abate  uui-  Pick.  71,  74,  SHAW,  Ch.  J.,  says:  'They 
sanccs '  —  that  which  occasions  public  can  exercise  no  powers  but  those  which 
hurt  or  inconvenience  —  is  necessarily  are  conferred  upon  them  by  the  act  by 
a  very  broad  and  comprehensive  one,  which  they  are  constituted,  or  such  as 
and  essential,  if  not  indispensable,  to  arc  necessary  to  the  exercise  of  their 
the  purpose  for  which  the  village  was  corporate  powers  or  duties  and  accom 
created.  It  would  hardly  be  questioned  plishtncnt  of  the  purposes  of  their  as- 
hy any  one  that  if  garbage,  manure,  sociation.'  French  r.  Quincy,  3  Allen, 
or  dead  animals  were  found  within  the  9,  12.  This  rule  has  been  affirmed 
village,  in  the  interest  of  good  order,  in  this  state,  with  the  just  qualification 
cleanliness  or  public  lua'.tli.  the  board  that  such  corporations  may  resort  to 
of  trustees  would  have  power  to  abate  the  usual  and  convenient  means  of  ex- 
such  nuisances  by  removing  or  other-  ecutin?  tho  powers  granted;  that  is  to 
wise  making  suitable  disposition  of  say,  as  applied  to  this  case,  that  the  vil- 
them.  To  this  end,  it  might  provide  luge,  in  order  to  prevent  or  abate  nui- 

6 


42  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.       [§  37-39 

§  37.  Use  of  private  property  for  sewers. — Under  the 
authority  to  construct  sewers  as  incident  to  the  general  right  of 
a  municipal  corporation  to  maintain  streets  and  highways,1  the 
governing  authorities  of  a  city  may  contract  for  a  right  to  con- 
struct a  sewer  through  private  property  and  bind  the  city  for  the 
cost  by  way  of  damages  agreed  upon  by  the  authorities  and  the 
owners  of  the  private  property.2 

§  38.  Detection  of  criminals. — Municipal  corporations,  when 
not  authorized  to  levy  taxes  to  pay  the  expenses  of  detecting  and 
bringing  to  justice  persons  guilty  of  crimes  punishable  under 
general  laws,  cannot  through  their  governing  board  create  an 
indebtedness  against  the  corporation  for  any  such  purpose, 
whether  by  proclamation,  resolution  or  ordinance.3 

§39.  Aiding  private  corporations. —  A  municipal  corpora- 
tion cannot  become  a  shareholder  or  stockholder  in  a  private  cor- 
poration or  borrow  money  or  incur  debts  to  aid  extraneous 

sances,  might  resort  to  such  means  as  444;  Spaulding  v.  Lowell,  23  Pick.  17, 

•were  usual  and  convenient.     Mills  v.  80.     It  was  not  necessary,  therefore, 

Gleason,  11  Wis.  470,  491;  Oilman  v.  that  there  should  have  been  express 

Milwaukee,  61  Wis.  588,  592;  Bell  ».  power  conferred  on  the  village  to  build, 

Platteville,  71  Wis.  139, 142;  Meinzer  v.  or  contract  for  building,  the  crematory. 

Racine,  68  Wis.  241,  245.     The  power  The  village  board  might  contract  for 

to  prevent  and  abate  nuisances  is  an  ex-  it  as  a  means  adapted  to  the  end  of 

press  grant  of  power,  and  not  an  im-  preventing  or  abating  nuisances,  and 

plied  one;  and  'it  has  long  been  an  estab-  as  a  health  measure,  and  so  within  the 

lished  principle  in  the  law  of  corpora-  general  purpose  for  which  the  village 

tions  that  they  may  exercise  all  their  was  organized." 

powers  within  the  fair  intent  and  pur-  '  Cone  v.  City  of  Hartford,  28  Conn, 
pose  of  their  creation  which  are  rea-  363.  366;  Fisher  v.  Harrisburg,  2  Grant 
sonably  proper  to  give  effect  to  powers  (Pa.),  291;  Stoudinger  v.  City  of  New- 
expressly  granted.  In  doing  so,  un-  ark,  28  N.  J.  Eq.  187. 
less  restricted  in  this  respect,  they  -  Leeds  v.  City  of  Richmond,  (1885) 
must  have  a  choice  of  means  adapted  102  Ind.  372.  In  the  power  granted 
to  ends,  and  are  not  confined  to  any  to  a  city  to  construct  a  sewer  outside 
one  mode  of  operation,'  and  their  dis-  of  its  limits,  when  necessary  to  afford 
cretion  in  this  respect  cannot  be  re-  an  outlet  for  sewers  within,  is  in- 
vised  or  interfered  with  by  the  courts,  eluded  the  power  to  agree  with  own- 
cxccpt  where  the  substantive  power  is  ers  of  lands  as  to  terms  of  their  occu- 
exceeded,  or  fraud  is  shown,  or  there  pancy.  Little  v.  City  of  Rochester, 
is  a  manifest  invasion  of  private  rights.  (1883)  17  N.  Y.  Wkly.  Dig.  513. 
Dill.  Mun.  Corp.  g§  91,  94,  and  cases  8  Murphy  v.  City  of  Jacksonville, 
cited;  Benson  v  Waukesha,  74  Wis.  (1881)  18  Fla.  318.  Whether  or  not 
31,  89;  Kelley  v.  Milwaukee,  18  Wis.  town  trustees  could  bind  a  town  by 
83,  85;  Schanck  v.  Mayor,  69  N.  Y.  offering  a  reward  for  the  apprehen- 


§39] 


PUBLIC  CORPORATIONS. 


objects,  unless  the  power  be  expressly  granted.1  There  is  no 
power  conferred  upon  a  city  to  purchase  real  estate  within  its 
corporate  limits  designed  for  the  benefit  of  an  agricultural  society 
that  its  annual  fairs  should  be  held  therein,  by  a  provision  in  its 
charter  giving  the  council  "full  power  and  authority  t-o  purchase, 
jind  provide  for  the  payment  of  the  same,  all  such  real  estate  and 
personal  property  as  may  bo  required  for  t-he  use,  convenience- 
and  improvement  of  the  city."2  Even  with  power,  granted  by 


sion  of  a  felon  who  had  been  guilty  of 
homicide  in  the  town  has  been  qucs 
1  in  Kentucky.  Lee  r.  Trustees 
of  Flemingsburg,  (1838)  7  Dana  (Ivy.), 
28. 

1  Mayor  r.  Wetumpka  Wharf  Co.,  63 
Ala.  611;  Low  v.  Marysville,  5  Cal. 
214;  Douglass  v.  Placervill*.  18  Cal. 
643. 

•City  of  Eufaula  v.  McNab,  (1880) 
67  Ala.  588.  SOMERVILLR,  J.,  speak- 
ing for  the  court,  said:  "It  may  be 
rone  uled  that  if  the  hind  iu  question 
had  been  purchased  for  an  exclusively 
public  ii»e,  as  being  designed  for  dedi- 
cation to  a  purpose  within  the  usual 
scope  of  municipal  governments,  it 
might  be  a  proper  exercise  of  corpor- 
ate power  under  the  above  section, 
and  the  validity  of  the  contract  of  pur- 
chase could  not  be  affected  or  ren- 
dered invalid  by  any  subsequent  di- 
version of  the  land  to  unauthorized 
uses,  not  shown  satisfactorily  to  have 
been  mutually  intended  at  the  time  of 
the  purchase.  2  Dill,  on  Mun.  Corp. 
§  444;  Weisraer  v.  Village  of  Doug- 
las, 64  N.  Y.  91 ;  s.  c.,  21  Am.  Rep. 
586.  But  the  terms  of  the  charter  are 
imperative  that  such  property  must 
be  '  required  for  the  use,  convenience 
and  improvement  of  the  city.'  Col- 
lateral advantages,  incidentally  result- 
ing in  the  promotion  of  the  city's 
commercial  or  business  prosperity, 
will  not  be  sufficient.  It  is  not  con- 
templated or  permitted  that  such 
property  shall  be  acquired  in  aid  <>f 
private  enterprise  not  of  a  public 


character,  however  1  uidahle  may  be 
its  purpose,  or  however  useful  may  be 
its  encoura^.-mcnt.  As  said  by  Mr. 
Justice  MII,U:H  in  Loan  Association 
T.  Topeka,  20  Wall.  6.i5.  660:  ••  It  fol- 
lows that  in  this  class  of  cases  the 
right  to  contract  must  be  limited  by 
the  right  to  tax,  and  if  in  the  given 
case  no  tax  can  lawfully  be  levied  to 
pay  the  debt,  the  contract  itself  is  void 
for  want  of  authority  to  make  it.  The 
same  view  was  expreased  by  BRICK- 
ELL,  Ch.  J.,  in  the  N.  O.  M.,  etc.,  R. 
R.  «.  Dunn,  51  Ala.  128,  136,  where 
the  following  language  is  used:  '  The 
power  of  taxation  thus  conferred  (by 
the  charter)  must  be  limited  and  cdn- 
flned  strictlyto  the  purposes  for  which 
the  corporation  is  created.  The  reve- 
nues derived  from  the  exercise  of  this 
power  must  be  faithfully  applied  to 
these  purposes.  The  corporate  au- 
thorities cannot,  without  a  violation  of 
duty  and  usurpation  of  power,  appro- 
priate the  revenues  thus  produced  to 
any  other  purposes  or  objects  than  such 
as  are  fairly  expressed  or  reasonably 
implied  iu  the  charter.  It  is  not  ma- 
terial what  is  the  character  of  the  ob- 
ject, or  how  pressing  the  necessity,  or 
what  are  the  benefits,  real  or  imagin- 
ary, which  may  flow  to  the  city.  If 
not  within  the  purposes  of  the  act  of 
incorporation,  there  in  a  want  of 
power  in  the  corporate  authorities.'  It 
was  said  by  the  Supreme  Court  of 
Maine  in  Allen  r.  Inhabitants  of  Jay, 
(JO  Me.  I'.M,  that  'taxation  by  the 
very  meaning  of  the  term  implies  the 


44  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  40 

its  charter,  in  a  city  to  aid  in  the  construction  of  improvements 
partaking  of  a  public  character,  the  city  could  not,  in  the  exercise 
of  the  power,  contract  to  pay  money,  or  to  appropriate  its  reve- 
nues to  aid  in  constructing  the  works  of  a  private  corporation.1 
There  being  no  provision  in  the  Constitution  of  West  Virginia 
authorizing  the  levying  of  taxes  to  be  used  to  aid  private  persons 
in  conducting  a  private  manufacturing  business,  the  Supreme 
Court  of  the  United  States  Jield  that  the  legislature  had  no  power 
to  authorize  a  city  of  that  state  to  issue  its  bonds  for  the  purpose 
of  lending  them  to  persons  engaged  in  manufacturing ;  flie  act, 
therefore,  was  invalid  and  all  bonds  issued  under  its  authority 
were,  as  against  the  city,  void.2  The  Supreme  Court  of  Arkansas 
has  held  that  the  common  council  of  a  town  has  no  power  to 
appropriate  money  to  aid  the  building  of  a  court  house  in  such 
town,  as  such  an  act  is  prohibited  by  that  article  of  the  Constitution 
of  the  state  that  no  county,  city  or  town,  or  other  municipal  cor- 
poration, shall  appropriate  money  or  loan  its  credit  to  any  corpo- 
ration, institution  or  individual.3 

§  40.  Subscription  to  capital  stock  of  railroad  corpora- 
tions.— Municipal  corporations  are  clothed  with  no  power,  out- 
side of  express  authority  granted  by  statute,  to  subscribe  to  the 
stock  of  private  corporations.4  And  if  such  authority  be  given 
by  the  legislature  the  mode  and  procedure  prescribed  by  the 
statute  must  be  strictly  followed.5  The  legislature  of  a  state  may 
grant  to  municipal  corporations  power  to  subscribe  to  the  capital 

raising  of  money  for  public  uses,  and  '  San  Diego  Water  Co.  t>.  City  of 
excludes  the  raising  it  for  'private  ob-  San  Diego,  (1881)  59  Cal.  517. 
jects  and  purposes.'  'I  concede,'  'Parkersburg  v.  Brown,  (1882)  106 
says  BLACK,  Ch.  J.,  in  Sharpless  *>.  U.  S.  487;  s.  c.,  1  Sup.  Ct.  Rep.  442. 
Mayor,  21  Pa.  St.  147,  168,  'that  a  law  3 Russell  v.  Tate,  52  Ark.  541;  s.  c., 
authorizing  taxation  for  any  other  13  S.  W.  Rep.  130.  As  to  the  loaning 
than  public  purposes  is  void.'  The  of  its  credit  by  a  municipal  corpora- 
court  cited  as  sustaining  the  text:  tion  to  a  private  corporation,  forbidden 
Loan  Association  v.  Topeka,  20  Wall,  by  constitutional  provisions  of  the 
655;  Allen  v.  Inhabitants  of  Jay,  60  state,  see  City  of  Cleburne  v.  Brown, 
Me.  124;  s.  c.,  11  Am.  Rep.  185;  73  Tex.  443;  8.  c.,  11  S.  W.  Rep.  404. 
Lowell  v.  City  of  Boston,  111  Mass.  4  French  n.  Teschemaker,  (1864)  24 
454;  B.  c.,  15  Am.  Rep.  39;  Hanson  Cal.  518;  Gulf  Railroad  Co.  t>.  Miami 
v.  Vernon,  27  Iowa,  28;  s.  c.,  1  Am.  County,  12  Kans.  482. 
Rep.  215;  Railroad  Co.  v.  Dunn,  51  •  French  v.  Teschemaker,  (1864)  24 
Ala.  128,  Weismer  v.  Village  of  Doug-  Cal.  518. 
las,  64 N.  Y.  91;  s.  c.,  21  Am.  Rep.  586." 


§  40]  PUBLIC  OORPOEATION8.  45 

stock  of  private  corporations  formed  to  carry  out  such  public 
improvements  as  tend  to  increase  the  trade  and  business  interests 
of  the  municipality.1  In  the  absence  of  constitutional  prohibition 
the  legislature  of  a  state  may  authorize  municipal  corporations  to 
aid  in  the  construction  of  railroads.'  And  a  statute  authorizing 
municipalities  to  aid  in  the  construction  of  a  railroad  is  not  in 
conflict  with  the  provisions  of  a  State  Constitution  forbidding  a 
loan  of  the  credit  of  the  state  to  private  persons  or  corporations, 
and  forbidding  the  state  subscribing  to  the  stock  of  any  corpora- 
tion, or  from  being  interested  in  any  work  of  internal  improve- 
ment, and  forbidding  any  person  being  deprived  of  his  property 
without  due  process  of  law.8  There  is  no  ground  for  a  constitu- 
tional objection  to  the  grant  of  power  by  the  legislature  to  a  city 
to  subscribe  to  stock  of  a  railroad  company  in  the  fact  that  such 
company  is  a  foreign  corporation  and  that  its  road  terminates  at 
a  point  in  another  state  from  which  it  runs  a  line  of  boats  to  the 
city  issuing  its  bonds  in  aid  of  the  company.4  The  statute  of 
Arkansas  authorizing  coimties  "having  or  controlling  internal 
improvement  funds,  or  credits  granted  to  it  by  the  state,"  to  sul>- 
scribe  to  the  capital  stock  of  any  valid  anc  duly  organized  rail- 
road, has  been  held  not  to  confer  power  upon  counties  to  sub- 
scribe for  stock  in  a  railroad  compapy  and  issue  bonds  of  the 
county  in  payment  for  it  which  might  by  any  possibility  become 
a  proper  charge  upon  the  taxpayers  of  the  county.5  The  court 
adhered  to  this  decision  in  a  later  case  and  held  generally  that  a 
county  or  other  municipal  corporation  had  no  power,  independ- 
ently of  an  express  grant  of  authority,  to  subscribe  for  stock  in  a 
railroad  company  and  issue  bonds  in  payment  of  the  subscrip- 
tion.6 The  Iowa  Supreme  Court  has  held  that  to  aid  in  the  con- 
struction of  a  railroad  was  not  a  public  purpose  within  the  mean- 
ing of  a  provision  in  the  charter  of  a  city  that  "  whenever,  in  the 
opinion  of  the  city  council,  it  is  expedient  to  borrow  money  for 
any  pitbltc  purpose  the  question  shall  be  submitted,"  etc.,  and 

1  City  of  Bridgeport  r.  Housatonuc  bonds,  sec  Bnrd  P.  City  of  Augusta, 

R.  R.  Co.,  (184S)  15  Conn.  4', 5.  80  Fed.  Rep.  906. 

1  Taylor  P.  City  of  Ypsilanti,  11  Fed.  4  Moulton  c.  City  of  Evansville,  25 

Rep.  025.  Fed.  Rep.  382. 

1  Ibid.     As  to  the  power  of  Kansas  •  English  ».  Chicot  County,  (1871)  2« 

cities   under  the    legislation  of    that  Ark.  4.VI. 

state  to  become  interested  in  railroad  *  Hancock  «.  Chicot  County,  (1877) 

enterprises  and  to  issue  railroad  aid  82  Ark.  575. 


46 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§40 


there  was  no  power  conferred  by  the  charter  to  borrow  money 
for  the  purpose  of  aiding  in  the  construction  of  a  railroad,  the 
power  to  borrow  money  conferred  upon  the  city  not  authorizing 
the  loan  of  the  credit  of  the  city.1  The  Supreme  Court  of  Illi- 
nois has  recently  held  that  where  an  act  incorporating  a  railroad 
company  gave  power  to  towns  along  the  line  of  its  road  to  sub- 
scribe to  the  capital  stock  of  the  company,  a  town  along  its  line, 
subsequently  incorporated  by  an  act  of  the  same  session  of  the 
legislature,  which  did  not  enumerate  among  the  powers  of  the 
town  the  power  to  subscribe  to  such  stock,  could  make  a  valid 
subscription  to  such  stock,  there  being  no  inconsistency  between 
the  act  incorporating  the  railroad  company  and  the  one  incorpo- 
rating the  town.2 


1  Chamberlain  v.  City  of  Burlington. 
(1865)  19  Iowa,  395. 

8  Hutchinson  e.  Self,  (1894)  153  111. 
542;  s.  c.,  39  N.  E.  Rep.  27.  As  to  the 
constitutionality  of  acts  authorizing 
municipal  subscription  to  stock  of  rail- 
roads, etc.,  see  Commonwealth  ex  rel. 
Armstrong  v.  Perkins  et  al.,  Commis- 
sioners of  Allegheny  County,  (1862)43 
Pa.  St.  400.  As  to  power  of  munic- 
ipal corporations  under  the  Constitu- 
tion and  laws  of  Colorado  to  make  dona- 
tions or  subscribe  to  capital  stock  of 
private  corporations,  see  Colorado  C. 
R.  R.  Co.  v.  Lea,  5  Col.  192;  Packard  v. 
Jefferson  County,  2  Col.  338;  People  v. 
Pueblo  County,  2  Col.  360.  In  Ken- 
tucky: W.  &  M.  S.  T.  R.  Co.  v. 
Clark  Co.  Ct.,  (1860)  3  Mete.  144; 
Shelby  Co.  Ct.  v.  C.  &  O.  R.  R. 
Co.,  (1871)  8  Bush,  216;  Mercer  Co. 
Ct.  v.  S.  M.  &  H.  T.  Co.,  (1874) 
19  Bush,  257;  Mercer  Co.  Ct.  v. 
Ky.  River  Navigation  Co.,  (1871)  8 
Bush,  307;  C.  &  O.  R.  R.  Co.  v. 
Barren  Co.  Court,  8  Bush,  215;  Fore- 
man v.  Murphy,  (1870)  7  Bush,  304. 
Subscription  made  valid  by  con- 
firmation by  act  of  the  legislature. 
Shelby  Co.  Ct.  v.  C.  &  O.  R. 
R.  Co.,  8  Bush,  218.  Legislature 
may  modify,  etc.,  after  a  vote  is 
taken  and  before  the  actual  making 


of  subscriptions.  C.  &  O.  R.  R.  Co. 
v.  Barren  Co.  Court,  (1874)  10  Bush, 
610.  Constitutionality  of  acts  author- 
izing subscriptions  settled.  Shelby 
Co.  Ct.  v.  C.  &  O.  R.  R.  Co.,  (1871)  8 
Bush,  215;  Tyler  v.  E.  &  P.  R.  R.  Co., 
(1872)  9  Bush,  515;  Bullock  v.  Curry, 
2  Mete.  174;  Allison  v.  L.  II.  C.  &  W. 
R.  Co.,  9  Bush,  248;  Shelby ville  Trus- 
tees v.  8.  &  E.  T.  Co. ,  1  Mete.  57. 
Under  what  circumstances  the  legisla- 
ture may  repeal  acts  granting  author- 
ity to  subscribe  to  capital  stock  of 
railroad  company.  C.  &  L.  R.  R.  Co.  T. 
Kenton  County  Court,  (1851)  12  B. 
Mon.  150;  M.  T.  Co.  v.  How,  (1854) 
14  B.  Mon.  432.  In  Missouri  :Osage 
Valley  &  Southern  Kansas  R.  R.  Co. 
v.  Morgan  County  Court,  (1873)  53  Mo. 
156;  Rubey  v.  Shain,  (1873)  54  Mo. 
207.  As  to  the  power  of  the  legislature 
to  authorize  such  subscriptions,  see 
St.  Joseph  &  Denver  City  R.  R.  Co.  v. 
Buchanan  County  Court,  39  Mo.  485; 
State  v.  Saline  County  Court  (1870) 
45  Mo.  242.  As  to  raising  money  to  aid 
in  the  construction  of  a  railroad,  see 
Stevens  ».  Anson,  73  Me.  489.  In 
Pennsylvania  R.  R.  Co.  v.  City  of 
Philadelphia,  (1864)  47  Pa.  St.  189, 
the  power  to  invest  its  stocks,  money 
or  credit  directly  or  indirectly  in  aid 
of  a  steamship  line  between  this  city 


§  41,  42]  PUBLIC  CORPORATIONS.  47 

§  41.  Power  of  the  legislature  as  to  corporations  in  such 
matters. —  It  is  in  the  power  of  the  legislature  of  a  state  to 
confer  on  municipal  corporations  largi-r  powers  than  would  be 
implied  from  the  general  purposes  of  their  creation,  and  when 
the  legislature  of  a  state,  in  express  terms  authorizes  cities  or 
towns  to  subscribe  for  stock  in  an  enterprise,  of  the  kind  usually 
known  as  internal  improvements,  canals,  railroads  and  plank- 
roads,  for  instance,  the  contract  of  such  cities  or  towns,  made 
pursuant  to  the  statute,  is  binding  upon  them.' 

§  42.  Constitutionality  of  legislation  authorizing  such 
aid. — The  Supreme  Court  of  Alabama  has  sustained  the  acts 
authorizing  cities  to  aid  by  sutecription  to  stock  and  issue  of 
bonds  in  the  construction  of  railroads  as  constitutional.2  In  an 

and  foreign  ports,  in  the  absence  of  Court  of  Alabama  construed  the 
special  legislation  authorizing  it,  was  words,  however,  to  authorize  the  city 
denied  to  this  city  by  the  Supreme  to  pledge  its  credit,  and  thereby  raise 
Court  of  Pennsylvania.  See  chap,  money  to  aid  in  the  construction  of 
"Municipal  Aid."  some  work  of  the  kind  generally  rc- 

1  Mayor  &  Aldermen  of  Wetumpka  ferred  to  as  internal  improvements  in 
p.  Winter,  (1857)  29  Ala.  651.  It  ap-  the  general  acceptation  of  the  words 
peared  in  this  case  that  certain  bonds  as  a  means  of  improving  the  commerce 
had  been  issued  by  a  city  under  stat-  of  the  city,  and  thereby  benefiting  its 
utory  authority,  and  it  was  provided  citizens.  As  to  the  power  of  the  legis- 
by  the  statute  that  "the  money  aris-  lature  to  confer  upon  municipal  cor- 
ing from  the  sale  of  said  bonds  may  porations  the  power  to  lend  its  credit 
be  appropriated  under  the  supervision  in  aid  of  railroad  or  other  improve- 
and  direction  of  the  mayor  and  alder-  mcnts,  see  Fielder  r.  M.  &E.  R.  R.  Co., 
men  of  [the  city],  for  any  purpose  of  51  Ala.  178. 

internal  improvement  for  the  benefit  'Gibbons  r.  Mobile  &  Great  North- 
of  the  citizens  of  [the  city]."  These  ern  R  R.  Co.,  (1860)  30  Ala.  410, 
bonds  were  used  to  aid  in  the  con-  adhering  to  the  doctrine  declared  in 
strurtion  of  a  plank  road  which  was  Stein  t».  Mayor,  Aldenren,  etc.,  of 
to  enter  the  city  from  an  outside  point.  Mobile,  (1854)  24  Ala.  591,  that 
There  was  a  contention  that  this  was  although  the  only  legitimate  object 
an  improper  use  of  the  bonds  on  the  of  taxation  is  the  support  and  main 
part  of  the  city;  that  inasmuch  as  the  tenance  of  government,  yet  this  pur- 
powers  of  municipal  corporations  are  pose  embraces  a  wider  range  than  the 
conferred  for  their  well-being  and  mere  machinery  employed  in  its  ad- 
gcnerally  confined  to  police  and  sani-  ministration;  that  the  power  author- 
tary  regulatims  within  the  chartered  izes  the  employment  of  the  necessary 
limits  of  such  corporations,  the  proper  appliances  to  augment  the  aggregate, 
construction  of  the  words  "internal  wealth  and  prosperity  of  the  inhabit 
improvements"  in  the  statutes  was  ants  of  the  city;  and  that  this  may 
that  they  applied  to  no  works  except  be  accomplished  by  providing  outlets 
within  the  city  limits.  The  Supreme  for  commerce,  opening  channels  of 


48  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  42 

early  leading  case  in  Wisconsin,  involving  the  lending  of  its  credit 
by  the  issue  of  its  bonds  in  aid  of  a  railroad  company  by  a  city 
of  that  state,  the  constitutionality  of  the  act  granting  the  power 
to  the  city  to  do  so  was  vigorously  attacked  on  all  points.  The 
Supreme  Court,  however,  sustained  the  constitutionality  of  the 
act,  holding  that  the  constitutional  provisions  that  the  "  credit  of 
the  state  shall  never  be  given  or  loaned  in  aid  of  any  individual, 
association  or  corporation,"  and  that  "  the  state  shall  never  con- 
tract any  debt  for  works,  of  internal  improvement,  nor  be  a  party 
in  carrying  on  any  such  works  were  limitations  upon  the  state 
alone  and  did  not  prohibit  the  legislature  to  authorize  counties, 
towns  and  cities  to  loan  their  credit  or  contract  debts  for  works 
of  internal  improvement ;  that  the  Constitution  in  another  place 
recognized  the  power  of  municipal  corporations  to  loan  their 
credit  and  required  the  legislature  simply  to  restrict  it.1  The  legis- 
lature may  authorize  a  town  to  subscribe  for  the  stock  of  a  rail- 
road company  and  to  incur  indebtedness  for  making  internal 

inter-communication  with  other  parts  issue  of  bonds  in  payment  for  it,  and 
of  the  state,  etc.  Mayor,  etc.,  of  declared  this  rule:  "To  justify  a  court 
Wetumpka  v.  Winter,  29  Ala.  651;  in  pronouncing  a  statute  void,  it  must 
.Sharpless  v.  Mayor,  etc.,  21  Penn.  St.  be  apparent  that  it  is  an  exercise  of 
147;  Louisville  &  Nashville  R.  Co.  v.  powers  not  legislative  —  of  power 
County  Court,  1  Sneed,  637.  In  Stein  committed  to  one  or  more  of  the  other 
«.  Mayor,  etc.,  supra,  the  court  re-  departments  of  the  government,  or  that 
viewed  as  to  the  power  as  well  as  it  is  violative  of  some  provision  of  the 
purposes  of  taxation  the  following  Constitution,  state  or  federal.  Whether 
cases,  arising  in  different  states,  the  policy  of  tbe  statute  is  sound  — 
to  wit:  Battle  v.  Corporation  of  whether  it  will  promote  the  public 
Mobile,  9  Ala.  234;  Intendant  of  good  —  whether  it  is  in  harmony  with 
Marion  v.  Chandler,  6  Ala.  899;  natural  right  or  will  obstruct  justice 
State  v.  Estabrook,  6  Ala.  653;  are  not  judicial  questions.  Dorman 
Nichol  v.  Mayor  of  Nashville,  9  v.  State,  34  Ala.  216." 
Humph.  252;  Hope  v.  Deaderick,  8  l  Clark  v.  City  of  Janesville,  (1859) 
Humph.  1;  Commonwealth  v.  McWil-  10  Wis.  136,  following  State  ex  rel  Dean 
liams,  11  Penn.  St.  61;  Parker  <D.  Com-  v.  City  of  Madison,  7  Wis.  688.  See, 
monwealth,  6  Barr,  507;  Common-  also,  Watertown  v.  Cady,  20  Wis.  501. 
wealth  v.  Judges,  etc.,  of  Lebanon  In  Bushnell  u.  Beloit,  (1860)  10  Wis. 
County,  8  Barr,  391;  Commonwealth  195.  the  same  court  has  declared  that 
v.  Painter,  10  Barr,  214;  Goddin  v.  the  Constitution  of  Wisconsin  clearly 
Crump,  8  Leigh,  120;  Burgess  v.  Pue,  recognized  the  principle  that  mu- 
2  Gill,  19.  In  Winter  «..City  Council  nicipal  corporations  may  be  clothed 
of  Montgomery,  (1880),  65  Ala.  403,  with  power  to  "borrow  money," 
the  Supreme  Court  of  Alabama  sus-  "contract  debts"  and  to  "loan  their 
tained  the  act  which  in  this  case  au-  credit;"  and  that  the  legislature  being 
thorized  the  subscription  by  this  city  required  to  restrict  such  corporations 
to  stock  in  a  matured  company  and  in  the  exercise  of  such  powers  was  an 


§43] 


CORPORATIONS. 


improvements ;  and  the  corporation  would  be  liable  for  the 
ment  of  such  indebtedness.1 


49 

w- 


§  43.    In  what  respect  the  power  of  a  municipality  is 
restricted. —  A  city,  the  charter  of  which  fully  empowers  and 

of  Burke.  4  Jones  Eq.  (N.  C.)  828; 
Louisville,  etc.,  R.  R,  Co.  t>.  David- 
son, 1  Sneed,  637;  Nichol  t>.  Mayor, 
etc.,  of  Nashville,  9  Humph.  252; 
Railroad  Co.  v.  Comrs.  cf  Clinton 
Courty,  1  Ohio  St.  77;  Trustees  of 
Paris  r.  Cherry,  8  Ohio  St.  564:  Cass 
t>.  Dillon,  2  Ohio  St.  607;  State  t>. 
Comrs.  of  Clinton  County,  6  Ohio  St. 
280;  State  «.  Van  Home,  7  Ohio  St 
827;  State  t>.  Trustees  of  Union,  8 
Ohio  St.  394;  Trustees,  etc.,  v.  Shoe- 
maker, 12  Ohio  St.  624;  State  0. 
Comrs.  of  Hiincoek,  12  Ohio  St.  596; 
Powers  r.  Dougherty  County,  23  Ga. 
65;  San  Antonio  *>.  Jones,  28  Tex.  19; 
Commonwealth  v.  McWilliams,  11 
Penn.  St.  61 ;  Moere  r.  City  of  Reading, 
21  Penn.  St.  188;  Slack  r.  R:iilro:uiCo., 
13  B.  Mon.  1;  Talbot  P.  Dent,  9  B. 
Mon.  526;  City  of  St.  Louis  ».  Alex- 
ander, 23  Mo.  483;  City  of  Aurora  t>. 
West,  9  Ind.  74;  Cotton  r .  Comrs.  of 
Leon.  6  Fla.  610;  State  ex  rel.  Copes  v. 
Charleston,  10  Rich.  (S.  C.)491;  Comrs. 
of  Knox  County  r.  Aspinwall,  21  How. 
539;  Comrs.  of  Knox  County  t>.  Wal- 
lace, 21  How.  546;  Zubriskie  t>. 
Railroad. Co.,  23  How.  381;  Amey  t>. 
Mayor,  etc.,  24  How.  864;  Gelpcke  v. 
Dubuque,  1  Wall.  175;  Thomson  r. 
Lee  County,  3  Wall.  327;  Rogers  9. 
Burlington,  3  Wall.  654;  Gibbons 
t>.  Mobile  &  G.  &  Northern  R.  R  Co., 
36  Ala.  410;  St.  Joseph,  etc.,  R.  R. 
Co.  t>.  Buchanan  County  Court,  39 
Mo.  485;  State  t>.  Linn  County  Court, 
44  Mo.  504;  Stewart  «.  Board  of 
Supervisors  of  Polk  County,  30  Iowa, 
9;  John  r.  C.  R.  &  F.  W.  R.  R,  Co., 
35  Ind.  539;  Ex  parte  Selma,  etc.,  R. 
R.  Co.,  45  Ala.  696;  Stockton  &  Visalia 
R.  R.  R.  Co.  r.  Stockton,  41  Cal.  147. 


admission    that    the    power    existed. 
See  Foster  v.  Eenosha,  12  Wis.  016. 

1  Bushnell  r.  Bcloit.  (1860)  10  Wis. 
195.  See,  also,  Brodhcad  v.  Milwau- 
kee, 19  Wis.  624;  State  ex  rel.  Car- 
penter t>.  Beloit,  20  Wis.  79;  Whiting 
t>.  Railroad  Co.,  25  Wis.  167;  Bridge- 
port cHousatonuc  R.  R.  Co.,  15  Conn. 
475;  Sharpless  r.  Mayor,  etc..  21  Penn. 
St.  147;  Comm.  ex  rel.  Thomas  t». 
Comrs.  Allegheny  Co.,  7  Am.  Law 
Reg.  92;  Talbot  r.  Dent,  9B.  Mon.  526; 
Black  v.  Maysville  &  Lexington  K.  R. 
Co.,  13  B.  Mon.  1;  Chenney  r.  Hooscr, 
'.)  II.  Mon.  250;  Goddin  r.  Crump,  8 
Leigh,  120;  Nichol  v.  Mayor,  etc., 
Nashville,  9  Humph.  252;  Cincinnati 
R.  R.  Co.  v.  Clinton  County,  1  Ohio 
St.  77;  Steubenville  &  Ind.  R.  R.  Co. 
9.  North  Township,  1  Ohio  St.  105; 
Shaw  v.  D.-nnis.  5  Gilm.  (111.)  405; 
Ryder  v.  Altor  &  Sangamon  River 
R.  Co.,  13111.  516,  Dubuque  County 
v.  D.  &  P.  R.  R.  Co.,  4 G.  Gr.  1;  Vicks- 
burg,  Shrcveport  &  Texas  R.  R.  Co.  t>. 
Ouarhita,  11  La.  Ann.  649;  Parker  v. 
Scogin,  11  La.  Ann.  629;  City  of  Au 
rora  v.  West,  9  Ind.  74.  As  to  the 
constitutionality  of  legislative  enact- 
ments authorizing  a  subscription  to 
stock,  etc.,  in  aid  of  railroads,  see 
Stewart  v.  Board  of  Supervisors  of 
Polk  County,  (1870)  30  Iowa,  9;  Goddin 
r.  Crump,  8  Leigh,  120;  Starinr.  Genoa, 
29  Barb.  442;  Bank  of  Rome  ».  Village 
of  R  >me,  18  N.  Y.  88;  Prettyman  ». 
Supervisors,  etc.,  19111.406;  Robertson 
e.  Rockford,  21  111.  451;  Johnson  f. 
Stark  Co.,  24  111.  75;  Pattison  r.  Yuba 
Co.,  18  Cal.  175;  Blanding  r.  Burr, 
18  Cal.  843;  Hobart  v.  Supervisors,  17 
Cal.  23;  Taylor  t>.  Newberne,  2  Jones 
Eq.  (N.  C.)  141;  Caldwell  v.  Justices 
7 


60 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


authorizes  its  city  council  "  to  make,  ordain  and  enact  such  laws 
and  regulations  (not  contrary  to  the  Constitution  and  laws  of 
this  state)  as  may  be  deemed  necessary  in  relation  to  the  streets 
and  highways,  public  buildings  and  powder  magazines,  and  every 
other  matter  and  tiling  which  they  may  deem  necessary  for  the 
good  order  and  welfare  of  said  city,"  is  not  authorized  to  construct 
or  aid  in  constructing  a  plank  road  or  bridge  beyond  the  corpo- 
rate limits  of  said  city.1 


1  City  Council  of  Montgomery  «. 
Montgomery  &  Wetumpka  Plank  Road 
Co.,  (1857)  31  Ala.  76,  holding  a  loan 
of  the  city  funds  to  this  company  for 
construction  of  its  road  and  a  bridge 
beyond  the  limits  of  the  city  to  have 
been  unauthorized  and  void;  STOKE,  J., 
said:  "  We  find  no  express  authority 
[in  the  charter  of  this  city]  to  enter 
into  the  contract  declared  on;  neither 
is  the  exercise  of  such  power  neces- 
sary to  carry  into  effect  any  of  the  ex- 
pressly granted  powers;  nor  was  the 
exercise  of  the  power  under  considera- 
tion a  necessary  means  of  effecting  the 
purpose  for  which  this  corporation 
was  created.  *  *  *"  As  to  the 
effect  of  the  general  words  in  the 
charter  it  was  said:  "  In  the  case  of 
Beaty  v.  Lessee  of  Kuowler,  4  Pet. 
153-171,  the  Supreme  Court  of  the 
United  States  held  the  following  lan- 
guage: '  The  provision  in  the  10th 
section  tnat  the  '  directors  shall  have 
power  to  do  whatever  shall  appear  to 
them  necessary  and  proper  to  be  done 
for  the  well  ordering  of  the  interest  of 
the  proprietors,  not  contrary  to  the 
laws  of  the  state,'  was  not  intended  to 
give  unlimited  power,  but  the  exercise 
of  a  discretion  within  the  scope  of  the 
authority  conferred.  If  the  words  of 
this  section  are  not  to  be  restricted  by 
the  other  provisions  of  the  statute,  but 
to  be  considered  according  to  their  lit- 
eral import,  they  would  vest  in  the 
directory  a  power  over  the  land  only 
limited  by  their  discretion.  They 
could  dispose  of  the  land  and  vest  the 


proceeds  in  any  manner  which  they 
might  suppose  would  advance  the 
interest  of  the  proprietors.  It  is  only 
necessary  to  state  the  consequence  to 
show  the  danger  of  such  a  const  ruc- 
tion.'" Citing  The  People  v.  Utica 
Ins.  Co.,  15  Johns.  358,  383;  Stetson 
«.  Kcmpton,  13  Mass.  272,  278,  279; 
State  of  Ohio  ».  Washington  Social 
Library  Co.,  11  Ohio,  96;  Ang.  & 
Ames  on  Corp.  (3d  ed.)  84,  85,  86. 
The  language  found  in  the  charter 
which  was  construed  in  the  case  of 
Beaty  v.  Lessee  of  Knowler,  supra, 
strikingly  resembles  the  clause  from 
the  act  incorporating  the  city  of  Mont- 
gomery, which  we  are  considering. 
The  grant  of  power  in  the  one  case  is 
that  "the  directors  shall  hate  power  to 
do  whatever  shall  appear  to  them  to  be 
necessary  and  proper  to  be  done,"  etc. 
In  the  other  it  embraces  "every  other 
matter  and  thing  which  they  may  deem 
necessary  for  tfie  good  order  and  welfare 
of  said  city."  In  this  case,  as  in  the 
case  from  4  Pet.  supra,  if  the  words 
of  the  charter  "  are  not  to  be  restricted 
by  the  other  provisions  of  the  statute, 
but  to  be  considered  according  to  their 
literal  import,  they  would  vest  in  the 
corporate  authorities  a  power  *  *  * 
only  limited  by  their  discretion."  We 
cannot  believe  it  was  the  intention  of 
the  legislature  to  confer  on  the  city 
council  of  Montgomery  "unlimited 
power,"  but  only  to  grant  to  that  body 
the  right  to  exercise  "a  discretion 
within  the  scope  of  the  authority  con- 
ferred. In  other  words,  we  limit  the 


§  44]  PUBLIC  CORPORATIONS.  51 

§  44.  Subscription  for  less  than  the  amount  voted. — When 
authorized  by  the  legislature  to  issue  bonds  which  may  be 
delivered  to  a  railroad  corporafion  in  payment  of  a  subscription 
to  its  capital  stock  by  a  municipal  corporation,  the  subscription  to 
stock  or  issue  of  bonds  may  be  for  less  than  the  amount  voted.1 

words,  '  every  other  matter  and  thing,'  ness  transaction.  The  act  itself  auth- 
as  found  in  the  act,  to  such  subjects  ori/.ing  counties,  townships  and 
as  are  cognate  to  the  powers  expressly  municipal  corporations  to  subscribe 
conferred."  for  stock  in  and  to  issue  bonds  to  rail- 

1  Chicago,  Kansas  &  Western  R.  R.  road  companies,  is  entitled,  'An  act  to 
Co.  v.  Oznrk  Township,  (1891)  46  Kans.  enable  counties,  townships  and  cities 
415.  The  court  cites  Turner  v.  Wood-  to  aid  in  the  construction  of  railroads,' 
son  County,  27  Kans.  814,  and  then  etc.  Laws  of  1876,  chap.  107.  This 
said:  "This  question  has  also  been  shows  that  the  main  object  of  the  act 
virtually  decided  *  *  *  by  the  was  to  enable  counties,  townships  and 
Supreme  Court  of  Alabama  [in]  Win-  cities  '  to  aid  in  the  conxtnu-tinn  ofrail- 
ter  v.  City  Council  of  Montgomery,  65  road*,'  and  was  not  to  permit  such  cor- 
Ala.  403;  s.  r.,  7  Am.  &  Eng.  R.  R.  porations  to  engage  in  such  trans- 
Cas.  807.  This  case  is  as  nearly  in  actions  as  a  mere  business  venture,  or 
point,  as  nearly  applicable,  as  nearly  as  an  investment  in  stock  or  a  specu- 
analogous  to  the  present  case  as  it  Jation  in  bonds  and  stocks."  Twenty 
could  well  be,  and  we  know  of  no  years  ago  it  was  said  by  this  court  in 
authority  to  the  contrary,  and  the  the  case  of  Comrs.  of  Leavenworth 
principle  enunciated  in  the  cases  cited  Co.  v.  Miller,  7  Kans.  479,  538,  529,  532, 
is  substantially  that  when  authority  is  among  other  things,  as  follows:  "  If  a 
given  to  the  officers  of  a  public  corpo-  railroad  company  is  purely  a  private 
ration,  by  an  election  or  otherwise,  to  corporation,  and  if  the  construction 
issue  a  certain  amount  of  the  bonds  of  and  operation  thereof  is  purely  a 
the  corporation,  the  officers  will  have  private  purpose,  neither  the  govern- 
the  power  and  the  right,  wherever  ment  nor  any  municipal  corporation 
there  is  a  sufficient  reason  therefor,  to  has  any  right  to  become  a  stojkholder 
issue  a  less  amount  of  the  bonds  of  therein.  Governments  were  not  or- 
the  corporation."  The  court  further  ganized  for  the  purpose  of  engaging 
on  in  the  opinion  said:  "The  object  in  private  enterprises  or  private  busi- 
of  the  law  in  permitting  public  corpo-  ness,  but  only  for  the  transaction  and 
rations  to  subscribe  for  stock  in  rail-  promotion  of  puMic  affairs.  Even  if 
road  companies,  and  to  issue  their  the  purchase  of  stock  in  a  railroad 
bonds  in  payment  therefor,  is  not  in-  company  should  be  a  paying  trans- 
temlrd  as  a  business  transaction  like  action  as  an  investment  (which  unfor- 
that  consummated  by  an  individual  Innately  for  counties  and  municipal 
when  he  purchases  stock  and  pays  corporations  it  is  not),  still  a  govern- 
therefor  in  money  or  in  something  mental  organization  would  have  no 
else.  It  is  merely  for  the  purpose  of  right  for  that  reason  alone  to  engage 
procuring  greater  facilities  for  travel  in  it,  for  governmental  organizations 
and  transportation  for  the  general  are  not  created  for  purposes  of  specu- 
public  which  is  always  considered  as  a  lation,  nor  are  they  created  for  the 
public  purpose  and  not  merely  as  a  purpose  of  promoting  the  general  wel- 
private  purpose,  enterprise  or  busi-  fare  of  the  individual  members  thereof 


52  GENERAL  POWES  TO  INCUR  PECUNIARY  LIABILITY.  [§  45 

§  45.  The  effect  of  subsequent  legislation  upon  such  a  sub- 
scription.—  A  city  in  Georgia,  the  mayor  and  council  of  which  had 
been  by  statute  empowered  "  to  borrow  money  and  contract  loans, 
not  to  exceed  $200,000,  for  the  use  of  the  city  *  *  * ;  and 
to  pledge  the  funds  or  property  of  the  corporation  *  *  * 
and  the  commons  thereof,  for  the  redemption  of  such  loan  or 
loans,  and  also  shall  have  power  to  purchase  any  real  or  personal 
estate  for  the  use  and  benetit  of  the  corporation,  *  *  *  "  sub- 
scribed for  shares  of  stock  of  a  railroad  company.  After  the 
subscription  the  city  authorities  were  by  statute  "empowered  to 
contract  a  further  loan  of  the  same  amount,  over  and  above  the 
amount  already  borrowed,  and  that  the  town  commons  and  pub- 
lic property  of  the  city  be  pledged  for  the  payment  of  the  same." 
The  preamble  to  this  last  act  referred  to  the  passage  of  the  first  act, 
concluding  :  "  And  whereas,  that  sum  has  been  already  borrowed 
and  vested  in  stocks  for  the  purposes  of  internal  improvement" 
The  Supreme  Court  of  Georgia  held  that  the  effect  of  this  last 

or  citizens.  The  increased  facility  for  the  voters  at  the  election.  The  propo- 
travel  and  transportation  is  the  main  sition  was,  when  fairly  construed,  that 
object  in  the  creation  of  railroads,  and  the  city  should  extend  aid  to  the  ruil- 
this  it  is  which  constitutes  a  railroad  road  company  by  the  issue  of  its  bonds 
a  public  purpose.  All  other  benefits,  to  an  amount  not  exceeding  one  mil- 
though  belonging  of  right  to  the  pub-  lion  of  dollars,  which  were  to  be  ein- 
lic,  are  simply  incidental."  Pages  528  ployed  in  building  and  equipping  the 
and  529.  "The  opening  of  hotels,  road.  It  was  not  pecuniary  gain,  not 
the  running  of  stage  coaches,  hacks,  any  of  the  advantages  which  would, 
drays,  etc.,  have  never  been  considered  accrue  to  an  individual  from  member- 
as  incumbent  upon  governments,  ship  in  the  railroad  company  .hat 
Governments  have  never  undertaken  to  formed  a  motive  or  inducement  lor 
keep  hotels,  run  stage  coaches,  etc.,  and  clothing  the  city  with  power  to  aid  in 
it  has  never  been  considered  that  there  the  construction  of  the  road.  The 
was  any  moral  or  legal  obligation  rest-  benefits  which  would  result  to  the 
ing  upon  them  to  do  so.  But  the  duty  commerce  and  industry  of  the  city, 
of  opening  highways,  canals  and  other  the  increased  facilities  of  access  to  It, 
like  improvements  for  the  accommo-  were  the  purposes  for  which  the 
dation  of  travel  and  commerce,  has  power  was  conferred.  If  these  could 
always  been  considered  most  binding  be  secured  without  involving  the  city 
upon  all  governments."  Page  532.  in  a  debt  of  one  million  of  dollars,  it 
In  the  case  of  Winter  v.  City  Council  was  not  only  within  the  power,  but  it 
of  Montgomery,  above  cited,  the  was  the  duty  of  the  city  council  to 
Supreme  Court  of  Alabama  used  the  secure  them  for  the  least  practicable 
following,  among  other  language:  sum.  The  power  to  create  the  larger 
"We  do  not  discover  that  the  city  includes  the  power  to  create  the  lesser 
council  varied  the  propositions  which  debt.  Omne  mqjus  continet  in  se 
were  submitted  to  and  approved  b}-  minos."!  Am.  &  Eng.  R.  R.  Cas.  319. 


§§  46,  47]  PUBLIC  CORPORATIONS.  53 

statute,  by  necessary  implication  was  to  ratify  and  make  valid  the 
subscription  for  the  shares  of  stock  of  the  railroad  corporation.1 

§  46.  Statutory  authority  to  construct  a  railroad. —  The 
Supreme  Court  of  Ohio  has  sustained  the  constitutionality  and 
validity  of  the  act  of  the  legislature  of  that  state,  the  general 
scope  and  purpose  of  which  was  to  authorize  cities  of  the  state  of 
a  certain  population  to  construct  a  line  of  railroad  leading  there- 
from to  any  other  terminus  in  the  state,  or  in  any  other  state, 
through  the  agency  of  a  board  of  trustees,  etc.,  with  authority  to 
such  board  of  trustees  to  borrow  a  sum  of  money  to  a  limited 
amount,  and  to  issue  bonds  of  the  city,  secured  by  a  mortgage 
upon  the  railway  and  its  net  income,  with  a  pledge  of  the  faith 
of  the  city  to  levy  a  tax  sufficient,  with  the  net  income  of  the 
road,  to  pay  the  interest  upon  and  provide  a  sinking  fund  for  the 
payment  of  the  bonds.2 

§  47.  Constitutional  provisions  construed. —  The  constitu- 
tional provision  in  Kentucky  that  no  act  of  the  legislature  author- 
izing the  creation  of  any  debt  on  behalf  of  the  commonwealth 
shall  become  effective  until  it  has  been  submitted  to  the  people 
at  a  general  election,  and  shall  have  received  a  majority  of  all 

1  Winn  v.  City  Council  of  Macon,  construction  of  such  improvements. 

(1857)  21  Ga.  275.  And  it  was  said  that  for  much  stronger 

•Walker  r.  City  of  Cincinnati,  (1871)  reasons  counties  might  be  authorized 
21  Ohio  St.  14.  SCOTT,  Ch.  J.,  said  :  to  construct  works  of  a  similar  kind, 
"  That  it  Is  within  the  legitimate  scope  of  a  local  character,  having  a  special 
of  legislative  power  to  authorize  a  mu-  relation  to  their  business  and  interests, 
nicipality  of  the  state  to  aid  in  the  con-  And,  as  the  state  might  constructor 
struction  of  a  public  improvement,  authorize  the  counties  to  construct 
such  as  a  railroad,  by  becoming  a  stock-  these  works  entire,  or  create  corpora- 
holder  in  a  corporation  created  for  that  tions  to  do  it  entire,  it  was  hold  that  as 
purpose,  and  to  levy  taxes  to  pay  the  a  question  of  power  each  might  be  au- 
subscription,  must  be  regarded  as  fully  thorized  to  do  a  part.  *  *  *  And 
settled  in  this  state  by  repented  adju-  if,  in  the  absence  of  a  constitutional 
dications.  In  the  case  of  C.,  W.  &  prohibition,  a  municipal  corporation 
Z.  R.  R.  Co.  €.  Comrs.  of  Clinton  may  be  authorized  to  aid,  by  stock 
County,  1  Ohio  St.  77,  the  subject  was  sul>scriptions,  in  the  construction  of  a 
very  fully  considered;  and  it  was"  held  railway  which  has  a  special  relation  to 
that  as  the  state  may  itself  construct  its  business  and  interests,  upon  what 
roads,  canals  and  other  descriptions  of  principle  shall  we  deny  that  it  can  be 
internal  improvements,  so  it  may  em-  authorized  to  construct  it  entirely  at 
ploy  any  lawful  means  and  agencies  its  own  expense,  when  its  relation  is 
for  that  purpose,  among  which  are  such  as  to  render  it  essential  to  the 
private  companies  incorporated  for  the  business  interests  of  the  municipality  T  " 


54  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  4S 

the  votes  then  cast "  does  not  include  debts  created  by  a  county 
or  other  municipal  division  of  the  state.  Whether  tax  in  aid  of 
the  construction  of  a  turnpike  for  instance  shall  be  levied  or  not 
may  be  submitted  to  the  voters  of  a  county  or  magisterial  district 
of  a  county  at  a  special  election.1 

§  48.  What  is  not  a  work  of  "internal  improvement,"  in 
the  meaning  of  Nebraska  statute. —  A  steam  grist  mill  is  not 
a  work  of  internal  improvement  within  the  meaning  of  the  stat- 
ute of  Nebraska  which  authorizes  counties,  cities  and  precincts  of 
organized  counties  "  to  issue  bonds  to  aid  in  the  construction  of 
any  railroad  or  other  work  of  internal  improvement."  : 

1  Walton  v.  Riley,  (1887)  85  Ky.  413;  up  of  cities,  counties  and  towns,  the 
B.  c.,  3  S.  W.  Rep.  605.  See  Slack  v.  whole  state  may  thus  become  in- 
Maysville  &  Lexington  R.  R.  Co.,  volved.  This  provision,  then,  would 
(1852)  13  B.  Mon.  1.  In  People  ex  rel.  be  no  restriction  upon  the  power  to 
McCagg  v.  Mayor,  Comptroller  &  create  a  debt  beyond  a  certain  amount, 
City  Clerk  of  the  City  of  Chicago,  and  would  fail  of  its  purpose  of  pro- 
(1869)  51  111.  17;  s.  c.,  2  Am  Rep.  tecting  the  state  and  its  citizens  from 
278,  it  was  held  that  the  legislature  oppressive  burdens." 
might  be  regarded  as  prohibited  by  the  2  Osborne  v.  County  of  Adams, 
clause  of  the  State  Constitution  which  (1882)  106  U.  S.  181;  s.  c.,  1  Sup.  Ct. 
prohibited  the  state  from  creating  a  Rep.  168,  affirming  Osborne  v.  County 
debt  exceeding  §50,000  without  the  of  Adams,  (1881)  2  McCrary,  97.  The 
consent  of  the  people,  manifested  by  a  court  distinguished  Township  of  Bur- 
vote  at  a  general  election,  from  fore-  lington  v.  Beasley,  94  U.  S.  310,  as 
ing  one  of  the  .municipalities  of  the  follows:  "That  case  arose  under  a 
state  to  incur  debts  for  an  amount  statute  of  Kansas,  which  empowered 
larger  than  §50,000  without  the  con-  municipal  townships  in  that  state  to 
sent  of  the  people  of  such  municipal  issue  bonds  for  the  purpose  of  build- 
division  of  the  state.  The  court  said:  ing  bridges,  free  or  otherwise,  or  to 
"What  is  the  real  value  of  this  pro-  aid  in  the  construction  of  railroads 
vision  of  the  Constitution  if  the  legis-  or  water  power  by  donation  thereto, 
lature,  inhibited  from  incurring  a  debt  or  the  taking  of  stock  therein,  or  for 
beyond  fifty  thousand  dollars  on  be-  other  works  of  internal  improve- 
half  of  the  state,  may  force  a  debt  ten-  ment."  The  bonds  there  in  suit  were 
fold  or  one  hundred-fold  greater,  for  issued  to  aid  in  the  construction  and 
there  is  no  limit  to  the  power  upon  all  completion  of,  and  to  furnish  the 
the  cities  of  the  state?  We  can  per-  motive  power  for,  a  steam  custom 
ceive  none.  Where  these  municipal!-  grist  mill.  It  was  held  that  the  stat- 
ties  become  so  indebted  by  compulsion  ute,  reasonably  interpreted,  embraced 
of  the  legislature  the  whole  state,  in  a  grist  mill  operated  by  steam,  as  well 
its  real  and  substantive,  if  not  in  its  as  one  run  by  water  power;  that 
corporate  body,  will  in  truth  and  fact,  since  municipal  aid  was  authorized 
be  the  debtor,  for  the  same  power  of  for  "the  construction  of  *  *  * 
coercion  can  be  applied  to  counties  water  power,"  the  phrase  "other 
and  towns,  and  as  the  state  is  made  works  of  internal  improvement,"  in  the 


ITBLIC  OOEPOEATION8. 


55 


§  49.  What  is  such  a  work. —  The  Nebraska  Snpreme  Court 
lias  held  that  a  water  grist  mill  erected  for  public  use,  the  rates 
of  toll  to  be  determined  by  the  county  commissioners,  was  a  work 
of  internal  improvement  within  the  meaning  of  the  statute  of 
that  state  authorizing  counties  and  cities  in  that  state  "  to  issue 
bonds  or  aid  in  the  construction  of  any  railroad  or  other  work  of 
internal  improvement  *  *  *." l 

§  50.  Contracts  of  guaranty. —  The  authority  to  sell  nego- 
tiable paper  held  by  a  city  does  not  carry  with  it,  as  an  incident, 


Kansas  statute,  might  be  fairly  con- 
strued as  embracing  works  of  the 
minor  class,  and  consequently  as  cm- 
bracing  a  steam  grist  mill.  The  court 
was  somewhat  influenced,  as  plainly 
appears  from  its  opinion,  by  decisions 
of  the  Supreme  Court  of  Kansas,  par- 
ticularly that  of  Commissioners  of 
Leavenworth  County  v.  Miller,  7  Kaus. 
479.  The  present  case  is  different. 
The  only  work  of  internal  improve- 
ment specially  in  the  Nebraska  statute 
is  a  railroad,  and  we  are  not  justified 
by  anything  in  Township  of  Burling- 
ton e.  Beaslcy,  or  in  the  decisions  of 
the  courts  of  Nebraska  in  holding  that 
a  steam  or  other  kind  of  grist  mill  is 
of  the  class  of  internal  improvements 
which  municipal  townships  in  that 
state  are  empowered,  by  the  statute 
in  question,  to  aid  by  an  issue  of 
bonds."  For  cases  holding  that  the 
right  to  erect  public  buildings,  such 
as  jails  and  court  houses,  derives  no 
support  from  such  a  statute,  sec 
Union  Pacific  Railroad  v.  Lincoln 
County,  3  Dill.  300;  Dawson  County 
9.  McNamar,  10  Neb.  270. 

'Traver  P.  Board,  etc.,  of  Mi-rrii-k 
County,  (1883)  14  Neb.  827.  (Mting  us 
authority  for  this  ruling:  Guernsey*. 
Burlington  Township,  4  Dill.  372,  875; 
Township  of  Burlington  r.  Beaslcy,  94 
U.  8.  810,  818.  In  State  ex  rel.  Bowen 
p.  Adams  County,  (1884)  15  Neb.  568, 
in  which  the  Supreme  Court  denied  a 
mandamus  to  compel  a  levy  of  a  tax 


to  pay  interest  on  an  issue  of  bonds  of 
the  county  in  aid  of  a  steam  grist  mill 
on  the  ground  that  there  was  no  stat- 
ute in  that  state  authorizing  the  voting 
.  of  aid  to  such  mills,  and  that  bonds 
voted  in  aid  of  them  were  invalid,  it 
was  said  that  the  decision  in  the  case 
of  Traver  t.  Board,  etc.,  Merrick 
County,  14  Neb.  327,  was  based  al- 
most entirely  upon  the  statute  author- 
izing the  condemnation  of  private 
property  for  the  purpose  of  erecting 
dams  and  overflowing  lands  in  order 
to  obtain  power  to  propel  mills,  and 
upon  the  decisions  of  the  Nebraska 
Supreme  Court  iu  Nosser  r.  Seeley,  10 
Neb.  460,  and  Seeley  v.  Bridges,  13 
Neb.  547.  In  Traver  r.  Board,  etc., 
Merrick  County,  supra,  it  was  said  on 
page  334:  "  There  is  a  clear  distinction 
between  aiding  the  development  of  the 
water  power  of  the  state  —  a  power 
which  is  continuing  in  its  nature,  and 
may  be  used  without  cost  or  expense 
and  must  be  used  at  certain  points  on 
a  stream  where  a  dam  can  be  erected 
and  power  obtained — and  a  mill  pro- 
pelled by  steam  that  must  be  attended 
with  a  continuous  cost  for  fuel,  and 
may  at  any  time  be  removed  to  another 
locality."  In  County  Commissioners 
v.  Chandler,  (1877)  96  U.  S.  205,  the 
Supreme  Court  of  the  United  States 
held  that  a  bridge  intended  for  and 
used  as  a  thoroughfare  to  be  a  public 
highway  and,  hence,  a  work  of  "in- 
ternal improvement,"  within  the  mean- 


56  GENERAL  POWER  TO  INCUR  PECUNIARY  LIALILITY.          [§  51 

the  power  to  guarantee  it.1  A  county  in  Arkansas  cannot  be 
bound  by  a  contract  entered  into  by  the  county  judge  guarantee- 
ing payment  for  goods  to  be  sold  one  who  has  a  contract  for  the 
construction  of  a  turnpike.2  A  municipal  corporation  authorized 
by  statute  to  obtain  money  on  loan,  on  the  faith  and  credit  of  the 
corporation,  for  the  purpose  of  contributing  to  works  of  internal 
improvement,  may,  under  the  power  granted  by  the  statute, 
guarantee  the  payment  of  the  bonds  of  a  railway  company.3 

§  51.  Employment  of  agents  or  attorneys. —  There  is 
authority  in  the  Revised  Statutes  of  Maine,  relating  to  towns,  to 
expend  money  "  for  the  necessary  town  charges,"  after  specify- 
ing certain  other  purposes.  Under  those  words  towns  may 
employ  a  reasonable  number  of  agents  or  attorneys  to  advance  or 
protect  the  rights  of  towns  before  any  legally  constituted  tribu- 
nal;4 but  they  do  not  authorize  a  town  to  raise  and  expend 
money  to  send  lobbyists  before  the  legislature.5  The  board  of 
directors  of  schools  in  Louisiana  have  authority  to  constitute  or 
defend  suits,  and  the  right  to  incur  liability  for  the  costs  of  such 
suits  follows,  as  a  matter  of  course.6  Reasonable  attorney's  fees 
in  an  action  against  village  trustees  to  enjoin  the  collection  of  a 
tax,  and  defended  in  good  faith,  are  a  proper  charge  against  a 

ing  of  the  Nebraska  statute  authoriz-  purchaser  upon  that  of  the  city  with 

ing  cities,  counties  and  precincts  in  which  it  was  joined.     It  is  difficult  to 

that  state  to  issue  bonds  in  aid  of  conceive  of  language  more  compre- 

works  of  "internal  improvement."  hensive  than  that  employed  to  em- 

1  Carter  n .  City  of  Dubuque,  (1872)  brace  every  form  of  securities  in  which 

35  Iowa,  416.  tJie  faith  and  the  credit  of  the  city  might 

8  Dickinson  Hardware  Co.  v.  Pulaski  be  embodied,  and  that  in  such  cases  it 

County,  55  Ark.  437;  s.  c.,  18  S.  W  is  not  important  to  the  character  of  the 

Rep.  462.  transaction  that  the  money  is  obtained 

•City  of  Savannah  v.  Kelly,  (1883)  in  the  first  instance  by  the  railroad 
108  U.  S.  184;  s.  c.,  2  Sup.  Ct.  Rep.  company,  upon  the  credit  of  the  city, 
472.  Mr.  Justice  MATTHEWS,  speak-  was  directly  ruled  in  Rogers  v.  Bur- 
ing  for  the  court,  said  that  the  lington,  3  Wall.  654,  and  affirmed  in 
fact  that  the  money  "was  not  ad-  Town  of  Venice  v.  Murdock,  92  U.  8. 
vanced  directly  to  the  city,  but  upon  494." 

its  assurance  of  repayment  to  the  rail-  4  Inhabitants  of  Frankfort  v.  Inhab- 

road  company,  is  not  a  departure  even  itants  of  Winterport,    (1865)  54  Me. 

from  the  letter  of  the  law,  much  less  250. 

from  its  meaning;  nor  does  the  fact  6Ibid. 

that  the  money  was  advanced  partly  6 Fisher    «    Board  of  Directors   of 

on  the  credit  of  the  railroad  company  City  Schools  of  New  Orleans,  (1892)  44 

diminish  the  presumed  reliance  of  the  La.  Ann.  184;  8.  c.,  10  So,  Rep.  494. 


§  52]  PUBLIC  CORPORATIONS.  57 

village  under  a  statute  authorizing  village  trustees  "to  employ  an 
attorney  or  attorneys  for  the  transaction  of  any  matter  requiring 
legal  skill."  l  The  Kansas  Supreme  Court  has  held  that  when- 
ever a  county  is  interested  at  all  in  the  result  of  a  suit,  either  in 
its  own  behalf  or  in  that  of  some  township  of  the  county,  and  the 
suit  is  brought  against  the  legal  representatives  of  the  county,  and 
is  beyond  the  limits  of  the  county,  as,  for  instance,  a  mandamus 
proceeding  against  the  commissioners  of  a  county  before  the 
Supreme  Court,  the  county  commissioners  may,  if  they  choose, 
employ  counsel  to  take  care  of  the  interests  of  the  county.8  This 
rule  has  been  declared  in  Kansas.  A  county's  contract  with  a 
counselor  at  law  for  services,  such  as  are  required  by  law  to  be 
performed  by  the  county  attorney,  is  prima  facie  void.8  So, 
also,  is  a  contract  by  a  city  for  services  as  an  attorney  or  counselor 
at  law,  such  as  the  law  requires  to  be  performed  by  the  city 
attorney.4 

§  52.  Contracts  for  legal  services  —  when  allowed. —  Towns 
in  Illinois  have  power,  at  their  annual  town  meetings,  to  provide 
for  the  institution  and  defense  of  all  suits  in  which  they  are 
interested,  and  a  town  meeting  may  exercise  the  power  by  reso- 
lution directing  the  supervisor  to  procure  legal  services,  and  such 
a  contract  will  be  binding  on  the  town  should  the  amount  agreed 

1  Squire  v.  Preston,  (1894)  82  Hun,  was  not  clear.     As  to  the  employment 

88;  8.  c.,  81  N.  Y.  Supp.  174.  of  additional  counsel  to  assist  corpora  - 

1  Timelier  v.  Comrs.  of  Jefferson  tion  counsel  or  to  conduct  profession- 
County,  (1874)  13  Knns.  182;  People  r.  ally  business  in  which  the  city  is 
Supervisors  of  N.  Y.,  32  N.  Y.  478;  interested,  see  Smith  r.  Mayor,  etc., 
Brady  t>.  Supervisors  of  N.  Y.,  2  of  New  York,  (1875)5  Hun,  237.  As  to 
Sandf.  460;  Gillespie  r.  Broas,  23  employment  of  attorneys  by  counties, 
Barb.  370.  see  Brome  t.  Cuming  County,  81  Neb. 

'Clough  ».  Hart,  (1871)  8  Ivans.  487.  862;  8.  c.,  47  N.  W.  Rep.  1050;  Board 

4  Ibid.  In  Hugg  r.  City  Council  of  Comrs.  Rush  County  r.  Cole,  2  Ind. 

City  of  Camden,  (1878)  29  N.  J.  Eq.  6,  App.  475;   8.  c.,  28  N.  E.  Rep.  772; 

where  there  was  a  city  ordinance  pro-  Beebe  r.  Board  Suprs.  Sullivan  County, 

viding  that  the  solicitor  of  the  city  64  Hun,  877;  B.C.,  19  N.  Y.  Supp.  629; 

should  prosecute  and  defend  all  suits.  Waters  P.  Trovillo,  47  Kans.  197;  s.  c., 

etc.,  brought  by  or  against  the  city,  27  Pac.  Rep.  822;    Butler  r.   Sullivan 

the  chancellor  refused  a  mandatory  in-  County,  108  Mo.  680;  8.  c.,  18  8.  W. 

junction  to  restrain  the  city  from  cm-  Rep.   1142;  Lassen  County  r.   Shinn, 

ploy  ing  other  counsel,  on  the  ground  of  88  Cal.  510;  B.C.,  26  Pac.    Rep.  365; 

possible  irreparable  injury  to  the  city,  Fouke  r.  Jnckscu  County,  84  Iowa 

the  suit  being  ready  for  trial,  and  on  the  616:  s.  c.,  51  N.  W.  Rep.  71. 
ground  that  the  complainant's  right 


58  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  52 

to  be  paid  not  be  so  great,  in  view  of  the  interests  involved,  as  to 
indicate  bad  faith.1  The  Supreme  Court  of  Illinois  lias  upheld 
as  implied,  under  the  legislation  of  that  state  with  reference  to 
towns,  the  power  of  the  supervisor  of  a  town  to  enter  into  aeon- 
tract  of  retainer  with  an  attorney  at  law  to  defend  a  suit  insti- 
tuted against  the  town  upon  coupons  attached  to  bonds  of  the 
town  the  validity  of  which  was  disputed.2  In  case,  in  the  exer- 
cise of  their  judgment  and  discretion,  the  governing  board  of  a 
county  conceive  that  the  interests  of  the  county  are  involved  in 
a  certain  question,  and  take  legal  measures  by  suit  or  otherwise, 
to  advance  or  protect  those  interests,  the  expense  incurred  thereby 
becomes  a  legal  charge  against  the  county,  notwithstanding  the 
judgment  of  the  court  in  the  matter  be  that  a  wrong  remedy 
was  adopted,  or  that  there  was  no  remedy  at  all.8  A  county, 
under  the  statutory  power  "  to  make  all  contracts  and  do  all  other 
acts  in  relation  to  the  property  and  concerns  of  the  county  neces- 
sary to  the  exercise  of  its  corporate  powers,"  may  retain  attor- 
neys to  resist  the  collection  of  a  tax  in  the  action  of  a  taxpayer 
who  has  been  induced  by  the  courts  to  refuse  to  pay  a  tax  levied 
by  the  state  for  payment  of  interest  on  certain  county  bonds,  the 
object  being  to  test  the  validity  of  such  bonds.*  And  the  stat- 
ute making  it  the  duty  of  county  boards  to  take  suitable  measures 
for  prosecuting  and  defending  all  suits  to  be  brought  by  or  against 
their  respective  counties,  and  all  suits  which  it  is  necessary  to 
prosecute  or  defend  to  enforce  the  collection  of  all  taxes  charged 
on  the  state  assessment,  does  not  take  away  the  right  to  retain  an 
attorney  in  such  a  case.5 

1  Town  of  Mt.   Vernon  v.    Patton,  in  this  case  made  with  one  who  was 

(1879)  94  111.  65.  assistant  city  attorney,  to  collect  all 

9  Town  of  Bruce  v.  Dickey,  (1886)  bills  for  taxes  assessed  on  property  as 

116  111.  527;  8.  c.,  6  N.  E.   Rep.  435;  unknown,   and  all    unsatisfied   judg 

Cooper  v.  Delavan,  61  111.  96.  ments  in  favor  of  the  city  for  taxes,  on 

8  ilornblower  v.  Duden,  (1868)  35  Cal.  the  ground  that  it  neither  violated  the 

664.     In  State  ex  rel.    Bermudez  v.  charter  of  the  city  nor  conflicted  with 

Heath,  Mayor  of  New  Orleans,  (1868)  any  of  the  rights  of  the  assistant  city 

20  La.   Ann.  172;  s.  c.,  96   Am.  Dec.  attorney,  nor  did  the  duties  involved 

390,  the  Supreme  Court  held  the  right  in  the  contract  embrace  any  of  the 

of  the  city  to  employ  an  attorney  at  duties  or  include  any  of  the  emolu- 

law  conversant  with  city  affairs  to  fa-  ments  of  the  office  of  assistant  attorney, 
cilitate  the  collection  of  debts  due  *  Franklin  County  v.  Layman,  146 

the  city  was  unquestionable  as  long  as  111.  138;  s.  c.,  33  N.  E.  Rep.  1094,  af- 

it  infringed  on  no  rights  of  the  city's  finning  43  111.  App.  163. 
officers.     The  court  upheld  a  contract       s  Ibid. 


§§  53,  54]  PUBLIC  CORPORATIONS.  59 

§  53.  Contracts  for  legal  services  —  how  made. — Thr 
common  council  of  a  city  in  Indiana  is  vested  with  the  power  to 
employ  counsel  to  assist  the  city  attorney  to  protect  the  interests 
of  the  city ;  but  the  contract  of  employment  must  be  made 
directly  or  through  an  authorized  agency.1  The  common  coun- 
cil of  a  city  being  empowered  by  its  charter  to  employ  counsel 
cannot  delegate  this  power  to  the  mayor,  and  any  contract  made 
by  the  mayor  with  an  attorney  to  act  for  the  city  will  be  void.8 
This  power  by  ordinance  to  select  an  attorney  for  a  city  conferred 
upon  the  common  council  is  a  trust  created  for  a  public  purpose, 
not  assignable  at  the  will  of  the  trustee.8  The  Court  of  Errors 
and  Appeals  for  New  Jersey  has  held  that  the  corporate  authori- 
ties of  one  of  the  cities  of  that  state,  under  the  provisions  of  its 
charter,  had  the  power  to  employ  associate  counsel  in  defending 
suits  against  the  corporation  or  in  which  the  city  was  interested  ; 
and  that  the  board  of  aldermen  were  sole  judges  of  the  necessity 
of  such  employment  in  any  particular  case,  and  the  exercise  of 
their  discretion  in  such  a  matter  was  not  reviewable  in  that  court.4 
The  authorities  of  the  city,  though  under  its  power  to  employ 
associate  counsel,  were  not  vested  with  the  right,  under  the  guise 
of  such  employment,  to  withdraw  and  take  out  of  the  hands  of 
the  city  counsel  any  particular  class  or  classes  of  cases  and  to  con- 
fide the  management  of  them  to  others.5 

§  54.  Where  a  public  corporation  is  bound  for  legal  serv- 
ices.—  An  attorney  properly  employed  by  a  town  to  perform 
legal  services,  being  ready  and  willing  to  perform  the  contract, 
should  the  proper  officers  of  the  town  prevent  his  doing  so,  will 
be  entitled  to  recover  under  the  contract.6  If  there  is  an  appeal 

1  Justice  v.  City  of  Logansport,  (1892)  Paul,  19  Minn.  389;  State  t>.  Bell,  84 

6  Ind.  App.  135;  s.  c.,  32  N.  E.  Rep.  Ohio  St.  194;  State  r.  Hauser,  63  Ind. 

868;  City  of  Logansport  r.  Dykeraan,  155;  Birdsall  c.   Clark,  73  N.  Y.   73. 

116  Ind.  15.  Brooklyn  t>.  Breslin.  57  N.    Y.   591: 

1  City  of  East  St.  Louis  r.  Thomas,  Ruggles  t>.  Collier,  43  Mo.  858. 

(1882),  11  Bradw.  283.  «  State,  Hoxsey,  v.  Mayor  &  Alder- 

•Cooley's  Const.  Lira.  204;  City  of  men  of  the  City  of  Paterson,  (1878)  40 

East  St.  Louis  ».  Wehrung,  50  111.  28;  N.  J.  Law,  186. 

Foss  T.  City  of  Chicago,  56  111.  854;  •  Ibid.  See  reasoning  of  the  court  in 

Jenks  P.  Chicago,  56  111.  397;  L.  8.  &  Ramson  r.  Mayor,  etc.,  of  New  York. 

M.  8.  Ry.  Co.  v.  Chicago,  56  111.  454;  24  Barb.  2','<; 

Jackson  Co.  r.  Brush,  77111.  59:  Oak-  *Town  of  Mt.  Vernon    r.   Patton, 

land  v.  Carpentier,  13  Cal.  540,  Why  te  (1879)  94  111.  66. 
t>.  Mayor,  2  Swan,  864;  Darling  r.  St. 


60  GENERAL  POWEE  TO  INCUR  PECUNIARY  LIABILITY.  [§  55 

from  the  action  of  a  city  council  while  acting  as  a  board  of 
equalization,  this  being  the  discharge  of  a  corporate  function, 
and  acting  as  a  representative  of  the  city,  a  city  solicitor  would 
be  justified  in  defending  its  action  in  the  appellate  court  and  for 
such  services  would  be  entitled  to  compensation,  even  though 
neither  the  service  nor  the  compensation  be  provided  for  by 
ordinance.1  An  attorney  employed  by  a  town  agent  in  Vermont 
in  a  suit  in  favor  of  or  against  the  town  is  entitled  to  payment 
for  his  services  from  the  town,  without  an  express  vote  to  that 
effect;  and  the  rule  is  the  same  if  the  town  agent,  being  an 
attorney,  renders  professional  services  for  the  town.2  And  if  a 
town  agent,  after  the  expiration  of  his  term  of  office,  continues 
the  management  of  suits  in  which  the  town  is  interested,  without 
any  objection  from,  or  any  express  employment  by  the  town  or 
his  successor,  as  town  agent,  he  is  entitled  to  recover  of  the  town 
for  his  services  after  his  term  of  office  expires.3  An  officer  of  a 
city  who  has  employed  counsel  in  a  contest  to  gain  possession  of 
the  city's  property,  in  the  result  of  which  the  city  is  interested, 
may  compel  the  city  to  pay  the  expenses  incurred  by  him  in  the 
matter.4 

§  55.  Employment  of  counsel  for  the  defense  of  officers. — 

Counsel  may  be  employed  by  a  town  to  defend  their  police  officers 
in  actions  for  false  imprisonment.5 

'Kinnie  v.  City  of  Waverly,  (1876)  of  that  state,  BRADLEY,  Ch.  J.,  used 

42  Iowa,  437.  this  language  in  support  of  the  judg- 

*Langdon  v.  Town  of  Castleton,  ment  denying  an  injunction:  "Is  it 

(1858)  30  Vt.  285.  then  one  of  the  usual  and  ordinary 

8  Ibid.  expenses  of  a  city  to  protect  its  offi- 

4  Stilwell  0.  Mayor,  etc.,  of  N.  Y.f  cers  who,  while  exercising  iu  good 

19  Abb.  Pr.  376.  faith  the  functions  of  their  office, 

6  Roper  v.  Town  of  Laurinburg,  have  been  found  by  the  verdict  of  a 

(1884)  90  N.  C.  427;  s.  c.,  7  Am.  &  jury  to  have  exceeded  the  lawful 

Eng.  Corp.  Cas.  130;  Babbitt  v.  Savoy,  powers  of  that  office  and  to  have  tres- 

3  Cush.  530.  In  Sherman  v.  Carr,  8  R.  passed  upon  the  rights  of  a  citizen? 

I.  431,  an  action  of  taxpayers  to  en-  If  the  power  to  indemnify  an  officer 

join  the  payment  by  the  treasurer  to  under  these  circumstances  does  not 

the  mayor  of  moneys  appropriated  by  rest  in  that  body  who  appropriated 

the  city  council  to  defray  the  expenses  the  money  for  all  the  legitimate  duties 

of  a  suit  brought  against  the  mayor  of  of  a  municipality  within  its  own 

a  city  and  the  constable  who  acted  in  province,  the  various  executive  officers 

his  aid  for  certain  acts  of  theirs  in  vir-  of  a  city  perform  their  duties  at  the 

tue  of  a  power  conferred  upon  the  peril  of  an  individual  responsibility 

mayor  by  act  of  the  general  assembly  for  all  their  mistakes  of  law  and  of 


§  56]  PUBLIC  CORPORATIONS.  61 

§  56.  Indemnity  for  expenses  of  litigation. — A  promise  on 
the  part  of  a  town  to  refund  money  paid  by  assessors  on  an 
illegal  assessment  of  a  town  tax  made  by  them  is  a  valid  con- 
tract.1 An  action  by  selectmen  to  recover  the  amount  of  a  judg- 
ment for  damages  and  costs  recovered  against  them  and  paid,  and 
the  reasonable  expenses  of  defending  the  action,  pakl  and  incurred 
by  them,  would  be  supported  by  a  vote  of  the  town  to  indemnify 
the  selectmen  against  any  claim  for  damages  and  costs  of  a  cer- 
tain description  which  may  be  legally  substantiated  against  them 
or  either  of  them.2  And,  on  such  a  vote  to  indemnify  them,  the 
action  may  be  to  recover  the  amount  of  the  judgment  against  the 
selectmen  for  the  damages  and  costs  and  the  fees  of  counsel  and 
witnesses,  and  other  expenses  incurred  reasonably  and  in  good 
faith  in  defending  the  action  in  which  the  judgment  was 
recovered  without  proving  that  the  town  had  notice  of  the  pen- 
dency of  the  action.8  Money  may  be  appropriated  by  a  town  by 
vote  to  indemnify  its  school  committee  for  expenses  incurred  in 
defending  an  action  for  an  alleged  libel  contained  in  a  report 
made  by  them  in  good  faith  and  in  which  libel  suit  judgment  has 
been  rendered  in  their  favor.4  A  town,  where  it  has  appointed  a 
committee  to  defend  an  action  against  one  of  its  officers,  as  for 
instance,  a  surveyor  of  highways,  on  account  of  the  digging  of  a 
drain,  would  be  bound  by  a  vote  to  defray  the  expenses  incurred 
by  such  committee  in  his  defense,  notwithstanding  it  were  under 
no  previous  obligation  to  indemnify  the  surveyor,  and  that  the 
committee  were  entitled  to  compensation  and  indemnity  from  the 
town  for  their  services  and  expenses.5  A  city  may  and  should 
reimburse  a  mayor  who  has  successfully  resisted  a  proceeding 

fact,  however  honest  and  intelligent   which,  while  the  officer  continues  to 

they  may  be,  and  also  at  the  peril  of  act  in  behalf  of  the  community,  and 

the  possible  mistakes  of  a  jury  natu-   not  in  his  own  behalf,  it  is  held  that 

rally  jealous  of  the  rights  of  the  citi-    the     community     cannot    indemnify 

zen  when  brought  in  conflict  with  the   him." 

exercise  of  official  power.     If  the  offl-       '  Nelson  v.  Milford,  (1828)  7  Pick. 

cer  is  thus  responsible  he  will  natu-   18. 

rally  be  too  cautious,  if  not  timid,  in       '  Hadsell  v.  Inhabitants  of  Hancock, 

the  exercise  of  his  powers  which  must  (1855)  3  Gray,  526. 

be  frequently  exercised  for  the  pro-       *  Ibid. 

tection  of  society,  before  and  not  after       4  Fuller  r.   Inhabitants  of  Groton, 

a  thorough  investigation  of  the  case   (1858)  11  Gray,  340. 

in  which  he  is  called   upon  to  act.       *  Bancroft  r.   Lynnfleld,   (1836)    18 

*    *    *     We   know   of   no   case   in  Pick.  566. 


62  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  57 

taken  in  the  name  of  the  city  against  him  to  compel  him  to  a 
course  of  official  action  deemed  by  him  violative  of  law  and 
detrimental  to  the  city's  interest,  where  the  performance  of  that 
duty  has  involved  on  his  part  the  disbursement  of  his  own 
money.1  Towns  may  bind  themselves  by  a  vote  to  indemnify  a 
collector  of  taxes  from  the  costs  and  expenses  of  defending 
actions  brought  against  him  for  acts  done  in  the  performance  of 
his  duties.  And  the  town  may  be  bound  to  the  same  extent  by 
the  selectmen  under  the  provision  of  the  statute  relating  to  towns 
that  they  "  shall  have  the  ordering  and  managing  of  all  the  pru- 
dential affairs  of  the  town."  2 

§  57'  When  a  corporation  is  not  bound  for  professional 
services  of  an  attorney. —  An  attorney  retained  by  a  city  to 
conduct  certain  litigation  until  it  was  concluded,  upon  an  agree- 
ment that  he  was  to  receive  reasonable  compensation  for  his  serv- 
ices, being  afterwards  appointed  city  counselor,  with  prescribed 
duties  to  perform  in  the  matters  of  the  city  involving  litigation, 
the  Supreme  Court  of  Michigan  has  held  could  not  recover  on  a 
quantum  ineruit  for  services  in  such  suit  performed  after  his 
appointment  to  the  official  position,  in  the  absence  of  any  agree- 
ment that  the  business  of  carrying  on  the  suit,  though  falling 
within  his  official  duties,  should  not  be  considered  as  included 
among  the  services  paid  for  by  the  annual  salary,  but  should  be 
compensated  for  in  some  other  way.3  A  corporation  cannot  by  a 
suit  at  law  question  its  own  existence,  seek  to  restrain  the  regular 
succession  of  its  officers,  and  to  have  a  decree  declaring  its  charter 

1  Barnert    v.     Mayor  &    Aldermen  them,  and  in  cases  even  where  the  suit 

of  City  of  Paterson,  (1886)  48  N.  J.  is  between  third  parties,  if  the  towns 

Law,  395;   s.   c.,  6  Atl.  Rep.    15;  16  are  interested.     Briggs    v.   Whipple, 

Am.  &  Eng.  Corp.  Cas.  131.     On  the  (1834)  6  Vt.  95.     In  Cullen  v.  Town  of 

right  of  a  municipal  corporation  to  re-  Carthage,  (1885)  103  Ind.   196;  s.  c., 

imburse  its  officers  in  such  cases,  see  53  Am.    Rep.   504;    14  Am.    &  Eng. 

State,  Lewis,  v.  Freeholders  of  Hud-  Corp.  Cas.  256,   the  court  upheld  the 

son,  37  N.  J.  Law,  254;  State,  Brad-  power,  as  an  incidental  one,  of  the 

ley,  v.  Hammonton,  38  N.  J.  Law,  430,  board  of  trustees  of  a  town  to  employ 

J  Pike  n.  Middleton,  (1841)  12  N.  H.  counsel  to  defend  the  action  brought 

278.     As  to  indemnity  for  expenses  in  against  the  marshal  of  the  town  for 

suits  in  which  the  town  is  interested,  false  imprisonment  by  one  whom  he 

see  Baker  v.  Inhabitants  of  Windham,  had  arrested  for  violation  of  law. 

(1836)  13  Me.  74.    Towns  may  by  a  *City    of    Detroit   v.    Whittemore, 

vote  bond  themselves  for  expenses  of  (1873)  27  Mich.  281. 
a  suit  when  action  is  for  or  against 


§  58]  PUBLIC  CORPORATIONS.  63 

void,  and  having  no  power  to  institute  such  a  suit,  its  authorities 
cannot  bind  it  to  pay  for  the  services  of  an  attorney  in  the  con- 
duct of  the  suit.1  The  statute  of  Arkansas  makes  provision  for 
an  allowance  by  the  County  Court  in  favor  of  a  collector  of  taxes 
for  reasonable  attorneys'  fees  and  other  expenses  incurred  in 
defending  suits  brought  against  him  for  performing  or  attempt- 
ing to  perform  any  duty  in  reference  to  the  collection  of  the 
revenue.3  But  a  county  is  not  bound  to  pay  attorneys  he  may 
be  represented  by  in  an  action  for  injunction  against  his  collec- 
tion of  a  tax,  under  a  contract  with  the  collector.  He  has  no 
power  to  bind  the  county  to  pay  such  fees.  And,  in  the  absence 
of  statutory  regulation,  he  alone  is  liable  in  such  cases.8 

§58.  The  same  subject  continued. —  A  board  of  county 
commissioners  in  Indiana  is  authorized  to  employ  counsel  in  mat- 
ters pertaining  to  the  business  of  the  county,  and  to  give  to  the 
members  of  the  board  legal  advice  in  relation  to  their  official 
duties;  but  they  have  no  power  to  bind  their  successors  by 
employing  attorneys  to  act  for  a  period  beyond  the  time  when 
the  board  will,  by  operation  of  law,  have  to  be  reorganized.4  A 
county  is  not  bound  by  the  expenses  for  attorney's  services 
incurred  by  a  county  collector  for  resisting  objections  to  his 
bond.5  Negotiable  drafts  drawn  by  a  municipal  corporation  for 

1  Daniel  r.    Mayor  &  Aldermen  of  3  Simmes  v.  Chicot  County,  (1888)  50 

Memphis,  (1851)  11  Humph.  582.     In  Ark.  566;  s.   c.,  9  8.  W.    Rep.  308; 

Wallace  c.  Mayor  &  Common  Council  Fry  r.  Chicot  Co.,  87  Ark.  117. 

of  the  City  of  San  Jose,  (1865)  29  Cal.  *  Board  of  Comrs.   of  Jay  County 

180,  it  was  held  that  there  was  no  r.  Taylor,  (1889)  123  Ind.  148;. 8.  C., 

power,  under  the  charter  of  this  city,  28  N.  E.   Rep.  752;  30  Am.   &  Eng. 

in  the  mayor  and  council  to  enter  into  Corp.  Cas.  294. 

a  contract  by  which  the  city  became  &Fry,  Collector,  r.  Chicot  County, 

obligated    to    pay  an  attorney  at   a  (1881)  37  Ark.    117.     In   Baldwin  v. 

future  time  a  sum  of  money,  if  he  sue-  School  City  of  Logansport,  0881)  78 

ceeded  in  placing  the  city  in  posses-  Ind.  346,  where  the  school  trustees  of 

sion  of  certain  real  estate,  unless  there  the  city  made  an  order  authorizing  the 

was  money  in  the  treasury  at  the  time  treasurer  of  the  school  board  to  em- 

to  pay  the  same,  after  paying  the  ex-  ploy    attorneys    "to    prosecute    the 

penses  of  the  city  government  and  all  county  auditor  for  refusing  to  pay 

other  demands  legally  due.     As  to  this  over  moneys  belonging  to  the  school 

contract  creating  a  debt,  see  People  t>.  fund,  and  shortly  afterward  there  was 

Johnson,    6    Cal.     499;    Nougues  r.  elected  a  new  board  of  school  trustees, 

Douglass,  7  Cal.  65,  69;  People  ex  rel.  whereupon    the   attorneys  employed 

McCullough  r.  Pacheco,  27  Cal.  175.  under  the  order  of  the  former  trustees 

'  Mansf .  Dig.  Ark.  §  5859.  proceeded  in  the  proper  court  for  a 


64  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§§  59,  60 

the  payment  of  judgments  and  costs  in  actions  brought  against 
the  supervisors  of  the  county  for  penalties  for  an  alleged  neglect 
of  duty  in  refusing  to  audit  and  allow  salaries  to  associate  judges 
of  general  sessions  of  the  corporation  appointed  under  an  uncon- 
stitutional law,  have  been  held  in  New  York  to  be  void  upon  the 
ground  that  the  corporation  had  no  right  to  assume  defense  of  an 
action  to  which  it  was  not  a  party  and  which  it  had  no  interest  in 
resisting.1 

§  59.  What  contracts  with  attorneys  are  contrary  to 
public  policy. — A  contract  entered  into  by  the  authorities  of  a 
city,  with  an  attorney  who  had  been  under  the  employment  of 
the  city  in  a  litigation  to  protect  its  rights  in  certain  property 
and  franchises,  under  a  former  contract,  which  by  its  terms  is 
irrevocable  and  binds  the  city  for  additional  compensation  to  such 
attorney  in  the  form  of  a  large  proportion  of  the  city's  receipts, 
as,  for  instance,  from  the  use  of  a  ferry  by  the  public,  is  beyond 
the  power  of  such  authorities  ;  is  contrary  to  public  policy.2 

§  60.  Limitations  upon  the  indebtedness  to  be  incurred. — 

By  a  statute  of  Massachusetts  one  of  its  cities,  for  the  purpose  of 
supplying  pure  water  to  its  citizens,  after  providing  for  condem- 
nation of  lands,  etc.,  and  the  appointment  of  commissioners  to 
execute  the  work,  was  authorized  through  its  city  council  "  for 
the  purpose  of  defraying  the  cost "  of  whatever  lands  were  so 

mandate  to  the  auditor,  etc.,  the  ob-  upon  it  —  a  discretion  necessarily  leg- 
ject  of  the  suit  being  to  determine  islative  in  character,  which  such  a 
who  were  the  legal  school  trustees,  it  body  cannot  surrender  by  contract  or 
was  held  that  the  order  of  the  school  bind  itself  not  to  exercise  freely  when- 
trustees  above  mentioned  did  not  au-  ever  it  may  become  necessary."  Water- 
thorize  the  employment  of  the  attor-  bury  v.  City  of  Laredo,  60  Tex.  522; 
neys  to  bring  a  civil  suit  to  try  the  Laredo  t.  Macdonnell,  52  Tex.  520; 
question  as  to  who  were  the  legal  Laredo  v.  Martin,  52  Tex.  559.  In 
trustees,  and  the  school  city  was  not  Board  of  Comrs.  of  Jay  County  v. 
liable  for  the  fees  of  the  attorneys  for  Taylor,  (1889)  123  Ind.  148;  s.  c.,  23 
such  services.  N.  E.  Rep.  752;  30  Am.  &  Eng.  Corp. 

1  Halstead  v.  Mayor,  etc.,  of  New  Cas.  294,  a  contract  entered  into  be- 
Tork,  3  N.  Y.  430,  affg.  5  Barb.  218.  tween  the  board  of  commissioners  and 

9  Waterbury  v.  City  of  Laredo,  (1887)  certain  attorneys,  by  which  the  board 
68  Tex.  565;  s.  c.,  20  Am.  &  Eng.  employed  these  attorneys  to  act  as 
Corp.  Cas.  186.  It  was  said  by  the  county  attorneys  for  a  period  of  three 
court:  "  Such  a  contract,  if  valid,  years  from  a  date  named  in  the  con- 
certainly  would  divest  the  municipal  tract,  was  held  to  be  void  as  contrary 
government  of  the  discretion  conferred  to  public  policy. 


§  60]  PUBLIC  CORPORATIONS.  ^"' 

condemned,  and  of  completing  the  works  and  paying  all  expenses 
incident  to  the  accomplishment  of  the  main  purpose  "  to  issue 
scrip  to  an  amount  not  exceeding  in  the  whole  five  hundred 
thousand  dollars."  The  Supreme  Court  of  Judicature  of  that 
state  construed  this  act  not  to  restrict  the  city  in  the  amount  of 
expenditures  which  they  might  make  for  the  accomplishment  of 
tin-  purpose  of  the  act,  but  only  in  the  amount  of  permanent 
debt  which  they  might  create.1  The  provision  in  the  charter  of 
a  city  that  the  council  "  shall  not  borrow  for  general  purposes 
more  than  fifty  thousand  dollars,"  the  Supreme  Court  of  the 
United  States  has  held  did  not  limit  the  debt  of  the  city,  nor 
prohibit  the  council  from  entering  into  a  contract  involving  an 
expenditure  exceeding  that  amount  for  special  improvements, 
such  as  the  grading  and  paving  of  streets  and  the  construction  of 
sidewalks,  which  were  authorized  by  its  charter.8  The  effect  of 

1  Foote  t>.  City  of  Salem,  (1867)  14  far  as  it  was  in  other  respects  lawful, 
Allen,  87.  BKJKLOW,  Ch.  J..  said  :  "It  remained  in  force,  and  for  the  breach 
is  a  restriction  on  the  authority  of  the  of  the  same  the  corporation  was  liable, 
city  to  create  a  permanent  debt,  pay-  See  as  to  this  last  point:  Tracy  e. 
able  at  a  distant  period  of  time,  but  Talmage,  14  N.  Y.  1G2;  Curtis  «. 
not  a  limitation  on  their  powers  to  Leavitt,  15  N.  Y.  9;  Oneida  Rnnk  r. 
raise  money  by  taxation  or  temporary  Ontario  Bank,  21  N.  Y.  490;  Argenti 
loans  in  order  to  carry  forward  and  «.  City  of  San  Francisco,  16  Cal.  '2">. 
execute  the  works  which,  by  the  pre-  Maher  v.  City  of  Chicago,  38  111.  266; 
vious  provisions  of  the  act,  they  were  City  of  Chicago  v.  The  People,  48  111. 
in  the  broadest  terms  empowered  to  416.  In  The  State  Board  of  Agricul- 
construct.  *  *  *  If  construed  as  ture  «.  Citizens' Street  Railway  Co.,  47 
an  absolute  condition  or  limitation  on  Ind.  407,  it  was  held  that  although  there 
the  authority  of  the  city,  no  steps  may  be  a  defect  of  power  in  a  corpora  - 
could  be  safely  taken  to  execute  the  tion  to  make  a  contract,  yet  if  a  con- 
authority  conferred,  unless  it  had  been  tract  made  by  it  is  not  in  violation  of 
previously  ascertained  that  the  expen-  its  charter  or  of  any  statute  prohibit- 
diture  to  be  incurred  would  not  ex-  ing  it,  and  the  corporation  has  by  its 
ceed  the  prescribed  sum.  But  it  is  promise  induced  a  party  relying  on 
obvious  that  this  would  be  clearly  iin-  the  promise  and  in  execution  of  the 
practicable  in  relation  to  an  enterprise  contract  to  expend  money  and  per- 
of  the  character  contemplated  by  the  form  his  part  thereof,  the  corporation 
statute."  is  liable  on  the  contract.  See,  sub 

*  Hitchcock  t.  Galveston,   (1877)  96  stantially  to  the  same  effect,  Allegheny 

U.  8.  341,   holding  further  that  the  City  «.  McClurkan,  14  Penn.   St.   81; 

contract  was  not  rendered  wholly  in-  Silver  Lake  Bank  r.  North,  4  Johns, 

operative  because  it  provided  that  the  Ch.  370.     As  to  the  rule  in  the  text, 

work  done  under  the  contract  should  see  Cumming  r.  Brooklyn,  11  Paige, 

be  paid  for  in  bonds  of  the  corpora-  596;  Allen  ».   City  of  Janesville,  85 

tion,  the  issue  of  which  bonds  was  un-  Wis.    403;    Argenti    r.   City   of   San 

authorized  by  law.     The  contract,  so  Francisco,  16  Cal.  255. 
9 


66  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  61 

charter  provisions  of  a  city  prohibiting  the  creation  of  municipal 
liabilities  in  any  one  year  exceeding  the  amount  to  be  raised  by 
tax  and  providing  that  payments  on  a  municipal  contract  shall  be 
made  from  sums  raised  by  tax  for  the  year  for  which  such  con- 
tract is  made,  is  to  forbid  the  creation  of  future  responsibility 
for  annual  current  expenses.1  The  provisions  in  the  statute  of 
Iowa  declare  that  it  is  competent  for  any  city  authorized  by 
that  statute  to  levy  a  tax  to  pay  for  the  paving  of  street  and 
alley  intersections  "  to  anticipate  the  collection  thereof  by  borrow- 
ing money,  and  pledging  such  tax,  whether  levied  or  not,  for  the 
payment  of  the  money  so  borrowed."  The  Supreme  Court  of 
that  state  has  held  that  there  was  no  limitation  upon  the  city  as 
to  the  amount  of  the  work  of  the  kind  contemplated  it  might  do 
in  a  single  year  except  the  limitation  in  the  Constitution  as  to  the 
indebtedness  it  might  contract,  and  that  the  provision  above 
referred  to  did  not  limit  the  city  in  making  the  loan  provided  for 
to  the  amount  of  tax  which  would  accrue  under  a  levy  for  a 
single  year,  but  that  it  was  empowered  to  pledge  the  tax  to  any 
extent  necessary  to  enable  it  to  meet  such  indebtedness  as  it 
might  lawfully  incur  in  a  single  year,  and  to  levy  a  tax  for 
successive  years  for  that  purpose.2 

§  61.  The  same  subject  continued. —  The  indebtedness  of  a 
school  district  having  exceeded  that  allowed  by  the  constitutional 
limitation,  should  its  directors  contract  an  indebtedness  with  other 

1  Putnam  v.  City  of  Grand  Rapids,  Rep.  617;  42  N.  W.  Rep.  650.     A  con- 

(1885)  58  Mich.  416:  8.  c.,25N.  W.  Rep.  tract  entered  into  by  a  city  with  a 

330;  City  of  Springfield  v.  Edwards,  84  water  works  company  to  furnish  water 

111.  626;  Law  v.  People,   87  111.   385;  to  the  city  for  an  annual  sum  has 

Fuller  T.  City  of  Chicago,  89  111.  282;  been  held  not  to  be  in  violation  of  a 

Howell  «.  City  of  Peoria,  90  111.  104;  law  that  the  council  of  the  city  shall 

New  Orleans  ®.  Clark,  95  U.  S.  644,  contract  no  debt  on  its  part  which 

652;  French  «.  City  of  Burlington,  42  shall  not  be  payable  within  the  fiscal 

Iowa,   614;   National    State   Bank  r.  year  in  which  it  was  contracted,  and 

Independent  District,  39  Iowa,  490;  which  cannot  be  discharged  from  the 

McPherson    v.   Foster,   43   Iowa,   48;  income  of  such  year,  as  the  compensa- 

City  of  Council  Bluffs  v.  Stewart,  51  tion  for  each    year's  service  of    the 

Iowa,  385;  Scott  v.  City  of  Davenport,  company  under  the  contract  in  ques- 

34  Iowa,  208;  Mosher  v.  Independent  tion  was  payable  in  that  year  and  each 

School  District,  44  Iowa,  122;  East  St.  year's  indebtedness  was  only  for  the 

Louis  T.   People,   6  Bradw.    76;  Bu-  water  furnished  in  that  year.     Utica 

chanan  v.  Litchfield,  102  U.  S.  278.  Water  Works  Co.  v.  City  of    Utica, 

*  Coggeshall  v.  City  of  Des  Moines,  (1884)  31  Hun,  426. 
(1889)  78  Iowa,  235;   s.  c.,  41  N.  W. 


§  61]  PUBLIC  CORPORATIONS.  67 

persons,  and  afterwards,  through  collusion  with  those  other  per- 
sons, permit  them  to  obtain  judgment  for  such  indebtedness 
against  the  school  district,  the  judgment  would  be  of  no  validity 
against  the  district,  and  could  not  be  enforced.1  The  limitation 
of  the  indebtedness  which  may  l>e  incurred  by  a  county  of  the 
territory  of  Utah,  as  fixed  by  the  act  of  congress  with  reference 
to  territories  and  the  territorial  legislature,  is  the  amount  of  the 
income  and  revenue  of  the  county  for  the  two  years  just  preced- 
ing the  incurring  of  the  indebtedness,  and  the  Supreme  Court  of 
the  territory  has  held  county  warrants,  issued  for  indebtedness 
beyond  that  amount,  to  be  void  and  unauthorized.8 

1  Kane  t>.  Independent  School  Dist.  county  under  a  contract  which  pro- 
of Rock  Rapids,  (1891),  82  Iowa,  5;  vided  that  the  contractors  agreed  "to 
0.  c.,  47  N.  W.  Rep.  1076.  take  and  receipt  the  sura  of  $3.510  in 

*  Fenton  t.  Blair,  (Utah,  1895)  89  Pac.  warrants  on  county  treasurer,  payable 

Rep.  485.  In  Butts  r.  Little,  (1881)  68  on  December  25,  1884,  and  bearing 

Ga.  272,  the  Supreme  Court  of  Georgia  eight  per  cent  interest  after  that  date 

held  that  for  a  county  to  contract  for  until  paid  in  full,  iq  payment  for  said 

the  erection  of  a  public  building  at  a  cells  and  wrought  iron  works,"  for 

specified  price,  which  was  to  be  com-  which,  at  the  November  term  of  the 

pit-ted  by  a  certain  date,  and  payment  Court  of  Ordinary  orders  were  issued 

for  which  was  to  be  made  as  the  work  to  "  pay  out  of  any  money  now  being 

progressed,  on  estimates  to  be  made  collected  for  new  jail  fund,"  was  held 

by  certain  architects,  less  fifteen  per  to  create  a  new  debt,  and  that  it  was 

cent,  was  in  effect  a  contract  to  pay  the  in  violation  of  the  Constitution  of  the 

price  agreed  on  by  the  day  of  the  date  state.  Rogers  r.  Board  of  Comrs. 

of  completion  fixed;  and  the  amount  Le  Sueur  County,  (Minn.)  59  N.  W. 

being  more  than  could  constitutionally  Rep.  488;  Hunt  r.  Fawcett,  8  Wash, 

be  raised  by  taxation  without  author-  896;  6.  c..  36  Pac.  Rep.  818;  Hocka- 

ity  of  the  voters  exhibited  by  an  elec-  day  v.  Comrs.,  1  Colo.  App.  362; 

tion,  was  to  incur  a  debt  not  authorized  Barnard  r.  Knox  County,  105  Mo.  882; 

by  the  Constitution.  See  Spann  v.  s.  c.,  16  S.  W.  Rep.  917,  overruling 

Webster  County,  64  Qa.  498,500;  Hud-  Potter  v.  Douglas  Co.,  87  Mo.  240; 

son  t>.  Marietta,  64  Qa.  286.  As  to  the  Bonnell  t.  County  of  Nuckolls,  82  Neb. 

effect  of  limitation  upon  the  power  to  189;  8.  c.,  49  N.  W.  Rep.  225,  afllrm- 

creatc  indebtedness,  sec  Murphy  v.  ing  Bonnell  t>.  Nuckolls  County,  28 

East  Portland.  42  Fed.  Rep.  808;  Lott  Neb.  90;  s.  c.,  48  N.  W.  Rep.  1145; 

«.  Mayor,  etc.,  of  City  of  Way  cross,  84  Baird  c.  Todd.  27  Neb.  782;  Bpilman 

Ga.  681;  s.  c.,  11  S.  E.  Rep.  558;  Dehm  «.  City  of  Parkersburg,  85  W.  Va.  605; 

v.  City  of  Havana,  28  111.  App.  520;  s.  c.,  14  8.  E.  Rep.  279;  Hockaday 

( Murk  c.Columbus,  23  Wkly.  Law  Bull.  t>.  Board  of  County  Comrs.,  (Colo. 

289;  Coggeshall  v.  City  of  Des  Moines,  App.)  29  Pac.  Rep.  287;  Nolan  County 

78  Iowa,  235;  s.  c.,  41  N.  W.  Rep.  617.  r.  State,  83  Tex.  182;  s.  c.,  17  8.  W. 

In  Cabaniss  r.  Hill,  (1885)  74  Ga.  845,  a  Rep.  828;  People  r.  Hamill,  134  111. 

contract  for  certain  iron  doors,  cells,  666;  s.  c.,  29  N.  E.  Rep.  280;  Rehmke 

pipes  for  sewers,  etc.,  furnished  a  r.  Goodwin,  2  Wash.  St.  676;  s.  c.,  27 


68  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  62 

§  62.  Limitations  upon  power  to  incur  indebtedness  — 
procuring  a  supply  of  water. — Where  the  common  council  of 
a  city  was  prohibited  by  the  charter  from  contracting  debts  or 
incurring  liabilities  exceeding  in  any  one  year  the  revenue  for 
such  year  unless  authorized  by  a  majority  vote  of  the  electors  of 
the  city,  the  Supreme  Court  of  Michigan  held  that  a  contract 
made  by  the  common  council  without  such  a  vote  for  the  use  of 
at  least  fifty  water  hydrants  per  year  at  fifty  dollars  each  for  a 
term  of  thirty  years,  created  a  liability  against  the  city  to  the 
full  extent  of  the  thirty  years'  rental,  which  aggregate  liability 
being  in  excess  of  the  revenue  which  could  be  legally  raised  in 
any  one  year,  the  contract  was  void.1 

Pac.  Rep.  473;  Mayor,  etc.,  of  Rome  E.  Rep.  782.  That  towns  having  power 
0.  Me  Williams,  (1881)  67  Ga.  106;  to  provide  for  the  purchase  and  main- 
State  ex  rel.  Vandiver  v.  Tolly,  (S.  C.,  tenance  of  fire  engines  for  the  extin- 
1892)  16  S.  E.  Rep.  195;  Childs  t>.  City  guishment  of  fires  have  the  incidental 
of  Anacortes,  (1892)  5  Wash.  St.  452;  power  to  make  provision,  by  reservoirs 
8.  c.,  32  Pac.  Rep.. 217.  or  other  means,  for  a  supply  of  water, 

1  Niles  Water  Works  T>.  Mayor,  etc.,  without  which  the  engines  would  be 
of  the  City  of  Niles,  (1886)  59  Mich,  useless,  see  Hardy  v.  Waltham,  3  Met. 
811;  s.  c.,  26  N.  W.  Rep.  525;  11  163.  In  Salem  Water  Co.  v.  City  of 
Am.  &  Eng.  Corp.  Cas.  299.  In  Salem,  5  Oreg.  30,  it  was  held  that  an 
Davenport  v.  Kleinschmidt,  (1887)  6  agreement  by  the  city  to  pay  the 
Mont.  502;  s.  c.,  16  Am.  &  Eng.  water  company  $1,800  per  annum  for 
Corp.  Cas.  301,  where  the  bonded  seventeen  years  in  quarterly  install- 
indebtedness  of  a  city  was  $19,500  ments  for  water  to  be  furnished  the 
and  the  floating  indebtedness  over  city  without  any  provision  for  raising 
$15,000,  a  contract  bonding  the  city  to  and  appropriating  revenue  to  be  ap- 
take  water  from  a  contractor  at  an  plied  in  payment  for  such  liabilities  as 
annual  rent  of  §15,000  was  held  to  be  they  became  due,  necessarily  created 
in  violation  of  a  provision  in  the  char-  a  liability  within  the  meaning  of  the 
ter  of  the  city  limiting  the  power  of  act  of  incorporation  of  the  city  which 
the  city  council  "  to  incur  any  indebt-  prohibited  the  city  from  creating 
edness  on  behalf  of  said  city  for  any  "any  debt  or  liabilities  in  any  man- 
purpose  whatever  to  exceed  the  sum  ner "  against  the  city  which  should 
of  $20,000,  as  such  contract  created  an  exceed  the  sum  of  $1,000;  and  that 
indebtedness  within  the  meaning  of  the  contract  was  void..  The  court 
this  limitation.  See  on  this  subject  reviewed  the  following  cases  perti- 
Burlington  Water  Co.  v.  Woodward,  nent  to  this  ruling:  State  of  Calif or- 
49  Iowa,  58, 61;  Grant  v.  City  of  Da ven-  nia  v.  McCauley,  15  Cal.  429;  People 
port,  36  Iowa,  396,401;  Sackett  P.  City  ex  rel.  McCauley  v.  Brooks,  16  Cal. 
New  Albany,  88  Ind.  473;  s.  c.,  45  Am.  11,  24;  Koppikus  v.  State  Capitol  Corn- 
Rep.  472;  Prince  r.  City  of  Quincy,  105  missioners,  16  Cal.  249,  253;  State  v. 
HI.  138,  142;  State  v.  Mayor,  23  La.  Medbery,  7  Ohio  St.  526;  People  «. 
Ann.  358;  Smith  r.  Inhabitants  of  Ded-  Pacheco,  27  Cal.  175;  Coulson  «.  City 
ham,  (1887)  144  Mass.  177;  s.  c.,  10  N.  of  Portland,  1  Deady,  481. 


§  63]  PUBLIC  CORPORATIONS.  69 

§  63.  The  same  subject  continued.— Power  conferred  upon 
cities  by  statute  "  to  construct,  maintain  and  operate  water 
works "  does  not,  expressly  or  impliedly,  deprive  such  cities  of 
tin -ir  pre-existing  and  co-existing  power  and  rii^ht  to  "authorize 
any  incorporated  company  or  association  to  construct  such  works  " 
for  furnishing  the  city  with  wholesome  water.1  The  Indiana 
Supreme  Court,  in  a  later  case  involving  a  contract  with  a  water 
company,  has  held  that  although  the  power  of  a  city  to  contract 
for  a  supply  of  water  for  public  use,  be,  in  a  general  sense,  a  dis- 
cretionary one,  it  cannot  be  so  exercised  as  to  create  a  corporate 
debt  beyond  that  limited  by  law,  nor  to  surrender  or  suspend 
legislative  power.2  A  city  vested  by  the  terms  of  its  charter 
with  "  full  power  and  authority  to  make  such  assessments  on  the 
inhabitants  of  the  city,  or  those  who  hold  taxable  property 
therein,  for  the  safety,  benefit,  convenience  and  advantage  of  said 
city,  as  shall  appear  to  them  expedient "  may  make  an  assessment 

'City  of  Vincennes  r.  Callender,  what  constitutes  a  "debt"  or  "in- 

(1882)  86  Ind.  484,  sustaining  a  con-  debtedness,"  under  the  constitutional 

tract  of  the  city  with  a  water  company  provisionsof  various  states,  the  Indiana 

to  supply  water  as  not  ultra  mret.  court  refer  to  and  comment  upon  the 

*  City  of  Valparaiso  c.  Gardner,  following  cases :  Sackett  v.  City  of 
(1884)  97  Ind.  1.  As  to  the  contract  New  Albany,  88  Ind.  473  ;  Lowber  t>. 
in  this  case,  it  was  generally  said  by  Mayor,  etc.,  5  Abb.  Pr.  325;  Clarke 
ELLIOTT,  Ch.  J.  :  "  We  have  no  doubt  t>.  City  of  Rochester,  24  Barb.  446; 
that  the  corporation  had  authority  to  Weston  v.  City  of  Syracuse,  17  N.  Y. 
contract  for  a  supply  of  water  for  a  110;  Garrison  v.  Howe,  17  N.  Y.  458; 
period  of  twenty  years,  and  that  the  Wentworth  t.  Whittemore,  1  Mass, 
contract  cannot  be  overthrown  solely  471 ;  People  t>.  Arguello.  37  Cal.  524 ; 
on  the  ground  that  it  is  a  surrender  of  East  St.  Louis  /-.  East  St.  Louis,  etc., 
legislative  power.  There  is  a  distinc-  98  111.  415  ;  Prince  e.  City  of  Quincy, 
tion  between  powers  of  a  legislative  105  111.  138;  s.  c.,  44  Am.  Rep.  785; 
character  and  powers  of  a  business  Dively  v.  City  of  Cedar  Falls,  27 
nature.  The  power  to  execute  a  con-  Iowa,  227.  Approved  of  in  1  Dill,  on 
tract  for  goods,  for  houses,  for  gas,  Mun.  Corp.  (3d  ed.)  §  135 ;  Grant  v. 
for  water  and  the  like,  is  neither  a  City  of  Davenport,  36  Iowa,  896; 
judicial  nor  a  legislative  power,  but  French  r.  City  of  Burlington,  42  Iowa, 
is  a  purely  business  power.  The  614 ;  Burlington  Water  Co.  ».  Wood- 
question  is,  however,  so  firmly  settled  ward,  49  Iowa,  58  ;  Scott  County  v. 
by  authority  that  we  deem  it  unneces-  City  of  Davenport,  84  Iowa,  208  ; 
aary  to  further  discuss  it.  City  of  State  t>.  McCauley,  15  Cal.  429 ;  Peo- 
Indiunapolis  t.  Indianapolis,  etc.,  Co.,  pie  r.  Pacheco,  27  Cal.  175;  Coulson 
66  Ind.  896 ;  Dill,  on  Mun.  Corp.  t>.  City  of  Portland,  Deady,  481  ; 
::5.  474,  and  authorities  cited."  Coy  t>.  City  Council,  17  Iowa,  1; 
Upon  the  question  of  the  restriction  Coffin  t.  City  Council,  26  Iowa,  515. 
upon  the  city  stated  in  the  text  and  as  to 


70  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  64: 

on  the  value  of  the  real  estate  within  the  corporate  limits  of  the 
city,  through  its  city  council,  for  the  purpose  of  constructing  a 
canal  for  the  better  securing  a  supply  of  water  for  the  city.1  A 
municipal  corporation  may  under  legislative  grant  of  power,  to 
make  all  contracts  in  its  corporate  capacity  which  may  be  deemed 
necessary  for  the  welfare  of  the  corporation,  make  a  contract  for 
the  construction  of  water  works.8  Under  the  statute  entitled 
"  An  act  to  enable  cities  to  supply  the  inhabitants  thereof  with 
pure  and  wholesome  water,"3  a  city  is  authorized  to  contract 
for  a  supply  of  water  for  public  and  private  use.4 

§  64.  Donation  of  bonds  to  aid  in  developing  water  power. 
—  A  municipal  corporation,  the  charter  of  which  authorizes  it 
"  to  borrow  money  on  the  credit  of  the  city  and  to  issue  bonds 
therefor,"  and  which,  under  a  special  statute,  is  authorized  to 
borrow  a  sum  named  "  to  be  expended  in  developing  the  natural 
advantages  of  the  city  for  manufacturing  purposes,"  has  no 
authority,  under  the  grants  of  power  above  stated,  to  issue  bonds 
by  way  of  donation  to  an  individual  to  aid  in  developing  the 
water  power  of  the  city,  and  is  not  liable  to  an  action  upon  such 
bonds  by  one  who  takes  them  with  notice  of  the  facts.5 

1  Frederick  v.  City  Council  of  99  U.  S.  86,  and  Ottawa  v.  National 

Augusta,  (1848)5  Ga.  561.  This  canal  Bank  of  Portsmouth,  105  U.  S.  342, 

was  constructed  for  procuring  a  bet-  involving  bonds  of  the  same  issue, 

ter  supply  of  water  and  for  manu-  where  it  was  held  in  substance  that, 

facturing  purposes.  as  there  was  legislative  authority  to 

4  Mayor  &  Council  of  Rome  v.  issue  bonds  for  municipal  purposes, 

Cabot,  (1859)  28  Ga.  50.  and  it  was  recited  in  the  bonds  then 

8  Pub.  Laws  N.  J.  (1876),  366.  sued  on  that  they  were  issued  for  such 

4  Hackensack  Water  Co.  v.  City  of  purposes,  the  city  was  estopped  from 
Hoboken,   51  N.  J.  Law,  220;  s.  c.,  proving,  as  against  bona  fide  holders, 
17  Atl.  Rep.  307.     As  to  contracting  that  the  recitals  were  untrue;    and  as 
for  water  supply,  see  City  of  Grand  the  plaintiffs  in  those  cases  had  no 
Rapids  v.   Hydraulic  Co.,    66  Mich,  knowledge  of  the  precise  purposes  for 
606;    s.    c.,    33    N.    W.    Rep.    749;  which  the  bonds  were  issued,  they  had 
Adrian  Water  Works  v.  City  of  Adrian,  the  right  to  rely  on  what  was  recited. 
64  Mich.  584;   s.  c.,  31  N.  W.  Rep.  The  parties  here  suing  did  know  the 
529 ;  Culbertson  v.  City  of  Fulton,  127  purpose  for  which  they  were  issued. 
111.   30;   s.   c.,    18  N.   E.   Rep.  781;  These  bonds  being  Illinois  contracts, 
Atlantic   City    Water  Works  Co.   v.  WAITE,  Ch.  J.,  referred  to  these  cases: 
Read,  50  N.  J.  Law,  665;   s.   c.,  15  Taylors  Thompson,  42111. 9;  Chicago, 
Atl.  Rep.  10.  Danville  &  Vincennes  R.  R.   Co.  v. 

5  Ottawa  v.  Carey,  (1883)  108  U.  S.  Smith,  62  111.  268;   The  People  «.  Du- 
110;  s.  c.,  2  Sup.  Ct.  Rep.  361.     The  puyt,  71  111.  651;  Burr  ».  City  of  Car- 
court  distinguished  Hackett  v.  Ottawa,  bondale,  76  111.  455;  People  v.  Trustees 


§64] 


PUBLIC  CORPORATIONS. 


71 


of  Schools,  ?S  111.  130;  Quincy,  Mis- 
souri &  Pacific  R.  R.  Co.  t.  Morris,  84 
111.  410;  Supervisor,  etc.,  of  Hensley 
Township  r.  The  People,  84  111.  644,  as 
to  what  might  be  held  to  be  a  cor- 
porate purpose.  The  chief  justice 
then  used  this  language  as  to  the  case 
before  the  court:  "As  power  in  a 
municipal  corporation  to  borrow 
money  and  issue  bonds  therefor  im- 
plies power  to  levy  a  tax  for  the  pay- 
ment of  the  obligation  that  is  incurred, 
unless  the  contrary  clearly  appears 
(Rails  County  Court  ».  The  United 
States,  105  U.  8.  733),  it  follows  that 
the  power  contained  in  the  charter  to 
borrow  money  did  not  authori/.e  the 
issue  of  the  bonds  in  this  case,  unless 
they  were  issued  for  a  corporate  pur- 
pose, there  being  a  constitutional  pro- 
hibition against  taxation  by  the  city, 
except  for  corporate  purposes.  *  *  * 
The  charter  confers  all  the  powers 
usually  granted  for  the  purposes  of 
local  government,  but  that  has  never 
been  supposed  of  itself  to  authorize 
taxes  for  every  thing  which,  in  the 
opinion  of  the  city  authorities,  would 
'  promote  the  general  prosperity  and 
welfare  of  the  municipality.'  Un- 
doubtedly the  developments  of  the 
water  power  in  the  rivers  that  traverse 
the  city  would  add  to  the  commerce 
and  wealth  of  the  citizens,  but  cer- 
tainly power  to  govern  the  city  does 


not  imply  power  to  expend  the  public 
money  to  make  the  water  in  this  river 
available  for  manufacturing  purposes. 
It  is  because  railroads  are  supposed  to 
add  to  the  general  prosperity  that 
municipalities  arc  given  power  to  aid 
in  their  construction  by  subscriptions 
to  capital  stock  or  donations  to  the 
corporations  engaged  in  their  construc- 
tion; but  in  all  the  vast  number  of 
cases  involving  subscriptions  and  do- 
nations that  have  come  before  this 
court  for  adjudication  since  The  Com- 
missioners of  Knox  County  v.  A  spin - 
wall,  decided  twenty-five  years  ago 
and  reported  in  21  I  low.  539,  it  has 
never  been  supposed  that  the  power 
to  govern,  of  itself,  implied  power  to 
make  such  subscriptions  or  such  do- 
nations. On  the  contrary,  it  has  been 
over  and  over  again  held,  and  as  often 
as  the  question  was  presented,  that 
unless  the  specific  power  was  granted, 
all  such  subscriptions  and  all  such  do- 
nations, as  well  as  the  corporation 
bonds  issued  for  their  payment,  were 
absolutely  void,  even  as  against  bona 
fide  holders  of  the  bonds.  Thomson  v. 
Lee  County,  3  Wall.  327;  Marsh  ».  Ful- 
ton County,  10  Wall.  676;  St.  Joseph 
Township  r.  Rogers,  16  Wall.  644; 
McClure  v.  Township  of  Oxford,  94 
U.  8.  429;  Wells  v.  Supervisors,  102 
U.  S.  625;  Allen  t>.  Louisiana,  103  U. 
8.  80." 


CHAPTER  II. 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY  —  PRIVATE 
CORPORATIONS. 


65.  General    rules   as  to  incurring 

indebtedness. 

66.  Purchase  of  property. 

67.  Aiding  other  corporations. 

68.  Contracts  of  suretyship. 

69.  Guaranty  of  bonds  of  one  rail- 

way corporation  by  another. 

70.  Guaranty  of  bonds  of  railroad 

corporation  by  one  of  another 
kind. 

71.  Circumstances  surrounding  cor- 

poration may    authorize   the 
guaranty. 

72.  Guaranty  of  dividend  upon  pre- 

ferred stock  of  another  cor- 
poration. 

73.  What  contract  of  another  cor- 

poration may  not  be  guaran- 
teed. 

74.  Athletic  club. 

75.  Banking  associations. 


§  76.  A  savings  bank's  powers. 

77.  Corporations  dealing  in  lands. 

78.  Insurance  corporations. 

79.  Manufacturing  corporations. 

80.  Mining  corporations. 

81.  Railroad  corporations. 

82.  The  same  subject  continued. 

83.  Raising    money  by    borrowing 

notes    and    indorsement    of 
them. 

84.  Evidences    of     indebtedness  — 

forms. 

85.  More  rules  on  this  subject. 

86.  Bonds  of  a  banking  association. 

87.  Power  to  secure  their  indebted- 

ness. 

88.  Limitation  of  indebtedness. 

S9.  Debt  limited  by  par  value  of 

capital  stock. 
90.  When  a  statutory  limitation  of 

indebtedness  does  not  apply. 


§  65.  General  rules  as  to  incurring  indebtedness. —  Within 
the  scope  of  its  general  and  discretionary  powers,  the  authority 
of  a  corporation  to  dispose  of  its  funds  for  any  purpose  whatever 
may  be  admitted  to  be  absolute  and  beyond  all  control.1  It  is 
always  presumed  that  a  corporate  body  may  make  any  proper 
contracts,  the  scope  and  tendency  of  which  are  manifestly  to  for- 
ward the  design  of  its  legislative  creation.2  Such  corporations, 
if  not  restricted  by  their  charters,  have  incidental  authority  to 
borrow  money  for  any  of  their  lawful  purposes.8  But  the  power 
to  borrow  money,  being  an  incidental  power,  does  not  extend 

1  Binney's  Case,  (1829)  2  Eland's  Ch.  agent  under  employment  to  perform 

99,  142.  services  consonant  to  the  general  de- 

*  Kitchen  v.  Cape  Girardeau  &  State  sign  of  the  corporation. 

Line  R.  R.  Co.,  (1876)  59  Mo.  514,  an  » Partridge  «.  Badger,  25  Barb.  146. 
action  to  recover  for  services  as  an 


§  65]  PRIVATE  CORPORATIONS.  73 

beyond  cases  where  it  is  essential  to  the  transaction  of  its  ordi- 
nary affairs.1  The  limit  fixed  in  the  charter  of  a  corporation  as 
to  its  capital  does  not  restrict  its  power  to  contract  debts  for  the 
purpose  of  the  incorporation  as  to  their  amount,  nor  as  to  the 
amount  of  property  it  may  purchase  or  accumulate.*  A  private 
corporation  has  been  held  liable,  at  least  to  the  extent  of  the  con- 
sideration received,  for  indebtedness  assumed  to  be  contracted  in 
excess  of  the  limit  imposed  by  the  articles  of  incorporation.8  A 
corporation,  created  with  authority  to  construct  a  certain  road 
and  collect  toll  thereon,  may  purchase  a  like  road  already  con- 
structed, and  charge  toll  thereon.4  A  corporation  organized 
under  a  state  corporation  act  which  authorizes  the  formation  of 
a  corporation  to  engage  "  in  any  lawful  enterprise,  business,  pur- 
suit or  occupation,"  has  power  to  buy  and  sell  or  lease  a  railway.9 
There  is  an  implied  power  in  a  corporation  empowered  to  con- 
struct a  work  to  borrow  money  necessary  for  the  purpose  of  such 
construction,  and  to  issue  its  bonds  for  the  money  borrowed.6  A 
corporation  authorized  by  the  general  law  under  which  it  is  incor- 
porated to  borrow  money  for  the  purpose  of  constructing  its 
works,  and  to  issue  bonds  for  its  payment,  has  the  power  to  pur- 
chase works  already  constructed  and  suitable  for  its  purposes,  and 
issue  bonds  in  payment  for  such  works.7  In  such  a  case,  the 
ODrpo ration  may  issue  stock  for  a  portion  of  the  purchase  money 
of  such  works,  and  pay  in  cash  or  issue  bonds  for  the  balance.8 

1  Beers  c.  Phoenix  Glass  Co.,  14  Barb.  299;  Straus  &   Bro.  v.  Eagle  Ins.  Co. 

358.  of  Cincinnati,  5  Ohio  St.  59. 

'Barry  r.  Merchants'  Exchange  Co.,  4 State  ex  rel.  t>.  Hannibal,  etc..  Road 

1  Sandf.  Ch.  280.  Co.,  (1889)  37  Mo.  App.  496. 

'  Humphrey  v.  Patrons'  Mercantile  •  Oregonian  Ry.  Co.  v.  Oregon  Ry. 

Association,  (1879)  50  Iowa,  607.     The  &  Navigation  Co.,  23  Fed.  Rep.  232. 

New  York  Court  of  Appals  has  sus-  •  Smith  ».  Law,  21  N.  Y.  296. 

tained  the  validity  of  a  contract  of  a  '  Gamble  v.  Queens  County  Water 

private    corporation  for  proper    and  Co.,  (1890)  25  Abb.  N.  C.  410,  revers- 

necessary  work  preliminary  to  active  ing  52  Hun,  166. 

business  operations,  as  within  its  inci-  8Ibid.    As  to  legislature's  power  to 

dental   power  to  make  any  contract  authorize  corporations  of  its  creation 

necessary  to  advance  the  object  for  to  borrow  money,  etc.,  sec  Covington 

which  it  was  created.       Legrand    r.  «.  C.,  etc.,  Bridge  Co.,  (1878)  10  Bush, 

Manhattan      Mercantile     Association,  74.     As  to  power  to  borrow  money, 

(1880)  80  N.  Y.  638,  affirming  44  N.  see  Union  M.  Co.  «.  Rocky  Mt.  Nat. 

Y.  Super.  Ct.  562.     See  Broughton  «.  Bank,  2  Col.   248;  Beers  r.   Pho?nix 

M.  Water  Works,  3  B.  &  A,  1;  Bank  Glass    Co.,    14    Barb.    858;    Mead    v. 

of  Columbia  v.  Patterson,  7  Cranch.  Keeler,  24  Barb.  20.     As  to  raising 


74:  GENERAL  POWER  TO  INCUB  PECUNIARY  LIABILITY.          [_§  b6 

A  corporation,  with  power  to  borrow  money,  may  legitimately 
borrow  promissory  notes  upon  which  to  raise  money  for  its 
business.1 

§  66.  Purchase  of  property. —  By  the  common  law  corpora- 
tions have  a  right  to  purchase  and  hold  property  so  far  as  may 
be  necessary  to  carry  into  execution  the  purposes  and  objects  for 
which  they  are  created.2  A  corporation  incorporated  under  the 
general  laws  of  Alabama,  has  power  to  borrow  money  to  pur- 
chase and  improve  real  estate  that  it  may  be  enabled  to  carry 
into  effect  the  purposes  of  its  incorporation.3  The  Iowa  Supreme 
Court  has  held  that  a  corporation  authorized  by  its  charter  to 
purchase,  etc.,  "  any  real  estate  or  other  property  deemed  advis- 
able in  the  transaction  of  its  business  "  might  purchase  its  own 


money  for  the  purpose  of  carrying  out 
the  purposes  of  its  creation,  see  Wellers- 
burg,  etc.,  Co.  v.  Young,  12  Md.  476; 
Mayor,  etc. ,  of  Baltimore  ».  Baltimore 
&  Ohio  R.  R.  Co.,  21  Md.  91.  As  to 
the  means  employed  to  carry  out  such 
purposes,  coming  withiu  the  implied 
powers  of  corporations,  see  Willmarth 
v.  Crawford,  10  Wend.  342;  Madison, 
etc.,  Plank  Road  Co.  v.  Watertown, 
etc.,  Plank  Road  Co.,  5  Wis.  173; 
Clark  v.  Farrington,  11  Wis.  306. 
As  to  these  implied  powers  being  per- 
formed by  their  agents,  see  Smith  v. 
Eureka  Flour  Mills,  6  Cal.  1;  Straus 
&  Bro.  v.  Eagle  Ins.  Co. ,  5  Ohio  St.  59. 
As  to  making  promissory  notes  under 
the  implied  power,  see  Moss  v.  Oakley, 
2  Hill,  265;  Munn  ».  Commission  Co., 
15  Johns.  44;  Mott  v.  Hicks,  1  Cow. 
513;  Auerbach  v>.  Le  Sueur  Mill  Co., 
(1881)  28  Minn.  291;  s.  c.,  9  N.  W. 
Rep.  799;  Sullivan  ®.  Murphy,  23 
Minn.  6;  Chaska  Company  «.  Board 
of  Supervisors  of  Carver  Co. ,  6  Minn. 
204. 

1  Holbrook   v.  Basset,  5  Bosw.  147. 

1  Blanchard's  Gun-Stock  Turning 
Factory  v.  Warner,  (1848)  1  Blatchf. 
258. 

3  Alabama  Gold  Life  Ins.  Co.  v.  Cen- 
tral Agricultural  &  Mechanical  As- 
10 


sociation,  (1875)  54  Ala.  73.  Arguendo 
it  was  said  by  BRICKELL,  Ch.  J  :  "  The 
general  principle  is  that  a  corporation 
can  make  no  contracts,  and  do  no  acts, 
except  such  as  are  authorized  by  its 
charter.  From  the  charter  it  derives 
all  its  powers,  and  the  capacity  of  ex- 
ercising them.  Any  contract  made  by 
it  not  necessary  and  proper,  directly 
or  indirectly,  to  enable  it  to  answer 
the  purpose  of  its  creation,  is  void, 
and  neither  a  court  of  law  or  of  equity 
can  enforce  it.  Grand  Lodge  v.  Wad- 
dill,  36  Ala.  313;  Smith  v.  Ala.  Life 
Ins.  &  Trust  Co.,  4  Ala.  558;  City 
Council  v.  Montgomery  &  Wetumpka 
Plank  Road,  31  Ala.  76.  It  must  not 
be  understood,  however,  that  the 
charter,  whether  it  is  of  special  legis- 
lative enactment,  or  derived  from  gen- 
eral statutory  provisions,  must  ex- 
pressly confer  the  power  of  making 
contracts.  As  we  have  said,  the  ca- 
pacity to  contract  is  an  incidental  cor- 
porate power,  and  if  the  special  act  of 
incorporation,  or  the  general  statutory 
law  is  silent  as  to  the  contracts  into 
which  a  corporation  may  enter,  it  has 
the  power  to  make  all  such  contracts 
as  are  necessary  and  proper  to  enable 
it  to  accomplish  the  purposes  of  its 
creation.  Ang.  &  Ames  on  Corp. 


§66] 


PRIVATE  CORPORATIONS. 


75 


stock.1  Upon  evidence  that  it  was  customary  and  necessary,  in 
the  economical  conduct  of  tin-  business  of  iron  furnaces  to  con- 
duct a  supply  store  in  connection  therewith,  the  Supreme  Court 
of  Tennessee  has  held  that  debts  created  in  the  purchase  of  a 
stock  of  goods  for  such  store  were  valid  obligations  of  the  furnace 
rompany.  The  power  to  conduct  such  a  store  being  clearly  inci- 


s  ','71.  This  is  the  theory  on  which 
the  general  statutes  for  the  organiza- 
tion of  private  corporations  proceed, 
for  though  the  powers  of  such  cor- 
poration are  enumerated,  that  of  mak- 
ing contracts  is  not  included,  but  is 
left  to  Implication  from  the  powers 
mentioned,  and  the  character  and  pur- 
poses of  the  corporation.  It  is  not  in- 
dispensable, therefore,  to  the  validity 
of  a  contract  made  by  a  corporation 
for  money  borrowed,  that  the  power 
to  borrow  money  should  be  expressly 
conferred.  Ang.  &  Ames  on  Corp. 
§  257.  If  the  nature  and  character  of 
the  corporation  render  the  power  a 
usual  and  proper  mode  of  accomplish- 
ing its  objects  and  purposes,  the 
power  is  incidental  or  implied.  When 
the  corporation  has,  as  all  private  cor- 
porations have,  under  the  general  law 
providing  for  their  creation,  the  capac- 
ity of  acquiring  and  holding  personal 
and  real  property,  the  mode  of  acquir- 
ing not  being  limited,  they  may  ac- 
quire it  by  purchase  or  by  gift.  The 
corporation  has  the  capacity  of  an  in- 
dividual in  this  respect,  within  the 
scope  of  its  legitimate  objects  and 
purposes.  Having  the  power  to  ac- 
quire and  hold  personal  and  real  es- 
tate by  purchase,  it  has,  as  an  incident, 
the  power  to  borrow  money  to  make 
the  purchase.  The  exercise  of  such 
power  may  be  advantageous  and  use- 
ful, enabling  the  corporation,  the 
owner,  to  put  its  powers  into  active 
exercise,  and  to  acquire  the  necessary 
property  on  terms  more  profitable  to  its 
stockholders.  It  would  scarcely  be 
affirmed  that  the  power  to  acquire  and 
hold  real  and  personal  estate  must  be 


so  narrowed  that  the  corporation  could 
not  contract  a  debt  for  its  purchase  — 
that  at  the  very  moment  of  the  pur- 
chase and  conveyance  the  purchase 
money  must  be  counted  out  or  the 
purchase  and  conveyance  is  void.  If 
the  necessities  and  interests  of  the  cor- 
poration require  it,  which  must  be  de- 
termined by  those  having  charge  of  ita 
affairs,  and  intrusted  with  the  power 
and  duty,  that  a  debt  be  contracted  in 
the  acquisition  of  the  necessary  prop- 
erty, the  power  to  contract  it  cannot 
be  denied.  If  more  advantageous  to 
borrow  the  money  and  make  immedi- 
ate payment  than  to  contract  the  debt 
for  the  purchase  money  with  the  ven- 
dor, the  contract  is  equally  within  the 
scope  of  corporate  power  and  valid." 
Fay  t>.  Noble,  12  Cush.  1;  Davis  t>. 
Proprietors  of  Meeting  House,  8  Met. 
321;  Union  Bank  c.  Jacobs,  6  Humph. 
515;  Barry  r.  Merchants'  Exchange 
Co  ,  1  Sandf.  Ch.  280;  Burr  t>.  Mc- 
Donald, 3  Gratt.  215;  Curtis  v.  Leav- 
itt,  15  N.  Y.  9;  Bradley  t>.  Ballard, 
(1870)  55  111.  413;  Mead  v.  Keeler, 
(1857)  24  Barb.  20;  Partridge  r.  Bad- 
ger, (1857)  25  Barb.  146;  Clark  v.  Tit- 
comb,  (1864)  42  Barb.  122;  Life  &  Fire 
Ins.  Co.  v.  Mechanic  Fire  Ins.  Co., 
(1831)  7  Wend.  31;  Barnes  c.  Ontario 
Bank,  (1859)  19  N.  Y.  152;  Smith  r. 
Law,  (1860)  21  N.  Y.  296;  Ridgway  r. 
.Farmers'  Bank  of  Bucks  Co.,  (1825)12 
Serg.  &R.  256;  Hamilton  v.  Newcastle 
&  Danville  R.  R.  Co.,  (1857)  9  Ind. 
859;  Rockwell  r.  Elkhorn  Bank.  (1861) 
13  Wis.  658. 

1  Iowa  Lumber  Co.  r.  Foster,  (1878) 
49  Iowa.  '2~>.  As  supporting  this  doc- 
trine, sec  Barton  r.  P.  J.  &  U.  F. 


76  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  67 

dental  to  the  business  of  making  iron,  was,  therefore,  within  the 
corporate  powers  of  the  company,  though  not  mentioned  in  the 
charter.1 

§  67.  Aiding  other  corporations. —  An  aei;  of  the  legislature 
of  New  York  authorizing  the  several  railroad  corporations  of 
that  state  to  subscribe  to  the  capital  stock  of  a  railroad  company 
designed  to  penetrate  the  western  country  has  been  held  to  be 
constitutional  and  valid.2  The  Supreme  Court  of  Nevada  has 
held  a  contract  by  a  mining  corporation  to  advance  a  specific  sum 
of  money  to  aid  in  the  construction  of  a  tunnel  to  drain  its  mine 
not  to  be  ultra  vires,  and  that  such  a  contract  came  within  the 
incidental  and  implied  powers  of  a  mining  company.8  Notwith- 
standing the  Code  of  Oregon  in  one  place  provides  that "  persons" 
shall  be  construed  to  include  a  corporation,  the  authority  granted 
under  the  same  Code  to  two  or  more  "  persons  "  to  form  a  corpo- 
ration in  a  certain  manner  does  not  empower  a  corporation  to 
become  a  subscriber  to  shares  in  another  corporation.4  The 
Court  of  Appeals  of  Maryland  has  sustained  the  power  of  one 
steamboat  company  to  purchase  shares  of  stock  in  another.5  A 

Plank  Road  Co.,  17  Barb.  397;  Cooper  is  nothing  in  the  charter  of  the  steam 
v.  Frederick,  9  Ala.  738;  Verplanck  v.  packet  company  or  in  the  nature  of 
Mer.  Ins.  Co.,  1  Edw.  Ch.  84;  Hart-  its  business  that  would,  in  the  slight- 
ridge  v.  Rockwell,  R.  M.  Charlton,  est  manner,  forbid  the  exercise  of  such 
260;  Gillet  v.  Moody,  3  Comst.  479;  power,  and  having  money  to  loan  or  in- 
Taylor  v.  Miami  Exporting  Co.,  6  vest,  there  would  appear  to  be  no  good 
Ohio,  176;  State  Bank  t>.  Fox,  3  reason  why  it  might  not  invest  in  the 
Blatchf.  431;  City  Bank  of  Columbus  stock  of  other  corporations  as  well  as  in 
v.  Bruce,  17  N.  Y.  507.  any  other  funds,  provided  it  be  done 

1  Searight  v.  Payne,  6  Lea,  283.  bonafide  and  with  no  sinister  or  unlaw- 

2  White  t>.  Syracuse  &  Utica  R.  R.  ful  purpose.     The  courts  of  England 
Co. ,  (1853)  14  Barb.  559.  at  one  time  strongly  opposed  the  rights 

3  Sutro  Tunnel  Co.   •».   Segregated  of  one  corporation  to  deal  or  invest  in 
Belcher  Mining  Co.,  19  Nev.  121;  s.  the  stock  of  another  corporation  with- 
c.,  7  Pac.  Rep.  271.  out  express  authority  for  so  doing,  but 

4  Denny  Hotel    Co.    of    Seattle    v.  that  opposition  has  been  entirely  over- 
Schram,  (Wash.)  32  Pac.  Rep.  1002.  come  and  it  is  now  settled  there  that 

5  Booth  v.  Robinson,  (1880)  55  Md.  one  corporation  may  deal  in  the  shares 
419.     It  was  said  by  the  court:  "This  of  another,  without  express  authority 
[purchase  and  holding  of  this  stock],  so  to  do,  unless  where  expressly  pro- 
it  is    contended,    by    the    plaintiffs,  hibited  or  the  nature  of  its  business  ren- 
could  not  be  done  without   express  der  it  improper  so  to  deal.   ReBarned's 
authority  by  law.     But,  while  some  Banking    Co.,    L.    R.,    3    Ch.     105; 
courts  have  so  held,  the  great  weight  Re  Asiatic  Banking  Co.,  L.  R.,  4  Ch. 
of  authority  is  the  other  way.     There  252.     Ic  the  latter  of  the  cases  first 


PRIVATE  CORPORATIONS.  77 

joint  stock  corporation  organized  "to  do  a  general  insurance 
agency  commission  and  brokerage  business  and  such  other  things 
as  are  incidental  to  and  necessary  in  the  management  of  that 
business,"  has  been  held  in  Connecticut  to  have  no  power  to  sub- 
scribe to  the  stock  of  a  savings  bank  and  building  and  loan  asso- 
ciation.1 Though  the  power  to  borrow  money  may  be  implied 
in  such  a  corporation,  it  cannot  legally  subscribe  to  such  stock  as 
a  means  of  effecting  a  loan  ol  money.2  The  power  of  an  agricul- 
tural society  to  subscribe  to  stock  in  a  street  railway  company 
which  was  to  construct  a  street  railroad  through  the  streets  of 
the  city  to  the  grounds  of  the  society  and  to  borrow  money, 
secure  it  by  assigning  certain  promissory  notes  of  the  railroad 
company  and  mortgage  to  secure  them  and  to  guarantee  such 
notes  in  order  to  effectuate  the  purposes  of  the  society,  has  been 
sustained  by  the  Iowa  Supreme  Court.3 

§  68.  Contracts  of  suretyship. —  The  Louisiana  Supreme 
Court  has  held  that  there  was  no  express  authority  given  to  the 
officers  of  the  corporation  involved  in  this  case  to  enter  into  a 
contract  of  surety  shio  ;  neither  was  there  any  general  authority 

cited,  Lord  Justice  SELWYN.  in  speak-  same  case  affirmed  on  appeal  in  5  Md. 

ing  of  this  power  of  corporations,  said:  152. 

"  As  to  the  capacity  of  a  trading  cor-  '  Mechanics  &  Workingmen's  Mu- 

por-ition  to  accept  shares  in  another  tual  Savings  Bank  &  Building  Asso- 

trading    corporation,    it    is    sufficient  ciation  of    New    Haven    v.    Meriden 

for   me   to  say  that   I  entirely  agree  Agency  Co.,  (1855)24  Conn.  159. 

with  the  judgment  of  Lord  CAIRNS  in  *Ibid.   That  a  municipal  corporation 

the  case  of  Barned's  Banking  Co.,  viz.,  may  be  bound  by  a  subscription  to 

that  there  is  not,  either  by  the  com-  stock  not  authorized  by  its  charter 

mon  or  statute  law,  anything  to  pro-  by  subsequent  legislative  sanction,  see 

hibit  one    trading    corporation    from  First       Municipality       «.       Orleans 

taking  or  accepting  shares  in  another  Theatre  Co.,  2 Rob.  (La.) 209.    In  New 

trading  corporation.     There  may,  of  Orleans,  Florida  &  Havana  Steamship 

course,  be  circumstances  which  pro-  Co.  c.  Ocean  Dry  Dock  Co.,  (1870)  28 

hibit  or  render  it  improper  for  a  com-  La.  Ann.  173,  the  Louisiana  Supreme 

pany  so  to  do  having   regard   to  its  Court  held  that    the    dock  company 

own  constitution,   as  defined  by  its  could  not    subscribe  to    the    capital 

memorandum  and  articles."    It  is  in  stock  of  the  navigation  company,  this 

accordance  with  the  statutes  that  the  being  foreign  to  the  object  of  its  own 

law  is  laid  down  as  settled  by  Brice  in  charter.     Purchasing  stock  of  another 

his    work    on   Ultra    Viret,    pp.    91,  company.    Salomons    t>.    Laing,     18 

92.     And  in  this  state  the  same  prin-  Beav.  339. 

ciple  has  been  fully  sanctioned  in  the  *  Thompson  t>.   Lambert,  (1876)  44 

case    of    Elysville    Manuf.     Co.     v.  Iowa,  239. 
Okisko  Co.,  1  Md.  Ch.  Dec.  892,  and 


78  GENERAL  POWER  TO  INCUR  PECUN1AEY  LIABILITY.          [§  69 

from  which  the  power  to  enter  into  such  a  contract  could  be 
implied  or  fairly  deduced  under  a  plea  of  usage,  necessity,  con- 
venience or  public  interest.1  A  corporation  cannot  by  its  officers 
execute  a  note  for  a  debt  due  from  a  third  person  to  another, 
having  no  relation  to  its  business.2  A  manufacturing  corpora- 
tion, organized  under  the  general  laws  of  Kew  York,  has  no 
power  to  indorse  for  the  accommodation  of  another  paper  in 
which  it  is  not  interested.3  And  the  indorsement  of  such  paper 
by  the  treasurer  of  a  manufacturing  corporation  may  be  pre- 
sumed to  be  ultra  vires*  But  this  rule  has  been  adhered  to,  that 
while  a  corporation  has  no  right  to  bind  itself  by  an  accommoda- 
tion acceptance  or  indorsement,  the  corporation  is  liable  on  such 
acceptance  or  indorsement  to  a  bona  fide  holder,  although  it  was 
made  for  a  purpose  or  at  a  place  not  authorized  by  the  charter  of 
the  corporation.5 

§  69.  Guaranty  of  bonds  of  one  railroad  corporation  by 
another. —  Upon  a  sufficient  consideration  one  railroad  corpora- 
tion may  guarantee  the  payment  of  the  bonds  of  another.6  It  is 

1  Louisiana  State  Bank  T.  Orleans  5  Mather  v.  Union  Loan  &  Trust  Co., 

Navigation  Co.,  (1848)  3  La.  Ann.  294,  (City  Court  of  N.  Y.  1889)  26  N.  Y. 

in  which  case  the  powers  of  corpora-  St.  Repr.  58;  s.  c.,  7N.  Y.  Supp.  213; 

tions  at  common  law  and  under  the  citing  McCullough  v.  Moss,  5  Denio, 

Civil  Code  of  Louisiana  are  fully  dis-  567;  Mechanics'  Banking  Association 

cussed.  v.  New  York,  etc.,  White  Lead  Co., 

8  Hall  T.  Auburn  Turnpike  Co.,  35  N.  Y.  505;  Farmers  &  Mechanics' 

(1865)  27  Cal.  255.  Bank  v.  Butchers  &  Drovers'  Bank,  16 

3  National    Park  Bank  t.  German-  N.  Y.  125.  See,  also,  Usher  T.  Ray mond 
American    Warehousing,    etc.,     Co.,  Skate  Co.,  (Mass.  1895)  39  N.  E.  Rep. 
(1889)  116  N.  Y.  281;  s.  c.,  26  N.  Y.  416;  Savage  Mfg.  Co.  v.  Worthington, 
St.    Repr.    675;    Wahlig  v.    Standard  1  Gill.  284;  Madison,  etc.,  R.  R.  Co.  t>. 
Pump  Manufacturing  Co.,  (1889)  25  N.  Norwich  Saving  Society,  24  Ind.  457, 
Y.  St.  Repr.  864;  s.  c.,  5  N.  Y.  Supp.  modifying  Smead  v.  R.  R.  Co.,  11  Ind. 
420;  citing   Central  Bank  v.  Empire  104;  LaFayette  Savings  Bank  v.  St. 
Stone    Dressing    Co.,    26    Barb.    23;  Louis,  etc.,  Co.,  2  Mo.  App.  299. 
Bank  of  Genesee  v.  Patchin  Bank,  13  6  Low    v.   California    Pacific  R.   R. 
N.  Y.  309.     See,  also,  Bridgeport  City  Co.,  (1377)  52  Cal.  53.     It  appeared  in 
B:ink  v.  Empire  Stone  Dressing  Co.,  this  case  that  one  railroad  company, 
30  Barb.  421;  Farmers  &  Mechanics'  under  authority  of  law,  leased  the  line 
Bank  x.  Empire  Stone  Dressing  Co.,  5  of  another  for  a  term  of  years.     The 
Bosw.  275;  Morford  v.  Farmers'  Bank  consideration    of   the    lease    was    an 
of  Saratoga,  26  Barb.  568.  annual  rental,  and  that  the  lessee  com- 

4  Wahlig  v.  Standard  Pump  Manu-  pany  should   guarantee  the  principal 
f  acturing  Co. ,  (1889)  25  N.  Y.  St.  Repr.  and  interest  of  bonds  to  be  issued  by 
864;  B.  c.,  5  N.  Y.  Supp.  420.  the  lessee  company.     The  contract  of 


§  70]  PRIVATE  CORPORATIONS.  79 

a  good  consideration  for  the  guaranty  of  the  bonds  of  one  railroad 
corporation  by  another  that  the  former  conform  its  gauge  to  that 
of  the  latter  and  thus  form  running  connections  between  the 
roads  of  the  different  corporations ;  and  the  guaranty  of  such 
bonds  by  a  company  empowered  by  general  law  of  a  state,  "  at 
any  time,  by  means  of  their  subscription  to  the  capital  stock  of 
any  other  company,  or  oth<  /v/vV,  to  uid  such  company  in  the 
construction  of  its  railroad,  for  the  purpose  of  forming  a  con- 
nection of  said  last-mentioned  road  with  the  road  owned  by  the 
company  furnishing  such  aid,"  is  within  the  powers  of  the 
guaranteeing  corporation.1 

§  70.  Guaranty  of  bonds  of  railroad  corporations  by  one 
of  another  kind. —  In  a  very  recent  and  elaborately  considered 
case,  the  United  States  Circuit  Court  for  the  district  of  Ken- 
tucky has  held  that  a  land  company,  a  Kentucky  corporation, 
vested  by  its  charter  with  large  and  extensive  franchises  and 
powers,  had  power  to  guarantee  the  bonds  of  a  railroad  company.2 

guaranty  was  challenged  as  ultra  Supreme  Court  of  New  York  held  the 
vires.  The  lessee  company  had  no  arrangement  entered  into  between 
express  authority  to  make  such  con-  several  connecting  railroad  companies, 
tract  of  guaranty,  but  did  have  power  for  the  purpose  of  securing  a  uniform 
to  make  all  such  contracts  as  were  gauge  of  the  several  roads,  and  thus 
usual  and  proper  in  the  building  and  increasing  the  business  and  profits  of 
operation  of  a  mil  way,  and  it  likewise  each,  constituted  a  sufficient  considera- 
had  power  to  lease  the  line  of  the  tion  for  a  guaranty  by  one  of  the  cor- 
lessor  company.  The  Supreme  Court  poratious  of  the  payment  of  the  bonds 
held  that  the  consideration  was  suffl-  of  another ;  also  that  the  general 
cient  and  the  guaranty  valid.  They  statute  referred  to  in  the  text  gave 
were  of  opinion  that  it  was  as  com-  power  to  the  companies  whose  lines 
petent  for  the  company  to  promise  to  were  connected  to  enter  into  the 
pay  conditionally  as  to  promise  to  pay  arrangement  as  to  a  uniform  gauge 
absolutely  ;  that  the  validity  of  the  and  to  make  it  part  of  such  arrange- 
agreement  depended  upon  the  stifB-  inent  that  one  or  more  of  the  com- 
ciency  of  the  consideration.  The  panics  should  guarantee  the  payment 
right  to  take  the  lease  being  express,  of  the  interest  coupons  issued  by 
it  was  a  good  consideration  for  the  another.  See,  also,  Railroad  Co.  c. 
conditional  promise  involved  by  aeon-  Howard,  7  Wall.  411. 
tract  of  guaranty.  '  Tod  r.  Kentucky  Union  Land 
'Zabriskie  r.  Cleveland,  Columbus  Co.,  (1898)  57  Fed.  Rep.  47;  affirmed 
&  Cincinnati  R.  R.  Co.,  (1859)  28  How.  by  the  United  States  Circuit  Court  of 
881.  In  Connecticut  Mutual  Life  Appeals  for  the  sixth  circuit  in  Mar- 
Insurance  Co.  v.  Cleveland,  Columbus  bury  «.  Kentucky  Union  Land  Co., 
&  Cincinnati  R.  R.  Co.,  (1868)  41  (1894)  62  Fed.  Rep.  835.  LURTON, 
Barb.  9;  s.  c.,  26  How.  Pr.  225,  the  Circuit  Judge,  said:  "The  power  to 


80  OENEKAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§71 

§  71.  Circumstances  surrounding  corporation  may 
authorize  the  guaranty. — The  court  applied  the  principles  gov- 
erning corporations  in  reference  to  their  acts  under  the  powers 

execute  accommodation  paper,  or  to  there  is  no  inherent  want  of  power  in 

guarantee  for  accommodation  the  obli-  a  business    corporation,    having    the 

gations  of  another  corporation  is  not  power  to  execute  negotiable  paper,  to 

expressly  conferred  by  the  charter  of  obligate  itself  as  a  surety  or  guarantor, 

the  land  company.     Ordinarily,  such  If  such  a  corporation  receive  commer- 

power  is  not  implied  from  the  powers  cial  paper  or  bonds  in  due  course  of 

conferred  upon  corporations,  and  such  business,  we  see  no  reason  why,  upon 

contracts  are  generally  in  excess  of  transferring  such  paper,  it  may  not  be 

the  powers  of  corporations,  and,  there-  lawful  to  obligate  itself  as  indorser  or 

fore,  void  as  ultra,  vires,  in  the  true  guarantor.     Such  a  contract  would  be 

sense  of  the  term.     This  proposition  a  new  and  independent  contract,  and 

rested  upon  two  or  more  very  evident  would  rest  upon  a  sufficient  considera- 

reasons:  (1)  The  corporate  funds  be-  tion,   if  entered  into  as  a  legitimate 

long  to  its  shareholders,  and,  by  the  means  of  increasing  the  value  of  the 

very  terms  of  the  law  creating  it,  can-  security  to  be  disposed  of  in  the  or- 

not  be  devoted  to  any  other  purposes  dinary  course  of  business.     In   Rail- 

than  those  indicated    by  its  charter  road  «.  Howard  the  question  arose  as 

and  constitution.      Such    obligations  to  the  liability  of  a  railroad  company 

would  violate  the  fundamental  terms  upon  its  guaranty  of  certain   bonds 

of  the    agreement  between   the    cor-  issued  by  various  counties  and  cities, 

porators  themselves.      (2)  To    do    so  and  received  by  the  railroad  company 

would  be  to  exercise  a  power  not  con-  in  payment  of   subscriptions    to   its 

ferred  by  the  state,  either  expressly  stock.     Upon  full  consideration  it  was 

or  impliedly.     The  state's  grant  of  the  held  that,  inasmuch  as  the  company 

corporate  franchises  is  for  the  purpose  had  received  the  bonds  in  payment  of 

prescribed,  and  the  execution  of  such  stock,  and  had  a  right  to  obligate  itself 

obligations     would     be    beyond    the  by  its  own  bonds  for  the  purpose  of 

power  conferred,  and,  therefore,  a  di-  building  its  road,  it  might  lawfully, 

version  of  the  corporate  purposes,  as  and  in  furtherance  of  its  authorized 

well  as  the  corporate  funds.     (3)  Such  purpose,  guarantee  such    bonds  as  a 

obligations  rest  upon  no  consideration,  means  of  augmenting  their  value  on 

and  would  not,   therefore,  be  valid,  the  market,  thus  producing  funds  to 

They  would  amount  to  a  donation  of  build  its  road.     7  Wall.  411,  412.   The 

the  corporate  funds,  and,   therefore,  power  of  a  corporation,  to  bind  itself 

an  unlawful  diversion.      Mor.    Priv.  by  a  guaranty,  when  it  does  so  for  its 

Corp.  423;  Davis  v.  Railroad  Co.,  131  own  benefit  and  as  a  means  of  selling 

Mass.  258;  Madison  Plank  Road  Co.  v.  at  an  augmented  value,  is  generally 

Watertown  Plank  Road   Co.,  7  Wis.  conceded  by  the  authorities.  'In such 

59;    McLellan  v.  File  Works,  56  Mich,  cases,'  says  Mr.  Randolph  in  his  work 

579;   s.    c.,  23  N.  W.  Rep.  821;  Na-  upon     Commercial    Paper     (Vol.     1, 

tional  Park  Bank  v.  German- American  §  334),  '  the  guaranty   is  an  original 

Mutual  Warehousing  &  Security  Co. ,  contract  of  the  corporation  for  its  own 

116  N.  Y.  292;  s.  c.,  22  N.  E.  Rep.  benefit,   the  consideration  moving  to 

567;  ^Itna  Nat.  Bank  v.  Charter  Oak  itself,  and   not  to  the  person  whose 

Life  Ins.   Co.,    50  Conn.    167.      But  debt  is  guaranteed.'    There  being  no 


§71] 


PRIVATE  CORI'oi:\: 


81 


expressly  granted  and  implied,  referring  to  the  general  purposes, 
franchises,  etc.,  embraced  in  the  charter  of  this  land  company,  to 
this  particular  case,  showing  wherein  the  circumstances  surround- 
ing it  made  it  legal  and  proper  that  it  should  guarantee  the  bonds 
of  the  railroad  company.1 


absolute  want  of  power  in  an  ordinary 
business  corporation  to  bind  itself  as  u 
guarantor.  \\v  must  next  inquire  as  to 
tin;  circumstances  which  will  make 
a  contract  lawful  and  obliga- 
tory. The  cases  already  cited  estab- 
propo-ition  that  if  such  a  cor- 
poration lias  the  power  to  issue  bonds 
or  other  commercial  securities,  and 
beco'iies  the  holder  of  fuch  bonds  or 
securities  issued  by  other  corpora- 
tions, it  may  indorse  or  guarantee  them 
upon  transferring  them  for  the  pur- 
pose of  raising  money  to  carry  out 
any  purpose  for  which  it  might  bor- 
row money.  The  right  of  a  corpora- 
tion to  do  an  act  or  make  a  contract  is 
not  always  a  question  of  law.  What 
it  may  not  do  under  some  circum- 
stances, it  may  do  under  others.  It 
may  carry  on  the  business  it  is  author- 
ized to  do  in  the  usual  and  customary 
manner  that  business  of  the  same 
nature  is  carried  on  by  individuals." 

'Tod  v.  Kentucky  Union  Land  Co., 
(1893)  57  Fed.  Rep.  47.  Referring  to 
a  special  power  granted  the  land  com- 
pany for  a  "temporary  consolida- 
tion" with  the  railroad  company,  it 
was  said:  "  The  power  to  make  a  tem- 
porary consolidation,  looking  to  all  the 
four  corners  of  the  charter,  clearly  im- 
plies the  power  to  make  such  an  alli- 
ance <>r  bring  about  such  a  union  and 
cooperation  of  interests  between  the 
land  company  and  a  railway  company 
as  shall  be  to  the  mutual  interest  of 
ea  -h,  and  place  both  under  the  same 
control  and  management.  This  could 
be  done  by  the  plan  suggested  by  Mr. 
Morawctz  in  section  942  of  his  work 
on  Private  Corporations,  whereby  the 
shares  of  one  company  should  be  held 
11 


by  the  other  or  by  the  same  persona 
This  meaning  seems  reasonable  and 
proper,  looking  to  the  objects  and 
purposes  of  this  corporation,  and  any 
steps  which  brought  about  unity  of 
interest  and  co-operation  in  purpose 
as  being  legitimate  and  authorized. 
Under  this  power  we  are  of  opinion 
that  [this]  land  company  had  the 
power  to  acquire  the  shares  in  the  rail- 
way company,  and  the  right  to  exer- 
cise control  over  the  railway  com- 
pany through  the  ownership  and  con- 
trol of  those  shares.  Undoubtedly  tin- 
general  rule  is  that  a  corporation  has 
no  implied  power  to  acquire  shares  in 
another  for  the  purpose  of  controlling 
it.  Marble  Co.  r.  Harvey,  92  Tenn. 
115;  s.  c.,  20  8.  W.  Rep.  427.  This 
would  be  contrary  to  the  well-under- 
stood public  policy  concerning  such 
companies.  But  this  objection  does 
not  lie  here:  (1)  Because  the  charter 
of  the  railway  company  expressly 
provides  that  its  shares  may  be  owned 
by  any  other  corporation.  (2)  The 
express  power  in  the  charter  of  the 
land  company  removes  nil  objections, 
based  on  grounds  of  public  policy,  to 
its  control  of  a  railway  company  by 
and  through  its  shares.  What  the 
legislature  of  Kentucky  has  expressly 
permitted  cannot  bu  void  as  against 
public  policy  in  tho  absence  of  any 
violation  of  a  const  itutiouil  provision. 
Under  such  circumstances  it  is  not  for 
the  courts  to  say  that  what  the  legis- 
lature authori/.es  is  unlawful  because 
contrary  to  public  policy.  Having 
authority  to  acquire  this  stock,  the 
land  company  became  the  sole  stock- 
holder in  the  railway  company.  ]'.-.<•{> 
had  express  authority  to  borrow 


82 


GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY. 


[§72 


§  72.  Guaranty    of   dividend    upon    preferred    stock    of 
another  corporation. —  The  court  also  held  that  this  land  corn- 


money  and  issue  bonds  to  curry  out 
the  purposes  of  the  organization. 
The  completion  of  this  railway  WHS 
an  object  within  the  scope  of  its  char- 
ter powers.  It  could  do  so  by  its  own 
name  or  by  aiding  the  railway  com- 
pany to  negotiate  its  securities  by 
guaranteeing  their  payment.  The 
guaranty  was  not  for  the  accom- 
modation of  the  railway  company. 
The  guarantor  being  the  sole  share- 
holder of  the  railway  company,  it  was 
a  contract  for  its  own  benefit,  and, 
therefore,  rested  upon  a  suffic  ient 
security.  In  addition,  the  land  com- 
pany was  a  creditor  of  the  railway 
company,  and  was  to,  and  did,  receive 
the  proceeds  arising  from  the  sale  of  the 
half  million  of  these  bonds.  The  re- 
mainder of  the  money  thus  raised  was 
to  be  applied  to  the  building  of  the 
railway  line.  The  consideration  was 
sufficient  to  fully  support  the  contract. 
A  like  question  arose  in  Chicago,  R. 
I.  &  P.  R.  Co.  v.  Union  Pac.  Ry.  Co., 
47  Fed.  Rep.  16,  where  Mr.  Justice 
BKEWEK  held  that  '  where  one  rail- 
road company  owns  substantially  all 
the  stock  of  another  railroad  company, 
a  lease  of  the  latter  line  for  rent  to  be 
paid  to  the  former  company  is  not 
void  for  want  of  consideration  since  it 
amounts  merely  to  an  agreement  to 
pay  the  rent  directly  to  the  stock- 
holders.' Upon  appeal  to  the  United 
States  Circuit  Court  of  Appeals  for 
the  fifth  circuit,  this  ruling  was 
affirmed.  51  Fed.  Rep.  329;  s.  c.,  2 
C.  C.  A.  242.  The  directors  of  the 
railway  company  held  the  property  of 
that  company,  including  these  bonds 
and  their  proceeds,  when  sold,  in  trust 
for  the  *  *  *  land  company  as 
holders  of  the  shares  in  that  company. 
To  say  that  its  guaranty  of  these 
bonds  was  a  mere  accommodation 
guaranty  when  it  was  the  cestui  que 


trust  in  the  proceeds  of  the  bonds,  and 
thereby  enable  it  to  defeat  its  respon- 
sibility, as  a  contract  ultra  vires,  would 
be  sticking  in  the  bark  and  result  in 
manifest  injustice.  That  at  some 
future  day  this  union  may  be  dis- 
solved by  a  sale  of  the  stock  owned 
by  the  land  company  is  not  of  import- 
ance. The  real  and  substantial  owner 
of  the  railroad  company  at  the  time 
these  bonds  were  guaranteed  was  the 
land  company.  The  guaranty  was 
for  the  benefit  of  the  guarantors. 
Union  Pac.  Ry.  Co.  v.  Chicago,  R.  I. 
&  P.  Ry.  Co.,  51  Fed.  Rep.  310;  s.  c.. 
2  C.  C.  A.  174.  The  case  is  not  like 
that  of  Davis  v  Railroad  Co  ,  131 
Mass.  258.  That  was  a  donation  to 
support  a  musical  festival.  The 
benefit  to  the  railroad  company  was 
in  the  supposition  that  it  would  profit 
by  increased  travel.  This  was  alto- 
gether too  remote,  and  the  contract 
properly  held  void.  When  the  ques- 
tion is,  as  here,  whether  or  not  a  par- 
ticular act  is  ultra  vires,  decided  cases 
are  of  little  value.  Each  case  must 
be  largely  a  question  of  fact.  Yet, 
by  reference  to  a  few  of  the  decided 
cases,  we  can  discover  the  principle 
upon  which  other  courts  have  pro- 
ceeded in  deciding  such  questions. 
We  will  refer  to  a  few  cases:  In  Louis- 
ville &  N.  R.  Co.  T.  Literary  Society  of 
St.  Rose,  91  Ky.  395;  s.  c..  15  S.  W. 
Rep.  1065,  the  Court  of  Appeals  of  Ken- 
tucky passed  upon  a  question  involving 
the  implied  power  of  a  corporation.  It 
appeared  that  the  literary  society  of  St. 
Rose  and  the  literary  society  of  St. 
Catherine  were  corporations  for  edu- 
cational purposes,  existing  in  or  near 
the  town  of  Springfield  in  Washing- 
ton county,  Kentucky.  They  had 
power  to  contract  and  to  buy  and  sell 
real  and  personal  property  for  the 
purpose  of  sustaining  and  carrying 


PRIVATE  CORPORATIONS. 


83 


pany  was  authorized  to  guarantee  a  dividend  upon  the  preferred 
stock  of  the  railroad  company.1 


on  said  institutions  of  learning  and 
lirrwise.  Each  of  them  owned 
and  operated  a  farm  of  about  1,000 
of  very  considerable  value. 
This,  in  the  language  of  the  court, 
'created  a  large  industry  in  the  way 
of  supplies  furnished  to  them,  and 
tin  v  in  turn  furnishing  to  others.' 
Eaeh  of  these  corporations  sigrn -d  an 
obligation  to  a  railroad  company  to 
indm-r  ii  to  extend  its  line  near  their 
property.  In  an  action  upon  those 
obligations,  it  was  contended  that 
they  were  ultra  tire».  The  court 
said :  '  Corporations  derive  their 
powers  from  charters.  They  are 
those  which  are  expressly  given  or  by 
fair  implication  are  necessary  to  the 
execution  of  their  object.  Cases  may 
be  found  where  the  officers  of  a  cor- 
poration have  exceeded  their  powers, 
but  the  corporation,  nevertheless,  held 
liable  because  the  transaction  was 
within  the  scope  of  its  business,  and 
it  had  received  a  benefit  from  it.  The 
only  trouble  arose  from  a  defect  of 
power  in  the  managers.  This  case  is 
not  within  this  class,  however,  be- 
cause it  appears  beyond  all  doubt  that 
the  change  of  location  as  to  depot 
was  not  to  the  interest  of  these  insti- 
tutions. The  building  of  the  road 
was  calculated,  however,  to  be  highly 
beneficial  to  them,  both  as  to  furnish- 
ing convenient  access  to  them  for 
persons  coming  and  going,  and  also  in 
furnishing  them  a  means  of  obtaining 
their  supplies  and  sending  their  pro- 
ducts to  market.  It  was  calculated 
to  and  undoubtedly  did  add  greatly 
to  the  value  of  their  properties  and 
the  large  industries  which  their  char- 
ters had  authorized  them  to  create. 
It  conferred  a  direct  benefit.  The 
power  existed  by  fair  implication  to 
do  anything  reasonably  calculated  to 
add  to  their  value.  How  far  this 


power  extended  we  need  not  decide. 
Certainly,  however,  if  during  a  por- 
tion of  the  year  these  institutions  had 
hi-cn  almost  inaccessihlf  for  the  lack 
of  a  turnpike  or  a  bridge,  a  subscrip- 
tion by  them  to  build  either  would 
have  been  valid;  and  while  not  author- 
ized to  enter  into  all  manner  of  specu- 
lations, yet.  in  our  opinion,  a  subscrip- 
tion by  them  to  aid  the  building  of 
this  rond  was  not,  under  all  the  cir- 
cumstances, ultra  tire«  and,  therefore, 
void.' " 

1  Tod  t .  Kentucky  Union  Land  Co. , 
(1893)  57  Fed  Rep.  47,  affirmed  by 
United  States  Circuit  Court  of  Appeals 
for  the  sixth  circuit  in  Marbury  r. 
Kentucky  Union  Land  Co.,  (1894)  62 
Fed.  Rep.  335.  This  "guaranty," the 
court  said,  "stands  upon  the  same 
footing  as  the  guaranty  of  the  bonds. 
The  temporary  consolidation  between 
the  two  companies,  springing  out  of 
the  ownership  of  the  stoc-k  in  the  rail- 
way company  by  the  land  company, 
in  view  of  the  terms  of  the  charter  of 
the  latter  company,  authorized  it  to 
aid  the  former  in  any  usual  way  to 
build  its  line  of  railroad."  Certain 
second  mortgage  bonds  of  the  railroad 
company  were  issued  and  delivered  to 
the  land  company  on  account  of  in- 
debtedness due  by  the  railway  com- 
pany to  the  land  company.  A  largo 
part  of  these  bonds  had  been  sold  by 
the  land  company,  and  were  in  the 
hands  of  various  individuals  who  held 
them  as  bonafide  purchasers  for  value. 
When  sold,  the  payment  of  these 
bonds,  principal  and  interest,  was 
guaranteed  by  the  land  company. 
Others  had  been  pledged  as  collateral 
security,  and  these,  also,  were  guar- 
anterd  by  the  land  company.  As  to 
these  bonds  the  court  said:  "The 
bonds,  having  been  received  in  pay- 
ment of,  or  on  account  of,  indebted- 


84  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§  73,  74 

§  73-  What  contract  of  another  corporation  may  not  be 
guaranteed. —  The  United  States  Circuit  Court  of  Appeals  for 
the  sixth  circuit  has  held  that  a  corporation  organized  under  the 
law  of  Ohio  for  the  purpose  of  making  iron  work  for  mining 
plants  had  not  the  power  to  guarantee  the  performance  of  another's 
contract  for  the  erection  of  a  mining  plant,  and  the  accompany- 
ing warranties,  on  the  ground  that  the  guaranty  would  secure  a  sale 
of  the  iron  work  used  in  the  plant.1  Further,  the  performance 
of  such  contract  on  the  part  of  the  party  to  whom  the  guaranty 
was  given  did  not  estop  the  corporation  from  denying  its  power 
to  give  the  guaranty.2 

§  74.  Athletic  club. —  A  corporation  formed  under  a  statute 
for  encouraging  athletic  exercises,  under  a  provision  of  the  stat- 
ute that  it  "  may  hold  real  and  personal  estate,  and  may  hire,  pur- 
chase or  erect  suitable  buildings  for  its  accommodation  to  an 
amount  not  exceeding  five  hundred  dollars,"  has  power  to  take  a 
lease  of  land,  and  to  erect  a  suitable  club  house  upon  it.  Having 
such  power  it  may  raise  money  for  the  purpose  by  negotiating  a 

ness,  became  the  property  of  the  [land  railway  company  was  not  affected  by 

company].     To  augment  their  value  the  amendment,  and  all  which  could  be 

when  sold,  or  pledged  as  collateral,  lawfully  done  by  reason  of  such  exist- 

their  payment  was  guaranteed.     It  is  ing  lawful  union  might  thereafter  be 

true  that  when    this    guaranty    was  done,  so  long  as  it  continued.     Irre- 

placed  upon  the  bonds,  the  clause  in  spective  of  the   particular  power  re- 

the  charter  of  the  land  company  per-  suiting  from  the  '  temporary  consoli- 

mitting  a  consolidation  with  a  railroad  dation,'   and    the    relations    resulting 

company  had  been  repealed.      Inas-  therefrom,  this  obligation  of  the  land 

much,  however,  as  the  connection  be-  company  is  valid,  under  the  authority 

tween     these     two    companies    was  of  the  cases  holding  that  a  corporation 

authorized  when  the  latter  acquired  having  the  power  to  bind   itself  by 

the  stock  of  the  former,  and  paid  or  commercial   paper  might  indorse    or 

assumed  its  debts,  and  inasmuch  as  guaranty  commercial    obligations   re- 

this  alliance,  union  or  '  temporary  con-  ceived  in  ordinary  course  of  business, 

solidation '  was  in  force  when  this  re-  and  guaranteed  when  sold  to  augment 

pealing  act  took  effect,  and  when  these  the  price  realized  in   their   sale  and 

bonds  were  guaranteed,  we  think  it  transfer."     As  to  guaranteeing  divi- 

was  not  prohibited  by  the  repeal  from  dends,  see  Col  man  v.  Eastern  Ry.  Co., 

continuing  the  union  of  the  two  com-  lOBeav.  1;  Logan  v.  Earl  of  Courtbwn, 

panics,   or  obligating   itself    by  this  13  Beav.  22. 

guaranty.     The  amendment  should  be  !  Humboldt  Min.    Co.  v.   American 

construed  as  prospective  and  not  re-  Manufacturing,  Mining  &  Milling  Co., 

trospective.     Any  relation  which  had  (1894)  62  Fed.  Rep.  356. 

theretofore  been  entered  into  with  this  *  Ibid. 


§  75]  PRIVATE  CORPORATIONS.  85 

loan  and  giving  its  promissory  note  for  its  payment.1  Additional 
authority  given  in  the  statute  "  to  receive  and  hold  in  trust  funds 
received  by  gift  or  bequest "  will  not  confine  it  to  that  mode  of 
raising  it.3 

§  75.  Banking  associations. —  The  General  Banking  Law  of 
New  York  did  not  give  banking  a.-.-<><-i;iti<ms  power,  in  express 
terms,  to  borrow  money ;  but,  notwithstanding  this  fact,  the 
Supreme  Court  held  that  as  such  an  association  might  become 
indebted,  in  the  exercise  of  its  undoubted  legitimate  business,  it 
had,  as  a  necessary  incident,  the  power  to  borrow  money  for  the 
purpose  of  paying  its  debts.3  The  Court  of  Appeals  of  New 
York,  in  a  case  between  the  receiver  of  this  same  banking  asso- 
oiation  and  other  parties,  held  to  the  same  effect  that  these  bank- 
ing associations  had  capacity  to  borrow  money  as  incidental  to 
the  banking  business  and  to  the  powers  expressly  granted.4 

'Bradbury  t».   Boston  Canoe  Club,  disappointment,  unexpected  losses,  or 

(1891)  153  Mass.  77;  8.  c.,  26  N.  E.  some  unforeseen  casualty,  it  has  no 

Hi'p.  132.  available  assets   to  meet  its  engage- 

*Ibid.     Citing    Fay    v.    Noble,    12  ments.     This  emergency  may   occur 

Cush.  1.  in  the  soundest  and  best-regulated  as- 

•Leavitt    v.    Blatchford,    (1848)    5  sociation.     The  question  then   must 

Barb.  9.    EDWAUDS,  J..  for  the  court,  arise,  whether  a  solvent  institution  is 

said:  "  Without  reference  to  the  bank-  to  fail   to  meet  its  liabilities,  and  be 

ing  law,  it  is  a  general  fundamental  broken  up  and  ruined,  or  whether  it 

principle,  that  when  a  right  is  given,  shall    be    permitted    to    substitute  a 

all  powers  are  given  which  are  neces-  credit  for  some  convenient  period  of 

sary  to  the  exercise  and  enjoyment  of  time,  in  the  place  of  a  debt  then  due 

the  right.     Now,  it  cannot  be  ques-  and    payable,    or,    in    other    words, 

tioned  that  a  banking  association  may  whether  it  can  substitute  one  credit. >r 

become  indebted,  in  the  exercise  of  its  in  the  place  of  another.     The  power 

undoubted    legitimate    business.       It  to  borrow  then  is  a  necessary  incident 

has  the  right  to  receive  deposits,  and  to  the  power  to  become  indebted.     It 

it  must  become  indebted  for  them.     It  is  a  power  without  which  no  banking 

has  the  right  to  purchase  gold  and  sil-  association  could  safely  carry  on  its 

vi  r  bullion,  foreign  coins  and  bills  of  business." 

exchange;  and  it  may  become  indebted  4  Curtis  r.  Leavitfr,  (1857)  15  N.  Y.  9. 
upon  such  purchase.  It  requires  COMSTOCK,  J.,  in  the  opinion  rendered 
state  stocks  as  a  basis  of  its  circula-  by  him,  on  page  63,  stated  the 
tion,  and  it  may  lawfully  contract  a  doctrine  in  Barry  r.  Merchants'  Ex- 
debt  in  the  purchase  of  state  stocks  change  Company,  1  Samlf.  Cli.  280, 
for  that  purpose.  There  may  be  289,  in  the  language  of  Assistant  Vice- 
other  ways  in  which  a  banking  asso-  Chancellor  SANDFOKD:  "A  corpora- 
nation  can  become  legally  indebted,  tion,  in  order  to  attain  its  legitimate 
It  may  become  liable  for  the  payment  objects,  may  deal  pm-ix-ly  as  an  indi- 
of  its  debts  at  a  time  when,  owing  to  vidual  may,  who  seeks  to  accomplish 


86  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  76 

§  76.  A  savings  bank's  powers. —  Every  corporation  created 

for  transacting  business,  unless  restrained  by  its  charter  or  some 
statute,  has,  as  a  necessary  incident,  the  power  of  incurring  debts 
in  the  course  of  its  legitimate  business.  For  instance,  in  the  case 

the  same  ends.  If  chartered  for  the  ever  varying  exigencies  of  human  af- 
purpose  of  building  a  bridge,  it  may  fairs.  It  is  plain  that  corporations,  in 
contract  a  debt  for  labor,  the  materials,  executing  their  express  powers,  are 
or  the  land  upon  which  the  bridge  is  not  confined  to  means  of  such  indis- 
abutted.  If  more  advantageous,  it  pensable  necessity  that,  without  them, 
may  borrow  money  to  purchase  such  there  could  be  no  execution  at  all. 
land  or  materials,  or  to  pay  for  such  The  entire  doctrine  would  lead  at 
labor,  and  as  the  evidence  of  the  in-  once  to  a  very  great  absurdity,  for  if 
debteduess,  it  may  execute  to  the  there  are  several  modes  of  accomplish- 
creditoi'3  a  note,  a  bond,  or  a  mortgage,  ing  the  end,  neither  one  is  indispen- 
whether  the  debt  be  for  the  money  sable,  and  each  would  exclude  all  the 
borrowed,  or  the  work,  materials,  or  others.  And  thus,  by  inevitable  logic, 
land."  COMSTOCK,  J.,  said,  on  pages  an  express  grant  of  power  would  lie 
64,65:  "  I  confess  my  own  inability  to  forever  dormant  because  there  are 
refute  the  doctrine  so  perspicuously  more  modes  than  one  of  carrying  it 
laid  down  by  Assistant  Vice-Chancel-  into  execution.  It  is  almost  as  diffl- 
lor  SANDFOUD.  I  am  not  aware  that  cult  to  say  that  the  incidental  power 
it  comes  in  conflict  with  any  known  depends  for  its  existence  on  the  de- 
distinction  between  private  persons  gree  of  necessity  which  connects  it 
and  corporations.  It  is  true  that  the  with  the  power  in  chief.  Such  a  doc- 
latter  take  all  their  powers,  direct  and  trine  would  impose  upon  courts  a 
incidental,  under  their  charters;  but  never-ending  difficulty,  for  the  inquiry 
when  the  direct  power  is  granted  in  would  plainly  be  whether  the  chosen 
terms,  they  take  it,  as  a  natural  per-  instrumentality  is  the  very  best  that 
son  enjoys  it,  with  all  its  incidents  could  be  selected,  and  if  not  the  very 
and  accessories.  A  simple  association  best,  however  minute  the  difference 
of  merchants  to  build  an  exchange  may  be,  then  the  inevitable  decision 
could,  if  they  so  agreed  with  each  must  follow  that  the  choice  was  fatally 
other,  very  appropriately  borrow  bad,  although  strictly  adapted  to  the 
money  in  furtherance  of  the  object,  end  in  view,  and  made  in  the  utmost 
and  why  can  they  not,  if  they  take  good  faith.  These  demonstrations, 
the  principal  power  under  a  charter  for  such  they  appear  to  me,  would 
from  the  government,  which  enables  seem  to  leave  but  one  other  conclusion, 
them  to  act  as  a  single  person,  and  which  is,  that  corporations,  along  with 
with  a  collective  wfll?  It  is  truly  said  their  specific  powers,  take  all  the  rea- 
that  corporations  can  only  exercise  sonable  means  of  execution,  all  that 
such  incidental  powers  as  are  neces-  are  convenient  and  adapted  to  the  end 
sary  to  carry  into  effect  the  express  in  view,  although  not  the  very  best  by 
objects  of  their  charters.  But  neces-  many  degrees  of  comparison.  And 
sity  is  a  word  of  flexible  meaning,  this  is  a  doctrine  which  must  neces- 
There  may  be  an  absolute  necessity,  a  sarily  result  in  the  liberty  of  choice 
great  necessity  and  a  small  necessity,  amongst  those  means.  The  choice 
and  between  these  degrees  there  may  may  be  wise  or  unwise.  If  made  in 
be  many  others  depending  on  the  the  exercise  of  an  intelligent  good 


§  77]  I'UIVATL  CORPORATIONS.  87 

,  of  a  savings  bank  it  was  held  that  it  had  the  power  to  negotiate  a 
loan  from  another  bank  and  of  making  and  indorsing  negotiable 
paper  in  payment  of  such  debts.1 

§  77.  Corporations  dealing  in  lands. —  The  Supreme  Court 
of  California  has  held  that  '•  where  a  corporation  was  formed  for 
the  purpose  of  dealing  in  and  speculating  in  real  estate,  and  with 
the  express  power  "  to  buy,  improve,  sell,  lease  and  otherwise 
dispose  of  real  estate"  the  term  "improve"  included  the  per- 
formance of  any  act,  whether  on  or  off  the  land,  the  direct  and 
proximate  tendency  of  which  was  to  benefit  or  enhance  its  value. 
Therefore,  a  subscription  made  by  such  a  corporation  to  a  railroad 
company  for  the  purpose  of  increasing  the  facilities  and  lessen- 
ing the  cost  of  transportation  on  the  same,  "  where  the  direct 
and  proximate  tendency  of  such  increase  of  facilities  is  to 
enhance  the  value  of  its  lands  "  was  held  a  valid  and  binding 

faith,  the  wisdom  of  the  selection  may  '  Fifth  Ward  Savings  Bank  t>.  First 
be  called  iu  question,  but  the  power  National  Bank,  (1880)  48  N.  J.  Law, 
to  make  it  cannot  be.  I  can,  there-  513.  DEPCE,  J.,  speaking  for  the 
fore,  see  no  room  for  the  distinction  Court  of  Errors  and  Appeals  of  New 
which  admits  the  power  of  a  corpora-  Jersey,  said:  "Savings  banks  are  estab- 
tion  to  contract  a  debt  for  labor  and  lished  for  business  purposes.  Their 
materials  to  be  used  in  building  an  ex-  functions  are  to  receive,  hold  and  in- 
change,  or  a  bridge,  or  a  turnpike  vest  moneys  that  may  be  deposited 
road,  or  in  manufacturing,  those  being  with  them,  and  to  repay  the  money 
in  each  case  the  specified  object  of  the  deposited  under  reasonable  regulations 
charter,  but  denies  the  right  to  bor  in  their  by-laws.  In  order  to  make 
row  money  to  be  used  in  the  purchase  the  business  successful,  these  institu- 
of  the  same  labor  and  materials.  If  tions  are  required  to  keep  their  money 
there  be  any  reason  for  a  distinction,  invested  as  closely  as  may  be  con- 
resting  on  a  comparison  of  benefit  to  sistent  with  the  ordinary  demands  of 
the  corporation,  the  advantages  of  bor-  depositors.  But  in  seasons  of  financial 
rowing  would  in  most  cases  be  unde-  excitements  they  may  be  subjected  to 
niable.  So,  in  point  of  public  policy,  extraordinary  demands  from  depos- 
the  reason  for  that  preference  would  itors,  to  meet  which  and  save  the 
appear  to  be  still  stronger,  for  while  credit  of  the  institutions,  large  sums 
the  industrial  classes  would  require  no  of  money  may  be  required  to  be  raised 
protection,  the  money  lenders  could  on  sudden  and  unforeseen  contingen- 
safely  be  left  to  guard  their  own  in-  cies.  At  such  times,  the  securities 
terests.  I  believe  the  distinction  re-  such  institutions  usually  hold  an- 
ferred  to  is  not  recognized  by  any  likely  to  be  depressed  in  the  market 
adjudged  case."  BHOWN,  J.,  dis-  and  unsalable  except  at  ruinous  sacri- 
russcs  these  questions  in  his  opinion,  flees.  If  thr*.r  institutions  should  not 
pages  157-161;  SIIANKLAND,  J.,  in  his  h:i\v  UK-  p<>\vi-r  to  borrow  money  and 
opinion,  pages  160-169;  PAIGE,  J.,  in  to  make  negotiable  paper,  or  make  a 
his  opinion,  pages  210-218.  pledge  of  securities  on  which  money 


88  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  Y7 

contract.1  In  a  Pennsylvania  case,  where  a  corporation  owned  a 
large  body  of  wild  land  and  had  power  by  its  charter  "  to  aid 
in  the  development  of  minerals  and  other  materials,  and  to  pro- 
mote the  clearing  and  settlement  of  the  country,"  the  Supreme 
Court  held  that  the  building  of  saw  mills  and  a  hotel  for  the 
accommodation  of  those  having  business  in  connection  with  parry- 
ing out  the  prime  object  of  the  corporation  was  within  its 
powers.2  The  Kansas  Supreme  Court,  in  an  opinion  delivered  by 
Mr.  Justice  BKEWEE,  now  of  the  United  States  Supreme  Court, 
held  that  where  a  corporation  was  created  for  the  purpose  of 
locating  and  laying  out  a  town  site,  and  making  improvements 
thereon,  it  was  within  the  power  of  such  corporation  to  donate 
lands  for  the  purpose  of  securing  the  erection  and  maintenance 
of  a  school  upon  property  adjacent  to  that  owned  by  the  town 
site  company ;  "  that  the  direct  and  proximate  tendency  of  the 
improvements  sought  to  be  obtained  by  the  donation  is  the  build- 
ing up  of  the  town,  and  the  enhanced  value  of  the  remaining 
property.  The  purpose  of  the  corporation  is  to  build  up  the 
town,  *  *  *  and  this  purpose  is  directly  furthered  by  such' 
a  donation."3  In  the  United  States  Circuit  Court  for  the  western 
district  of  Virginia  it  was  held  that  an  improvement  company 
organized  under  an  act  of  the  legislature  of  that  state,  to  buy  and 
sell  lands,  erect,  sell  and  lease  buildings,  to  grade  and  improve 
streets,  to  furnish  gas,  electric  light  and  water  works,  to  construct 
and  operate  street  railways,  furnaces  and  mills,  and  to  acquire  by 
purchase  or  subscription  the  stock  or  bonds  of  any  mining, 
manufacturing,  water,  gas,  street  railway,  or  other  improvement 
company,  had  power  to  give  part  of  its  stock  to  a  railway  com- 
pany in  order  to  enable  the  latter  to  complete  its  line  to  the  prop- 
erty of  the  improvement  company.4  A  corporation  created  for 
the  purpose  of  dealing  in  lands,  and  to  which  the  powers  to  pur- 
may  be  borrowed  temporarily,  great  by  implication  a  power  in  corpora- 
sacrifices  in  the  sale  of  the  securities  tions  to  borrow  money  and  give 
in  which  the  trust  funds  are  invested,  negotiable  security  as  a  means  of 
if  not  financial  ruin,  would  be  the  borrowing." 

probable  result  of  every  unexpected       '  Vandall  v.  Dock  Co,  40  Cal.  84. 
run  upon  the  bank  by  depositors  to       *  Watts'  Appeal,  78  Pa.  St.  370. 
withdraw  their  deposits.      It    is    the       3  Whetstone  v.  University,  13  Eans. 
existence    of   conditions    and    contin-    320. 

gencies  of  this  kind  likely  to  arise  in       4  McGeorge  v.  Big  Stone  Gap  Imp. 
the  conduct  of  business  that  the  law    Co.,  (1893)  57  Fed.  Rep.  262. 
recognizes  as  the  ground  for  raising 


£  7>«  |  PRIVATE  CORPORATIONS.  89 

chase,  to  subdivide,  to  sell,  and  to  make,  miy  contract  essential  to 
the  transaction  of  its  business  are  expressly  gran tr<l,  p«- 
fairly  incidental  the  power  to  incur  liability  in  respect  of  securing 
better  facilities  for  transit  to  and  from  the  lots  or  lands  which  it 
is  its  business  to  acquire  and  dispose  of.1 

§  78.  Insurance  corporations. —  A  corporation  created  for  the 
purpose  of  carrying  on  the  business  of  insurance,  with  power  to 
convert  its  bonds  and  stocks  into  cash,  when  needed,  to  pay  risks, 
may,  through  its  president  borrow  money  and  pledge  its  stock  as 
collateral  security.3  A  corporation  organized  under  the  law  of 
Indiana  providing  for  the  organization  of  life  and  accident  insur- 
ant- companies,  has  power  to  borrow  money  and  secure  its  pay- 
ment by  mortgaging  its  real  estate.8  The  power  to  contract  and 
be  contracted  with,  is  one  of  the  common-law  incidents  of  a 
corporation.  Unless  expressly  restrained  by  its  charter,  every 
corporation  has  the  incidental  power  to  make  any  contract,  and 

1  Fort  Worth  City  Co.  *.  Smith  directly  promoted  by  the  use  of  legiti- 
Bridge  Co.,  (1894)  151  U.  S.  294;  s.  c.,  mate  business  methods  to  render  the 
14  Sup.  Ct.  Rep.  339,  affirming  a  judg  lands  accessible.  This  involved  the 
ment  in  favor  of  the  bridge  company  expenditure  of  money  or  the  assump- 
upon  a  contract  to  build  a  bridge  over  tion  of  liability,  but  there  is  no 
a  river  for  which  the  corporation  element  in  this  case  of  any  unreason- 
agreed  to  pay  a  portion  in  its  bonds,  able  excess  in  that  regard,  or  of  the 
FULLER,  Ch.  J.,  quoted  in  his  pursuit  of  any  abnormal  and  extra- 
opinion  as  follows :  In  Green  Bay  &  ordinary  method.  The  result  sought 
Minnesota  Railroad  v.  Union  Steam-  was  in  accomplishment  of  the  legiti- 
boiit  Co.,  107  U.  S.  98,  100,  it  was  mate  objects  of  the  corporation  and 
Haid  :  "The  charter  of  a  corporation,  essential  to  the  transaction  of  its  au- 
read  in  connection  with  the  general  thorized  business,  and  the  power  to 
laws  applicable  to  it,  is  the  measure  make  the  contract  was  fairly  incidental 
of  its  powers,  and  a  contract  mani-  if  not  expressly  granted."  See,  also, 
festly  beyond  those  powers  will  not  North  Side  Ry.  Co.  r.  Worthiugton, 
sustain  an  action  against  the  corpora-  (Tex.  Civ.  App.  1894)  27  8.  W.  Rep. 
tion.  But  whatever,  under  the  charter  746,  following  the  case  above, 
and  other  general  luws.  reasonably  *  Bezou,  Commissioner,  r.  Pike,(1871) 
construed,  may  fairly  be  regarded  as  28  La  Ann.  788.  The  court  distin 
incidental  to  the  objects  for  which  the  guishcd  Levy  r.  Mutual  Benefit  Life 
corporation  is  cn-.itcd.  is  not  to  &  Fire  Ins.  Co.,  8  La  Ann.  880,  in  that 
be  taken  as  prohibited.  *  *  *"  the  directors  in  that  case  did  an  act 
Further  on,  he  said  :  "The  object  of  in  conflict  or  inconsistent  with  an 
the  creation  of  the  corporation  was  the  express  provision  of  the  charter. 
acquisition  and  sale  of  lands  on  sub-  *  Wright  r.  Hughes,  (1889).  119  Ind. 
division,  and  it  cannot  successfully  be  324;  B.  c.(  21  N.  E.  Rep.  907. 
denied  that  that  object  would  be 
12 


90  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  78 

evidence  it  by  any  instrument  that  may  be  necessary  and  proper 
to  accomplish  the  objects  for  which  it  is  created.  A  note  or  bill, 
therefore,  made  or  received  by  such  a  corporation  is  prima  facie 
within  its  corporate  powers,  and,  therefore,  valid.1  But  when 
such  a  transaction  is  drawn  in  question,  it  is  always  competent  to 
show  that  it  was  given  or  taken  for  a  purpose  not  authorized, 
and  when  shown,  the  contract  is  void,  and  the  instrument  a 
nullity.2  A  mutual  life  insurance  company  has  been  held  in 
Connecticut  to  have  the  power,  as  incident  to  its  business  of 
insuring  lives,  to  provide  a  guaranty  fund  by  taking  the  notes  of 
responsible  parties,  payable  only  if  required  for  the  purpose  of 
meeting  losses,  and  allowing  a  reasonable  compensation  to  the 
makers  of  the  notes  for  the  use  of  their  credit.3  A  corporation 
clothed  by  its  charter  with  power  to  transact  the  business  of  life, 
fire,  and  marine  insurance,  receive  money  on  deposit,  collect 

1  Straus  &  Bro.  v.  Eagle  Insurance  business,  and  was  shown  by  experience 

Co.  of  Cincinnati,  (1855)  5  Ohio  St.  59;  to  be  such.  We  cannot,  therefore,  pro- 

N.  Y.  Firemen  Insurance  Company  v.  nounce  that  arrangement  to  be  an 

Sturges,  2  Cow.  664;  Barker  T.  Me-  illegitimate  exercise  of  the  powers 

chanic  Fire  Ins.  Co.,  8  Wend.  94.  conferred  by  their  charter.  Indeed,  if 

*  Straus  T.  Eagle  Insurance  Co.  of  we  were  to  declare  it  invalid  on  this 

Cincinnati,  (1855)  5  Ohio  St.  59;  Brough-  ground,  we  do  not  see  why  the  broad 

ton  v.  Manchester  Water  Works,  3  ground  must  not  be  taken  that,  in  the 

Barn.  &  Aid.  1;  Munn  v.  Commission  case  of  any  corporation  created  for 

Co.,  15  Johns.  44;  New  York  Fire-  the  purpose  of  carrying  on  a  par- 

men  Ins.  Co.  T.  Ely,  2  Cow.  678;  N.  Y.  ticular  kind  of  business  requiring 

Firemen  Ins.  Co.  v.  Bennett,  5  Conn,  credit  in  its  prosecution,  it  would  be 

574;  Philadelphia  Loan  Co.  v.  Towner,  an  excess  of  its  power  to,  engage  or 

13  Conn.  249;  Korn  v.  Mut.  Soc.,  6  secure,  in  support  or  aid  of  its  own 

Cranch,  199;  Bank  of  Chillicothe  T .  credit,  that  of  other  persons  in  regard 

Swayne,  8  Ohio,  257;  McCullough  v.  to  the  fulfillment  of  its  contracts,  even 

Moss,  5  Denio,  567;  Slark  v.  Highgate  when  the  exigencies  of  its  business 

Archway  Company,  5  Taunt.  792.  required  such  aid  for  its  prosecution; 

3  Hope  Mutual  Life  Ins.  Co.  v.  Weed,  and  the  principle  would  even  go  so 
(1859)28  Conn.  51.  The  court  said:  far  as  to  prohibit  the  ordinary  engage- 
"  It  was  an  arrangement  which  was  ment  of  suretyship  in  behalf  of  such 
made,  not  as  an  end,  but  only  as  a  corporation.  Nothing  is  more  corn- 
means  or  instrument  for  the  success-  mon  than  the  exercise  of  such  a  power 
ful  prosecution  of  their  main  and  by  our  pecuniary  corporations,  and  the 
appropriate  business.  And  the  facts  power  is  one  from  the  exercise  of- 
before  us  conclusively  show  that  such,  which  not  only  no  evil,  but  the  great- 
in  the  present  instance,  was  the  only  est  benefits  to  such  corporations  and 
design  or  motive  with  which  it  was  to  the  public,  has  arisen.  And  it  was 
entered  into,  and  that  it  was  resorted  never  before  suggested  that  it  was 
to  by  the  plaintiffs  as  a  matter  neces-  beyond  the  scope  of  the  powers 
sary  to  the  prosecution  of  their  proper  granted  to  such  bodies." 


§  Y9]  PRIVATE  CORPORATIONS.  91 

promissory  notes,  and  bills  of  exchange,  lend  money,  and  discount 
or  sell  such  notes  or  bills,  and  to  "  borrow  money  and  issue  its 
bonds  therefor,"  is  not  restricted  by  this  latter  provision  to 
making  loans  secured  by  bonds,  but  lias  the  incidental  and 
implicil  power,  common  to  all  such  corporations,  to  borrow 
money,  and  make  negotiable,  or  non-negotiable  paper,  and  give 
such  securities  as  may  be  dcmii'd  most  advantageous.1  Under 
statutory  authority  to  "invest  their  money  in  real  or  personal 
property,  stocks  or  choses  in  action "  an  insurance  corporation 
cannot  subscribe  for  stock  in  a  projected  corporation.2 

§  79.  Manufacturing  corporations. —  A  corporation  organ- 
ized under  the  General  Incorporation  Act  of  Ohio,  for  the  purpose 
of  manufacturing  and  supplying  gas  to  the  inhabitants  of  a  city 
or  village,  may  borrow  money  to  enable  it  to  accomplish  the 
jlegitimate  objects  of  its  creation,  and  secure  the  payment  of  the 
Joan  by  note  and  a  mortgage  upon  its  property.8  A  corporation, 
incorporated  "  for  the  purpose  of  manufacturing  and  selling 
glass  "  may  purchase  glassware,  for  the  purpose  of  keeping  up 
their  stock  and  supplying  customers,  while  the  works  which  they 
manufacture  in  are  being  put  in  repair.4  A  manufacturing  cor- 
poration may  incur  a  liability  for  a  stock  of  merchandise  to  be 
sold  by  it  in  a  retail  store  connected  with  their  manufacturing 

'Talladega    Insurance  Co.   t.   Pea-  *  Commercial  Fire  Insurance  Co.  «. 

cock,  Admr.,  (1880)  67  Ala.  253;  Allen  Board  of  Revenue  of    Montgomery 

t.  Montgomery  R.  R.  Co.,  11  Ala.  454;  County,  99  Ala.  1;  s.  c.,  14  So.  Rep. 

Mobile  &  Cedar  Point  Ry.  Co.  v.  Tal-  490. 

man,  15  Ala.  491;  Lucas  p.  Pitney,  27  3Hays  r.  Galion  Gas  Light  &0nl 
N.  J.  Law,  221;  Railroad  Company  t>.  Co..  (1876)  29  Ohio  St.  330. 
Howard,  7  Wall.  411.  In  Trenton  *  Lyndeborough  Glass  Co.  ».  Massa- 
Mutual  Life  &  Fire  Insurance  Co.  t>.  chusctts  Glass  Co.,  (1873)  111  Mass. 
McKelway.  (1858)  12  N.  J.  Eq.  133,  315.  The  court  said  :"  They  succeeded 
188,  Chancellor  WILLIAMSON  said:  "It  a  former  company  which  had  been 
cannot  be  denied  but  that  the  corpora-  engaged  in  the  same  business  ;  it  was 
tion  might  borrow  money  under  some  important  that  they  should  retain  the 
circumstances,  and  that  a  contract  old  customers.  They  were  repairing 
Itoiuijids  made  for  such  loan  would  be  their  manufactory  and  machinery  and 
illegal  [legal V],  and  not  in  contra ven-  these  goods  were  bought  to  keep  in 
tion  of  the  charter.  For  instance,  their  stock  and  enable  them  to  fill 
should  the  corporation  incur  a  loss,  orders  from  tin  ir  customers  until  they 
and  not  have  the  available  means  could  supply  themselves  from  their 
promptly  to  meet  it,  it  would  not  be  own  inanul':i<  t<>ry.  Such  purrha«-rs 
illegal  for  them  to  make  a  k>an  to  nre  auxiliary  and  incidental  to  tin- 
meet  the  exigency."  main  purposes  of  their  incorporation 


92  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  80 

business,  as  a  convenience  or  necessity  thereto.1  A  corporation 
manufacturing  machinery  may  purchase  cotton  for  use  in  pack- 
ing its  manufactures  for  cash  or  on  credit  and  give  its  evidences 
of  debt  for  the  same.2  A  manufacturing  and  mercantile  corpora- 
tion may  incur  a  liability  in  the  nature  of  a  reward  to  one  caus- 
ing the  apprehension  of  persons  charged  with  crime  and  their 
conviction.3 

§  80.  Mining  corporations. — The  power  to  borrow  money  is 
an  incident  to  the  corporate  powers  of  a  mining  corporation.4 
It  is  a  necessary  incident  of  a  mining  corporation  that  it  shall 
have  power  to  contract  and  to  bind  itself  to  those  dealing  with  it 
in  matters  within  the  intent  of  the  charter,  even  though  the 
charter  contains  no  express  grant  or  power  to  contract  or  incur 
indebtedness.5  A  corporation,  the  purpose  of  which  by  the  act 
creating  it  is  to  mine  and  transport  coal,  may  purchase  and  use  a 
steamboat  for  the  purpose  of  transporting  and  delivering  coal.6 
A  corporation  organized  for  mining  purposes  has  power  to  pur- 
chase timber.7  But  it  has  no  authority  to  issue  accommodation 
paper  and  deliver  it  to  strangers.8  The  board  of  director?  of  a 

and  are  fairly  within  the  scope  of  the  Woodb.  &  M.  105,  it  was  held  that  a 
powers  conferred  upon  them  by  law.  manufacturing  corporation  could  not 
Brown  t>.  Winnisimmet  Co.,  11  Allen,  legally  invest  money  in  a  bank  for  the 
326."  purpose  of  carrying  on  the  banking 

1  Dauchy  ®.  Brown,  (1852)  24  Vt.  business ;  nor  could  it  issue  promis- 
197.  sory  notes  in  payment  of  shares  in  a 

9  Gist  v.  Drakely,  2  Gill,  (Md.)  330,  banking  company  which  would  bind 
345.  the  corporation  or  its  members.  As  to 

3  Norwood     &    Butterfleld    Co.    t>.    the  incidental  power  of  a  private  cor- 
Andrews,   (1894)  71  Miss.   641;   s.  c.,    poration  to  make  any  contract  neces- 
16  So.  Rep,  262.      Citing  Railroad  Co.    sary  to  advance  the  objects  for  which 
v.  Cheatham,  85  Ala.  292;  s.  c.,  4  So.    it  was  created,  see  Legrandfl.  Manhat- 
Rep.  828;  Ricord  v.  Railroad  Co.,  15   tan  Mercantile  Association,  (1880)  80  N. 
Nev.  167 ;    Express  Co.  v.   Patterson,    Y.  638,  affg.  44  N.  Y.  Super.  Ct.  562. 
73  Ind.   430.      In  National  Bank  of       4Kent  ».   Quicksilver  Mining   Co., 
Republic  v.  Edward  C.   Young,  Re-   (1879)  78  N.  Y.  159. 
ceiver,  etc.,   (1886)  41  N.  J.  Eq.  531,        "Wood  Hydraulic  Hose  Mining  Co. 
it  was  held  that  a  corporation  created   r.  King,  (1872)  45  Ga.  34. 
for  the    purpose    of    carrying  on  a       6Callaway  M.  &  M.  Co.  v.   Clark, 
manufacturing  business  had   implied    (1862)  32  Mo.  305. 
power  to  make  negotiable  paper  for       7  Adams  Mining  Co.  t.  Senter,  (1872) 
use  within  the  scope  of  its  business,    26  Mich.  73. 

but  no  power  to  become  a  party  to       8  Beecher  v.  Dacey,  (1881)  45  Mich, 
bills  or  notes  for  the  accommodation   92. 
of  others.     In    Sumner  T.   Marcy,   3 


§§  81,  82]  PRIVATE  CORPORATIONS.  93 

mining  Corporation  which  is  empowered  to  enter  into  any  con- 
tracts essential  to  its  ordinary  business  may  borrow  money  for  tin- 
purposes  of  the  corporation  and  invest  certain  of  its  officers  with 
power  to  negotiate  loans,  etc.1  That  such  officers  have  been 
invested  with  power  to  negotiate  loans,  etc.,  may  be  shown  other- 
wise than  by  official  record  of  the  board's  proceedings.* 

§  81.  Railroad  corporations. — A  corporation  incorporated 
for  the  construction  of  a  railway  has  power  to  agree  to  pay  for 
its  right  of  way  in  bonds.8  A  railroad  company,  granted  aright 
to  construct  a  particular  line  of  road,  with  general  power  to  pur- 
chase all  kinds  of  property  of  whatever  nature,  may  purchase  from 
another  railroad  company  a  road  constructed  on  that  line  if  the 
latter  company  has  the  power  to  sell  it.4  Corporations  created 
for  the  construction  of  railroads,  in  the  absence  of  limitation  or 
restraint  by  statute,  have  power  to  borrow  money  and  to  make 
bonds,  bills  or  promissory  notes  for  its  repayment,  and  also  power 
to  mortgage  their  property,  real  or  personal,  as  a  security  for 
such  evidences  of  debt.  These  are  powers  necessary  and  proper 
to  enable  them  to  accomplish  the  purposes  of  their  creation,  and 
are  regarded  as  incidental  or  implied,  though  not  expressly  con- 
ferred by  the  charter  or  act  of  incorporation.5  A  railroad  cor- 
poration, with  power  to  construct  and  maintain  a  railroad,  can- 
not, however,  incur  a  debt  for  an  examination  of  mines  along  its 
route  by  an  expert  and  a  report  upon  the  extent  of  the  output  of 
the  same,  this  being  a  matter  not  within  the  legitimate  purposes 
of  its  creation.6 

§  82.  The  same  subject  continued. — A  railroad  company 
has  no  right,  under  an  authority  to  borrow  money,  to  raise  money 

1  Mining    Co.   v.  Anglo-Califoruian  the  implied  power  of  a  corporation  to 

Bank,  104  U.  S.  192.  borrow   money  needed  for  its  legiti- 

*  Ibid.  mate    purposes,    and    give    security 

'Munson  r.  Syracuse,  Geneva,  etc..  therefor  to  the  lender,  see  In  rePatrnt 

R.  R.  Co.,  (1880)  108  N.  Y.  58;  s.  c.,  4  File  Co.,  L.  R.  (6  Cu.)  88;     Monument 

Cent.  Rep.  191.  Nat.  Bank  r.  Globe  Works.  101  Mass. 

4  Branch  r.  .Tesup,  106  U.  8.  468.  57;  Hays  r.  Gallon  Gas  Light  Co..  29 

s  Kelly  v.  Trustees  of  Ala.  &  Cinn.  Ohio  St.  330;  Curtis   c.  Leavitt,  15  N. 

R.  R.   Co.,  (1877)  58  Ala.  48»;  Rich-  Y.  9. 

ards  c.  Railroad,  44  N.  H.  127;  Com-  •George.  Nevada  Central  Railroad 

monwealth  t>.    Smith,    10  Allen,  448;  Co., (Nev.  1894)88 Par.  Hep. 441; ritini: 

Savannah  &  Memphis  R.  R.  Co.  «.  Thomas  r.  Railroad  Co.,  101  U.  8.  82; 

Lancaster,  (1878)  62  Ala.  555     As  to  Davis  r.  Railroad  Co.,  131  Mass.  259. 


94  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.  [§  82 

by  the  issue  of  irredeemable  bonds  entitling  the  holder  merely 
to  a  share  of  the  earnings  after  the  payment  of  a  certain  divi- 
dend to  the  stockholders ;  neither  has  it  the  right  to  issue  inter- 
est-bearing bonds,  secured  by  mortgage,  if  a  portion  of  such 
bonds  are  perpetual.1  Under  the  laws  of  Wisconsin  railroad 
companies  were  given  power  to  make  such  contracts  with  rail- 
roads terminating  on  the  eastern  shore  of  Lake  Michigan,  within 
the  state  of  Michigan,  as  would  enable  them  to  run  their  roads 
in  connection  with  each  other,  etc.,  and  to  "  build,  construct  and 
run  as  a  part  of  their  corporate  property  such  number  of  steam- 
boats or  vessels  as  they  may  deem  necessary  to  facilitate  their 
business.  The  Supreme  Court  of  the  "United  States  has  held 
that,  under  the  power  given  by  the  above-mentioned  statutes,  a 
railroad  company  could  contract  with  a  steamboat  company  to 
run  in  connection  with  its  line,  and  might  lawfully  guarantee 
that  their  earnings  should  not  fall  below  a  certain  sum.2  A  cor- 

1  Taylor  v.  Philadelphia  &  Reading  this  question:  "  Every  admissible  defi- 
R.  R.  Co.,  (1881)  7  Fed.  Rep.  386.  nition  of  the  term  borrow  or  loan,  as 
McKENNAN,  C.  J.,  referring  to  the  applied  to  money  and  commercial 
proposition  to  issue  such  bonds,  said:  transactions,  embraces  an  obligation  to 
"It  does  not  propose  to  create  the  return  the  property  borrowed.  A 
relation  of  debtor  and  creditor  be-  loan  of  money  is  universally  under- 
tween  the  defendant  and  the  sub-  stood  to  be  the  delivery  of  a  certain 
scribers.  The  money  obtained  by  the  sum  to  another  on  contract  for  its  re- 
defendant  could  not  be  regarded  as  turn,  generally  with  interest,  as  corn- 
borrowed,  because  that  implies  reim-  pensation  for  its  detention  and  use. 
bursement,  and  it  is  not  demandable  To  call  the  payment  of  money  to  an- 
by  the  subscribers  or  payable  by  the  other,  who  is  to  receive  and  perma- 
defendant.  It  has  not  the  essential  nently  retain  it  as  his  own,  in  consid- 
and  distinguishing  qualities  of  a  loan,  eration  of  an  annual  benefit  or  profit, 
It  contemplates  a  stipulation  that  the  a  loan,  would  seem  to  be  a  plain  misuse 
subscribers,  in  consideration  of  the  of  language."  See  Kent  r.  Quicksil- 
sums  paid,  not  lent,  by  them,  shall  be  ver  Mining  Co.,  78  N.  Y.  159,  177; 
entitled  to  receive,  in  a  remote  and  Burt  v.  Rattle,  31  Ohio  St.  116. 
uncertain  contingency,  a  portion  of  s  Green  Bay  &  W.  R.  Co.  t>.  Union 
the  defendant's  earnings,  to  be  meas-  Steamboat  C6.,  107  U.  S.  98;  s.  c  ,  2 
ured  by  a  certain  rate  per  cent  upon  Sup.  Ct.  Rep.  221,  in  which  case  Jus- 
three  times  the  sums  paid  by  them,  tice  GRAY  said:  "  Whatever  under  the 
and  after  that  shall  participate  with  charter  or  other  general  laws,  reason- 
the  common  shareholders  in  the  di-  ably  considered,  may  fairly  be  re- 
vision of  the  residuary  earnings.  By  garded  as  incidental  to  the  objects  for 
what  allowable  definition  of  a  loan  or  which  the  corporation  is  created,  is  not 
borrowing  such  a  transaction  can  be  to  be  taken  as  prohibited. "  In  Pearce 
embraced  I  am  at  a  loss  to  conceive."  v.  Madison  &  Indianapolis  R.  R.  Co., 
BUTLER,  D.  J.,  concurring,  said  upon  (1853)  21  How.  441,  the  Supreme 


§  83]  PRIVATE  CORPORATIONS.  95 

jxjration  formed  for  the  purpose  of  constructing  a  railroad  can- 
not engage  in  the  business  of  running  a  line  of  steamers.1 
Neither  can  it  engage  in  the  banking  business  in  order  to  raise  a 
fund  with  which  to  construct  or  operate  its  road.*  Authority  in 
the  charter  of  a  railroad  cor po ration  to  "  obtain  by  purchase  or 
^runt  *  *  *  any  steamboats  *  *  *  that  the  said  direct- 
ors may  deem  necessary,  profitable  and  convenient  for  this  cor- 
poration to  own,  use  and  manage  in  connection  with  its  said  rail- 
roads "  does  not  carry  with  it  the  power  to  buy  off.  an  opposition 
lino  of  steamers  with  a  view  not  of  employing  but  of  withdraw- 
ing them  from  the  field  of  competition.8  The  power  to  issue  to 
contractors  in  payment  for  work  due  negotiable  certificates  of 
indebtedness,  payable  in  money  or  bonds,  is  included  in  the  power 
granted  a  railroad  corporation  by  its  charter  to  build  a  road  and 
issue  bonds  to  pay  therefor.4 

§  83.  Raising  money  by  borrowing  notes  and  indorse- 
ment of  them. —  In  a  leading  New  Jersey  case,  the  president 
and  directors  of  a  railroad  company  agreed  among  themselves 
that  they  would  execute  their  individual  several  notes  to  the 
company  and  the  latter  should  raise  money  upon  them  for  the 
purposes  of  the  corporation.  The  note  involved  in  this  action 
was  never  directly  negotiated  by  the  company  to  raise  money, 
but  was  indorsed  by  the  company  as  a  renewal  of  former  such 
notes  and  finally  delivered  to  one  to  whom  the  company  was 
indebted  for  money,  in  payment  of  that  indebtedness.  It  was 
insisted  before  the  Court  of  Errors  and  Appeals  that  the  pro- 
vision in  the  charter  of  the  company  "  that  the  said  corporation 
shall  have  power  to  borrow  such  sum  or  sums  of  money  from 

Court  of  the  United  States  held  that  t>.  Eastern  Counties  Rail  way  Co.,  11  C. 

the  purchase  of  a  steamboat  by  the  B.  803;  Head  r.  Providence  Insurance 

railroad  corporation,  to  be  run  in  con-  Co.,  2  Craneh,  127;  Bank  of  Augusta, 

ncction    with    its    business,    was  not  ».  Earle,  13  Pet.  519;  Perriner.  Chesa- 

authorized  by  its  charter  or  within  its  peakc  &  Delaware  Canal  Co.,  9  How. 

power  as  necessary  or  incident  to  its  172. 

business,  and  that  there  could  be  no  '  McCarty  r.  Roots,  21  How.  482. 

recovery  upon  the  notes  given  for  its  'Waldo  r.   Chicago  R.  R.   Co.,   14 

purchase.     The  court  cited  in  support  VVis.  575,  580. 

of    ilicir    ruling:   MacGregor  p.    The  *  Morgan    &    Rayuor,   Trustees,    r. 

Official  Manager  of  the  Deal  &  Dover  Donovan,  (1877)  58  Ala.  241. 

Railway,  16Eng.  Law&Eq.  180  ;  Col-  *  Pusey  t>.  New  Jersey  West  Lint« 

man  v.  Eastern  Counties  Railway  Co.,  R.  R.  Co.,  (1878)  14  Abb.   Pr.  (N.  8.) 

10  Bcav.  1;  East  Anglian  Railways  Co.  484. 


96  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  83 

time  to  time,  as  shall  be  necessary  to  build,  construct  or  repair 
said  road,  and  furnish  the  said  corporation  with  all  the  necessary 
engines  and  machinery  for  the  uses  and  objects  of  the  said  com- 
pany, and  to  secure  the  payment  thereof  by  bond  or  mortgage, 
or  otherwise,"  was  a  limitation  of  the  power  of  the  company  to 
borrow  money  for  specified  purposes,  and  in  the  mode  designated, 
and  was  tantamount  to  a  prohibition  of  the  company's  borrowing 
money  for  any  other  purpose  or  upon  any  other  security  than 
that  specified.  The  court  held  that  it  was  within  the  power  of 
the  company  to  raise  money  through  borrowing  these  notes  and 
indorsing  them  to  others  for  its  indebtedness.1 

1  Lucas  v.  Pitney,  (1858)  27  N.  J.  or  for  its  necessary  purposes.  It  is 
Law,  221.  Chief  Justice  GREEN  in  conceded  that  the  corporation  has 
the  opinion  rendered  said  that  this  such  powers  only  as  are  expressly 
section  of  the  charter  "  was  designed  conferred  by  charter  or  necessarily  in- 
not  as  a  limitation  or  restriction  of  the  cident  to  those  powers.  If  it  may 
powers  of  the  corporation,  but  as  a  lawfully  contract  debts,  it  would  seem 
grant  of  additional  power.  *  *  *  clear  that  it  may  enter  into  obligations 
The  corporations  are  clothed  with  to  pay  those  debts  or  borrow  money 
powers,  which,  independent  of  that  for  that  purpose.  The  power  of  in- 
provision,  they  could  not  have  exer-  curring  debts  in  the  course  of  its  legit- 
cised.  But  there  is  nothing  in  the  imate  business,  of  giving  notes,  or 
provision  which,  by  necessary  implica-  borrowing  money  for  the  payment  of 
tion  or  by  fair  intendment,  can  be  such  debts  would  seem  necessarily  in- 
construed  to  limit  the  general  powers  cident  to  every  corporation  whose 
and  capacities  incident  to  every  cor-  business  involved  the  expenditure  of 
poration."  On  the  part  of  the  defend-  large  sums  of  money,  and  often  upon 
ant,  it  was  insisted  that  a  corporation  sudden  and  unforeseen  contingencies, 
can  make  no  contract  which  is  not  Such  it  is  believed  is  the  universal 
necessary  to  enable  it  to  answer  the  custom  of  all  important  corporations 
object  of  its  incorporation;  that  the  whether  private  or  municipal.  The 
loaning  of  money,  or  the  borrowing  authorities  in  support  of  the  practice 
of  notes  to  be  discounted  in  market,  is  are  abundant.  Our  statute  recognizes 
not  necessary  to  the  operation  of  a  bodies  politic  or  corporate  as  persons 
railroad  company;  and  that,  conse-  by  whom  promissory  notes  and  bills 
quently,  the  making  or  indorsement  of  exchange  may  be  drawn,  indorsed 
of  commercial  paper  by  such  com-  and  accepted.  Nix.  Dig.  667,  §  4 
pany  as  a  security  for  money  loaned  (N.  J.).  The  technical  doctrine  that  a 
and  the  indorsement  of  notes  bor-  corporation  can  contract  only  under  its 
rowed  for  the  purpose  of  raising  corporate  seal,  was  long  since  ex- 
money  were  void  acts.  To  this  in-  ploaed.  In  Munn  v.  The  Commission 
sistment  the  chief  justice  said-  "The  Co?,  15  Johns.  R.  44,  it  was  held  that 
simple  inquiry  is  whether  a  railroad  a  corporation  of  limited  powers  might 
company  has,  as  a  necessary  incident,  engage  to  pay  or  advance  money  at  a 
the  inherent  power  of  borrowing  future  day  by  the  acceptance  of  a  bill 
money  for  the  payment  of  its  debts  of  exchange.  In  Mott  v.  Hicks,  1 


§  84]  PRIVATE  CORPORATIONS.  97 

§84.  Evidences  of  indebtedness — form. —  At  common 
law  a  corporation  has  power  to  issue  a  bond  or  note  to  pay  a 
debt.1  The  weight  of  modern  authority  supports  the  conclusion 
that  private  corporations,  organized  for  pecuniary  profit,  may, 
like  individuals,  borrow  money  whenever  the  nature  of  their 
business  renders  it  proper  or  expedient  that  they  shall  do  so, 
subject  only  to  such  express  limitations  as  are  imposed  by  their 
charter.  The  power  tc  borrow  carries  with  it,  by  implication, 
unless  restrained  by  the  charter,  the  power  to  secure  the  loan  by 
mortgage.  Accordingly,  it  may  be  regarded  cs  settled,  that 
where  general  authority  is  given  a  corporation  to  engage  in  busi- 
ness, and  there  are  no  specid  restraints  in  its  charter,  it  takes  the 
power  as  a  natural  person  enjoys  it,  with  all  its  incidents  and 
accessories ;  it  may  borrow  mone^  to  attain  its  legitimate  objects, 
precisely  as  an  individual,  and  bind  itself  by  any  form  of  obliga- 
tion not  forbidden.3  Unless  restrained  by  legislative  enactment 

Cowen,  513,  it  was  held  that  a  private  no  restraining  act  may  make  promis- 
corporation  might  give  a  negotiable  sory  notes  and  draw  bills  of  ex- 
promissory  note  tor  a  debt  incurred  in  change,  where  these  are  the  usual 
its  ordinary  business.  In  Kcllcy  v.  and  proper  means  to  accomplish  the 
Mayor  of  Brooklyn,  4  Hill,  263,  it  was  purposes  of  their  organization;  that 
hell  that  a  municipal  corporation  may  such  notes  and  bills  arc  to  be  pre- 
issuc  negotiable  paper  for  a  debt  con-  sumed  legal  and  valid  where  they  are 
tracted  in  the  course  of  its  proper  busi-  not  prohibited  by  law  and  are  re- 
ness;  and  in  delivering  the  opinion  of  ceived  in  good  faith,  and  that  they 
the  court  COWKN,  J.,  said:  "  Inde-  are  invalid  when  given  in  violation  of 
pendently  of  any  statute  provision,  law,  or  when  given  for  purposes 
a  corporation  may  issue  negotiable  wholly  foreicrn  to  those  for  which  the 
paper  for  a  debt  contracted  in  the  incorporation  v^as  created." 
course  of  its  proper  business.  This  is  l  McLane,  Trustee,  v.  Placerville  & 
a  power  incident  to  all  corporations,  Sacramento  Valley  R.  It.  Co.,  (1885) 
and  no  provision  *n  its  charter,  or  else-  06  Cal.  606 ;  citing  Commonwealth  v. 
where,  merely  directing  a  certain  Smith,  10  Allen,  448;  Comre.  of 
form  in  affirmative  words  should  be  Craven  «.  Atlantic  &  N.  C.  R.  R.  Co., 
so  construed  ar  to  take  away  the  77  N  C.  288 ;  Miller  ».  New  York  & 
power.  The  same  general  principle  Erie  R.  R.  Co.,  18  How.  Pr.  374 ; 
will  be  found  in  Moss  r.  Oakley,  2  Dana  r.  Bank  of  United  States,  5 
Hill.  265;  Barker  e.  The  Mechanic  Watts  &  8.  223. 

Ins.  Co.,  8  Wend.   96;   Furniss  o.  Gil-  *  MITCHELL,     J.,     in     Wright     «. 

Christ, 'l  Sandf.  Sup.  Ct  R.  58,  Angcll  Hughes,  (1889)  119  Ind.  824;  s.  c.,  21 

&   Ames  on  Corp.  §  257;  Pierce  on  N  E.  Rep.  907  ;  New  England,  etc., 

Railroads.   372.     The    result,   of   the  Ins.  Co.    v.   Robinson,   25   Ind.  686; 

authorities,  to  adopt  the  language  of  Jones  «?.  Guaranty,  etc.,  Co.,  101  U. 

a  recent  writer,  seems  to  be  that  cor-  8.    622;     Reichwald    «.    Commercial 

porations  carrying  on  business  under  Hotel    Co.,    106    111.   489;    Booth  «. 

13 


98  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  85 

to  a  specific  mode  of  contracting,  the  contracts  a  corporation  has 
capacity  to  make  may  be  made  in  that  manner  or  form  in  which 
a  similar  contract  by  an  individual  could  be  made.1  A  private 
corporation,  authorized  to  "  borrow  money  and  issue  their 
bonds  therefor,"  may  bind  itself  by  simple  as  well  as  by  sealed 
contracts.2 

§  85.  More  rules  on  this  subject. — There  is  a  capacity  in  a 
corporation  to  enter  into  any  obligation  or  make  any  contract 
essential  for  its  purposes  and  for  the  transaction  of  its  ordinary 
affairs.  Such  a  power  to  contract  existing,  the  power  may  be 
exercised  by  the  corporation  or  its  proper  officers  as  a  natural 
person  can  contract  unless  its  charter  presents  some  particular 
mode  of  contracting.3  Promissory  notes  may  be  given  by  trad- 
Robinson.  55  Md.  419 ;  Hays  fl.  Gallon  seal,  see  Arnold  v.  Mayor  of  Poole,  2 
Gas  Light  Co.,  29  Ohio  St.  330;  Dowl.  (N.  S.)  574 ;  Bowen «.  Morris, 
Memphis,  etc.,  R.  R.  Co.  v.  Dow,  19  2  Taunt.  374;  Paine  v.  Guardians  of 
Fed.  Rep.  388  ;  Green's  Brice's  Ultra  Strand  Union,  8  Q.  B.  326 ;  Cox  v. 
Vires,  223;  1  Moraw.  on  Corp.  g§  342,  Midland  Counties  Railway  Co.,  3 
343.  Exch.  268 ;  Lamprell  v.  Billericuy,  3 

1  Trustees  of  University  v.  Moody,  Exch.  306.      How    far    thev    confine 

(1878)  62  Ala.  389.    BKICKELL,  Ch.  J.  liability  on  promissory  notes  and  bills 

said:     "The    technical    rule  of    the  of  exchange    to   trading  corporations 

ancient  common  law.   that  a  corpora-  only,  see  Mayor  of  Ludlow  v.  Charlton, 

tion  could  not  manifest  its  intentions  6  Mees.  &  W.  815 ;    Murray   r.  East 

by  any  personal  act  or  oral  discourse,  India  Co.,  5  B.  &  Aid.  204 ;  Broughton 

and  that  it  spoke  and  acted  only  by  its  v.  Manchester  W.  Wks.,3  Barnw.  & 

common  seal,  if  it  ever  obtained  in  this  Aid.  1;    Beverley  «.  Lincoln  Gas  Co., 

country,  is  now  obsolete."  6  Ad.  &  E.  829  :  Rew  v.  Peltet,  1  A. 

s  McCullough  v.  Talladega  Insurance  &  El.  196  ;  Church  v.  Imp.  Gas  Light 

Co.,    (1871)    46    Ala.    376;    Bank  of  Co.,  6  Ad.  &  E.  846. 

Columbia  T.  Patterson,  7  Cranch,  299;  3  McKiernan    T.    Lenzen,    (1880)  56 

Talladega  Ins.  Co.  v.  Landers,  43  Ala.  Cal.  61.     As  to  what  officers  of  a  cor- 

115.     That  corporations  may  contract,  poration  may  do  in  connection  with 

as  individuals  do,  in  matters  pertain-  the  affairs  of  a  corporation,  see  Gillett 

ing  to  their  business,  see  Smead  v.  v.  Campbell,  1  Denio,  520,  522:  Carey 

Indianapolis,  etc.,  R.  R.  Co.,  11  Ind.  r.  Giles,  10  Ga.  10;  Phillips  v.  Camp- 

104 ;  Talman  v.  Rochester  City  Bank,  bell,  43  N.  Y.  271.     As  to  what  a  gen- 

18  Barb.  123.    As  to  the  power  of  a  eral  manager  cannot  do,  see  Stow  v. 

corporation     expressly    or   impliedly  Wyse,    7    Conn.    219 ;    Hawtayne    v. 

authorized  to    borrow    money  being  Bourne,  7  Mees.   &  W    595;    Life  & 

exercised  by  issuance  of   negotiable  Fire  Ins.  Co.  t.  Mechanic     Fire  Ins. 

bonds,  see  Des  Moines  Gas  Co.  v.  West,  Co..  7  Wend.  31;  Knight  v.  Lang,  4 

(1878)    50    Iowa,    16.     For    rules   in  E  D.  Smith,  381;  Benedict  v.  Lansing, 

English   cases  as  to  liability  of  cor-  5  Denio,  283;  Torrey  v.  Dustin  Monu- 

porations  upon   contracts  not  under  ment  Association,  5  Allen,  327,  329; 


§  85]  PRIVATE    CORPORATIONS.  99 

ing  corporations  for  any  iiHK-litrdm-.-s  contracted  within  the  scope 
of  their  powers,  and  it  may  prima  facie  be  presumed  that  any 
notes  given  by  them  are  for  an  indebtedness  within  the  scope  of 
their  powers.1  The  power  of  a  corporation  to  create  debts  and 
to  iiiiiki'  promissory  notes  is  an  incident  to  the  power  conferred 
by  statute  of  California  "  to  make  by-laws,  *  *  *  for  the 
organization  of  the  company,  the  management  of  its  property, 
the  regulation  of  its  affairs,  the  transfer  of  its  stock  and  for 
carrying  on  all  kinds  of  business  within  the  objects  and  purposes 
of  the  company." a  The  provision  of  the  statute  of  California 
that  "  no  corporation  created  or  to  be  created  shall  by  any  impli- 
cation or  construction  be  deemed  to  possess  the  power  of  issuing 
bills,  notes  or  other  evidences  of  debt  upon  loans  or  for  circula- 
tion as  money  "  has  been  construed  not  to  prohibit  tne  borrowing 
of  money  by  corporations  and  issuing  the  usual  evidences  of  debt 
therefor.8  The  constitutional  provision  of  California  forbidding, 
except  on  certain  conditions,  the  increase  by  corporations  of  their 
bonded  indebtedness  has  been  held  not  to  forbid  the  execution  of 
ncn-negotiable  notes  and  mortgages  by  a  corporation  in  considera- 
tion of  the  promise  by  the  payee  of  the  notes  and  mortgages  to 
advance  money  and  deliver  lumber  as  needed  by  the  corporation 
for  improvement  of  the  mortgaged  property.4  A  building  asso- 
ciation, the  charter  of  wfiich  vests  it  with  such  power  as  to 
enable  it  to  borrow  money  and  to  make  loans  to  its  members  with 
a  view  to  accomplish  the  purpose  of  its  formation,  may  employ 
the  usual  legal  methods  of  effecting  this  purpose,  subject  to 
such  restrictions  as  that  it  shall  not  issue  paper  currency,  for 
instance.  And,  having  the  right  to  effect  a  loan,  it,  through  its  offi- 
cers, in  their  discretion,  may  give  a  promissory  note  for  the 
purpose,  and  it  may  issue  such  a  note  for  an  intended  indebted- 
ness.5 Jt  is  competent  for  any  manufacturing  corporation  organ- 
ized under  the  general  laws  of  Minnesota  to  execute  promissory 
notes  as  evidence  of  the  debts  it  may  lawfully  contract.6  As 

Despatch  Line  of  Packets  r.  Bellamy  4  Underbill  r.  Santa  Barbara  Land, 

Manufacturing  Co.,  12  N.  H.  205,  228;  Building  &  Imp.    Co.,  98  Cal.  300; 

Luse  v.  Istbmus    Transit    Ry.   Co.,  6  8.  c.,  28  Pac.  Rep.  1049. 

Oreg.  125.  *  Davis  t>.  West  Saratoga  Building 

1  Qebbard  r.  Eastman,  7  Minn.  56.  Union,  (1869)  32  Md.  285. 

'Smith  t.  Eureka  Flour  Mills  Co.,  •  Sullivan  «.  Murphy,  23  Minn.  6. 

(1856)  6  Cal.  1.  In  Bacon  t>.  Mississippi  Insurance  Co., 

*Magee  «.  Mokelumnc    Hill   Canal  2  George  (Miss.),   116,  the  Supreme 

A  Mining  Co.,  (1855)  5  Cal.  268.  Court  of  Mississippi  held  that  aoorpora- 


100  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  85 

under  our  general  credit  system,  and  the  manner  and  modes  of 
doing  business,  the  success  and  prosperity  of  manufacturing  cor- 
porations and  other  enterprises  of  like  character  would  be  greatly 
impeded  and  embarrassed,  if  not  utterly  destroyed,  without  the 
capacity  and  power  to  contract  debts,  borrow  money  and  make 
and  receive  bills  of  exchange  and  promissory  notes,  these  powers 
will  be  inferred  where  there  are  no  prohibitions  to  the  contrary 
in  their  charters.1  A  manufacturing  corporation,  declared  by  gen- 
eral law  for  the  incorporation  of  such  an  one,  "  capable  of  buy- 
ing, purchasing,  holding  and  conveying  any  lands  or  tenements, 
hereditaments,  goods,  wares  and  merchandise  whatever,  necessary 
to  enable  [it]  to  carry  on  their  manufacturing  operations 
*  *  *  ,"  has  po\yer  to  execute  its  promissory  notes  upon 
the  purchase  of  such  personal  property  or  in  liquidating  the 
claims  of  its  employees  in  its  legitimate  transactions.  It  also 
possesses  power  to  borrow  money  for  the  same  purposes  and  to 
bind  itself  in  its  corporate  capacity  by  a  written  obligation  for  its 
payment.2  A  corporation  authorized  to  construct  a  building  for 
its  use  and  purposes  may  accept  an  order  drawn  upon  it  by  a 
tnaterialman  for  material  furnished  and  payable  out  of  money 
due  such  materiahnan.3  There  can  be  no  recovery  on  a  note 
given  by  a  corporation  on  a  contract  beyond  the  scope  of  its 
power.4  A  corporation  being  authorized  by  its  charter  to  incur 
indebtedness  and  give  evidence  thereof,  one  dealing  in  its  securi- 
ties may,  in  the  absence  of  notice  to  the  contrary,  assume  that 
restrictions  upon  its  power  have  not  been  violated.5  A  corpora- 
tion having  power  to  loan  money  on  and  in  the  same  manner  as  individuals 
bottomry,  respondentia,  etc.,  had  no  engaged  in  like  business.  And  when 
power  to  borrow  money,  and  prima  they  do  so,  and  confine  themselves  to 
facie  no  power  to  make  a  promissory  the  purposes  and  objects  of  their  in- 
note.  As  to  making  promissory  notes  corporation,  they  should  not  be 
by  private  corporations  in  the  course  deemed  as  transcending  their  au- 
of  their  legitimate  business,  see  Erode  thority,  but  should  be  regarded  as 
v.  Firemen's  Insurance  Co.,  8  Rob.  (La.)  acting  within  the  scope  of  those 
244;  Louisiana  State  Bank  v.  Orleans  implied  incidental  powers  necessary 
Navigation  Co. ,  3  La.  Ann.  294.  to  the  full  and  advantageous  develop- 

1  Oxford  Iron  Co.  v.  Spradley,  (1871)   ment  of    those  which  are    expressly 
46  Ala.  98;  New  York  Firemen     Ins.    given." 
Co.  v.  Sturges,  2  Cowen,  664.  ""  Board  of  Trustees  of  Prairie  Lodge 

» Mead  v.  Keeler,  (1857)  24  Barb.  20.    v.  Smith.  (1880)  58  Miss.  301. 
It  was  further  said  by  the  court-  "It       « Pearce  v.  Madison  R.  R.,  21  How. 
is  to  be  presumed  that  [corporations]    441. 

will  conduct  their  operations  in  detail  5  National  Park  Bank  «.  Gennan- 
Bubstantially  upon  the  same  principles  American  Warehousing,  etc.,  Oo.T 


§86] 


PRIVATE  CORPORATIONS. 


101 


tion  may  make  a  promissory  note  for  a  debt  contracted  in  the 
course  of  its  legitimate  business,  although  not  specifically  author- 
i/.rd  by  its  charter  to  contract  in  that  form.1 

§  86.  Bonds  of  a  banking  association. —  In  a  case  before 
the  Court  of  Appeals  of  New  York,  the  court  held  certain  evi- 
dences of  debt,  called  bonds,  payable  at  different  periods,  issued 
by  this  banking  association,  intended  for  sale  in  London,  to  raise 
money  lor  the  uses  of  the  association,  bearing  interest  payable 
semi-annually  in  London,  not  naming  the  place  for  the  payment 
of  the  principal,  with  the  corporate  seal  impressed  upon  each 
bond,  but  without  the  use  of  wax  or  other  tenacious  substance, 
not  to  be  within  the  prohibition  of  the  restraining  laws,  and  to  be 
valid  securities  for  the  money  loaned  tliereon,  even  if  regarded 
as  unsealed  obligations,  and,  therefore,  in  legal  effect,  mere  prom- 
issory notes.2 


(1886)  58  N.  Y.  Super.  Ct.  367;  follow- 
ing Ellsworth  r.  St.  Louis.  Alton  & 
Terre  Haute  R.  R.  Co..  98  N.  Y.  553. 
1  Moss  v.  Oakley,  (1842)  2  Hill,  265; 
citing  Mott  t>.  Hicks,  1  Cow.  513; 
Barker  v.  Mechanic  Fire  Ins.  Co.,  3 
Wend.  94.  Later,  in  a  case  in  the 
Chancery  Court  of  New  York,  Attor- 
ney-General v.  Life  &  Fire  Insurance 
Co.,  (1842)  9  Paige,  470,  the  chancel- 
lor, WALWOKTH,  held  that  a  corpora- 
tion which  was  not  prohibited  by  law 
from  doing  so,  and  without  any  ex- 
press power  in  its  charter  for  that  pur- 
pose, might  make  a  negotiable  promis- 
sory note,  payable  either  at  a  future 
day  or  upon  demand,  where  such  note 
was  in  fact  made  or  given  for  any  of 
the  legitimate  purposes  for  which 
the  company  was  incorporated.  Ho 
further  held  that  where  such  notes 
have  been  issued  and  put  in  circula- 
tion in  violation  of  a  restraining  law, 
it  seems  the  holder  is  bound  to  show 
that  he  received  them  in  the  ordinary 
course  of  business  and  pa::l  f  valuable 
consideration  for  thc*m,  without  notice 
of  the  illegal  object  for  which  they 
were  issued,  to  entitle  him  to  recover 
thereon  as  a  bonafide  holder. 


1  Curtis  v.  Leavitt,  (1857)  15  N.  Y.  9. 
Speaking  as  to  the  power  of  corpora- 
tions to  issue  such  paper,  COMSTOCK, 
J.,  in  his  opinion,  on  page  66,  said: 
"The  right  of  corporations  in  gen- 
eral to  give  a  note,  bond  or  other  en- 
gagement to  pay  a  debt  is  so  nearly 
identical,  or  so  inseparably  connected 
with  the  right  to  contract  the  debt 
that  no  doubt  upon  the  question  ought 
to  be  admitted.  When  a  corporation 
can  lawfully  purclmse  property  or 
procure  money  on  loan  in  the  course 
of  its  business,  the  seller  or  the  lender 
may  exact,  and  the  purchaser  or  bor- 
rower must  have  the  power  to  give, 
any  known  assurance,  which  does  not 
fall  within  the  prohibition,  express  or 
implied,  of  some  statute.  The  par- 
ticular restriction  must  be  sought  for 
in  tin-  charter  of  the  corporation,  or  in 
some  other  statute  binding  upon  it; 
but  if  not  found  in  that  examination, 
we  may  safely  affirm  that  it  has  no  exist- 
ence. This  doctrine  would  seem  to  be 
clear  in  principle,  and  it  is  well  settled 
in  this  state.  Mott  t>.  Hicks,  1  Cow. 
513;  Barker  o.  Mechanic  Ins.  Co.,  8 
Wend.'  96;  Jackson  t.  Brown,  5  Wend. 
590;  Moss  r.  Oakley,  2  Hill,  205;  At- 


102         GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.    [§§  87,  88 

§  87.  Power  to  secure  their  indebtedness. —  It  is  now  well 
settled  that  corporations,  like  individuals,  may  borrow  money  for 
the  conduct  of  their  affairs,  without  express  authority  therefor, 
whenever  the  nature  of  their  business  may  render  it  proper  or 
expedient.  And  the  power  to  borrow  carries  with  it  very  gener- 
ally, unless  expressly  restrained,  the  power  to  secure  the  loan  by 
mortgage.1  Having  negotiated  a  loan  for  the  advancement  of  its 
best  interests,  a  corporation  may  pledge,  as  security  for  the  loan, 
unissued  stock  held  by  it  in  trust.2  The  power  to  sell  such  secur- 
ities for  the  payment  of  its  debts,  includes  the  power  of  the  cor- 
poration to  pledge  securities  owned  by  it  for  the  same  purpose.3 
The  securities  of  a  corporation  may  be  lawfully  pledged  by  the 
directors  of  a  solvent  corporation  to  secure  individual  demands  of 
directors  and  others,  du*e  or  to  accrue,  for  money  loaned  to  the 
corporation.4 

§  88.  Limitation  of  indebtedness. —  A  limitation  by  statute 
of  the  amount  of  debts  of  a  corporation  includes  indebtedness  to 
the  directors  as  well  as  indebtedness  to  third  parties.5  In  a  case 

torney -General  v.  Life  &  Fire  Ins.  Co.,  Law,  221;  Hackettstown  v.  Swack- 
9  Paige,  470;  Safford  r.Wyckoff,  4  Hill,  hamer,  37  N.  J.  Law,  191;  Ridgway 
442;  Barry  ®.  Merchants'  Exchange  v.  Farmers'  Bank,  12  Serg.  &  R.  256; 
Co.,  1  Sandf.  Ch.  280.  It  would  be  a  Oxford  Iron  Co.  v.  Spradley,  46  Ala. 
very  illogical  conclusion  to  hold  that  98;  Ala.  Gold  Life  Ins.  Co.  v.  Central, 
an  indefinite  number  of  corporations,  etc.,  Assn.,  54  Ala.  73;  Union  Bank  T. 
authorized  by  a  general  law,  do  not  Jacobs,  6  Humph.  515;  Moss  v.  Harpeth 
possess  the  same  right  in  this  respect,  Academy,  7  Heisk.  283;  Commercial 
which  they  would  have  if  the  express  Bank  v.  Newport  Mfg.  Co.,  1  B.  Mon. 
powers  of  each  were  derived  from  a  14;  Bank  of  Chillicothe  v.  Chilli- 
special  charter."  cothe,  7  Ohio,  pt.  2,  31;  Hamilton  v. 
1  Booths  Robinson,  (1880)  55  Md.  Newcastle  R.  R.  Co.,  9  Ind.  359;  Rock- 
419;  Susquehanna  Bridge  Co.  v.  In-  well  v.  Elkhorn  Bank,  13  Wis.  653; 
surance  Co.,  3  Md.  305;  Australian  Thompson  i>.  Lambert,  44  Iowa,  239; 
Steamship  Co.  v.  Mounsey,  4  K.  &  J.  Bradley  v.  Ballard,  55  111.  413;  Gause 
733;  Curtis  v.  Leavitt,  15  N.  Y.  9;  v.  City  of  Clarksville,  7  Rep.  519; 
Beers  v.  Phoenix  Glass  Co.,  14  Barb.  Union  Mining  Co.  v.  Rocky  Mountain 
358;  Mead  v.  Keeler,  24  Barb.  20;  Nat.  Bank,  2  Colo.  248;  Magee  v. 
Partridge  v  Badger,  25  Barb.  146;  Mokelumne  Hill  Canal  Co.,  5  Cal.  258. 
Clark  v.  Titcomb,  42  Barb.  122;  Barry  *  Combination  Trust  Co.  t>.  Weed,  2 
r.  Merchants'  Exchange  Co.,  1  Sandf.  Fed.  Rep.  24. 

Ch.    280;  Life  Insurance  Co.  n.  Me-       3Leo  v.  Union  Pac.  Ry.  Co.,  17  Fed. 
chanic    Ins.  Co.,  7  Wend.  31;  Barnes   Rep.  273. 

v.  Ontario  Bank,  19  N.  Y.  152;  Smith       4  Stout  v.   Yaeger  Milling  Co.,    IB 
v.  Law,  21  N.  Y.  296;  Nelson  P.  Eaton,    Fed.  Rep.  802. 

26  N.  Y.  410;  Holbrook  v.  Basset,    5       5  Tallmadge  ».  Fishkill  Iron  Co.,  4 
Bosw.  147;  Lucas  r.  Pitney,  27  N.  J.    Barb.  382. 


§89] 


PKIVATE  OOBPOBATIOB8, 


103 


before  the  Court  of  Common  Pleas  of  New  York  city,  it  has 
been  held  that  where  a  corporation  adopted  a  by-law  providing 
that  all  contracts  by  it  involving  a  liability  for  $500  or  more 
must  be  in  writing,  executed  by  both  the  president  and  treasurer, 
and  attested  by  the  seal  of  the  company,  the  company  cannot  be 
held  liable  on  a  lease  to  it  reserving  a  rent  exceeding  $500,  and 
executed  by  the  president  alone,  without  the  seal  of  the  com- 
pany ;  and  this  whether  the  lessor  had  notice  of  the  by-law  or 
not.1  And  in  such  case,  no  ratification  could  be  based  on  the 
treasurer's  knowledge  of  the  facts  where  his  testimony  that  he 
refused  to  sign  the  lease  was  wholly  uncontradicted.8  The 
Kansas  Supreme  Court  has  held  that  a  private  corporation  organ- 
ized under  the  statute  of  that  state  was  bound  by  a  contract 
within  the  scope  of  its  business,  by  which  an  indebtedness  greater 
than  $500  was  incurred,  notwithstanding  a  provision  in  its  charter 
that  its  indebtedness  should  not  exceed  $500,  as  this  provision 
was  merely  directory,  and  the  statute  under  which  it  was  organ- 
ized did  not  require  its  indebtedness  to  have  any  limit  other  than 
the  amount  of  its  capital  stock.8 

§  89.  Debt  limited  by  par  value  of  capital  stock. —  A  street 
railway  company,  a  Pennsylvania  corporation,  was  authorized  by 
its  charter  to  borrow  money  not  exceeding  in  amount  "  one-half 
of  the  par  value  of  the  capital  stock."  The  capital  authorized  in 
the  act  of  the  legislature  granting  its  charter  was  $1,000,000. 
Only  ten  per  cent,  or  $100,000,  of  the  authorized  amount  was 
paid  in.  The  directory  of  the  company  by  resolution  authorized 
an  issue  of  bonds,  to  be  secured  by  mortgage  to  the  amount  of 


1  Bohm  r.  V.  Loewer's  Gambrinus 
Brewery  Co.,  (1890)16  Duly,  80;  8.  c., 
9  N.  Y.  Supp.  514,  following  Rath- 
burn  r>.  Snow,  8  N.  Y.  Supp.  925. 
See.  also,  Westerflcld  r.  Radde,  7  Daly, 
326. 

'Bohra  v.  V.  Loewer's  Gambrinus 
Brewery  Co.,  (1890)  16  Daly,  80;  8.  c.t 
9  N.  Y.  Supp.  514.  BISCHOFF,  J., 
said:  "An  attempt  was  mudc  by  the 
plaintiff,  upon  the  trial,  to  show  a 
subsequent  adoption  or  ratification  of 
the  president's  act  by  the  trustees, 
predicated  upon  the  neglect  of  the 
trustees  to  repudiate  the  transaction 


when  it  was  brought  to  their  notice. 
*  *  *  The  trustees  *  *  *  as 
such,  could  not,  pursuant  to  the  pro- 
visions of  the  by-laws  mentioned, 
have  originally  created  any  liability 
on  behalf  of  the  corporation  exceeding 
five  hundred  dollars  in  amount;  and 
it  cannot  be  said  that  they  can  by  im- 
plication do  the  acts  prohibited  in  un- 
equivocal terras.  Peterson  P.  Mayor, 
etc.,  17  N.  Y.  449;  Brady  c.  Mayor, 
etc.,  20  N.  Y.  812-819." 

*  Sherman  Center  Town  Company 
r.  Morris,  48  Kans.  882;  s.  c.,  88  Pac. 
Rep.  569. 


104  GENEEAL  POWEE  TO  INCUE  PECUNIAEY  LIABILITY.          [§  89 

$250,000.  A  bill  in  equity  having  been  filed  by  the  common- 
wealth to  restrain  by  injunction  the  issue  of  these  bonds  to  the 
extent  proposed,  an  injunction  was  decreed,  from  which  an 
appeal  was  entered  to  the  Supreme  Court  of  the  state.  Before 
the  latter  the  contention  of  the  company  was  that  the  grant  of 
power  in  their  charter  authorized  an  issue  of  bonds  for  the  pur- 
pose of  borrowing  money  to  the  amount  of  one-half  of  their 
authorized  capital.  The  Supreme  Court  held  adversely  to  this 
contention,  and  sustained  the  decree  of  the  court  which  enjoined 
an  issue  of  the  bonds  beyond  the  amount  of  §50,000,  one-half  of 
the  amount  of  the  stock  actually  paid  in.1 

1  Commonwealth  v.  Lehigh  Ave.  measures  his  relative  interest  in  the 
Ry.  Co.,  (1889)  129  Pa.  St.  405;  s.  c.,  whole.  As  between  himself  and  the 
18  Atl.  Rep.  414,  498  ;  7  Ry.  &  Corp.  corporation,  or  his  fellow-subscribers, 
L.  J.  42.  WILLIAMS,  J.,  for  the  court,  or  the  public,  his  share  of  the 
upon  the  question  of  what  constitutes  whole  stock  is  fixed  by  the  proportion 
the  capital  stock  of  a  corporation  and  which  his  actual  contribution  bears  to 
its  par  value,  discusses  the  question,  the  entire  amount  contributed  by  all 
quite  in  exlenxo  as  follows :  "  The  who  are  associated  in  the  enterprise, 
words  stock  and  capital  stock  may  *  *  *  Does  the  corporation  stand 
be  defined  as  meaning  the  fund  or  on  better  ground  than  its  members  ? 
property  belonging  to  a  firm  or  cor-  It  claims  the  right  to  issue  bonds  be- 
poration,  and  used  to  carry  on  its  cause  of  its  stock.  We  must  inquire, 
business.  This  is  contributed  by  therefore,  first,  what  is  the  amount 
those  who  embark  in  the  business,  of  its  stock  ?  And,  next,  what  is  the 
The  articles  of  copartnership,  or  the  par  value  of  a  share  of  that  stock  ? 
charter  of  the  corporation,  fix  the  We  think  the  first  of  these  questions 
maximum  amount  of  stock  that  may  is,  in  the  light  of  the  facts  in  this  case, 
be  issued,  and  this  may  properly  be  answered  by  repeated  decisions  of  this 
spoken  of  as  the  proposed  or  au-  court.  Whether  it  be  for  the  purpose 
thorized  capital  of  the  company,  of  adjusting  and  paying  dividends 
When  an  organization  is  effected,  sub-  to  stockholders,  or  of  regulating  the 
scriptions  are  made  to  the  stock,  by  amount  of  taxes  due  to  municipalities 
which  the  subscribers  agree  to  take  having  the  right  and  power  to  tax  the 
and  pay  for  certain  sums  or  shares  amounts  of  stock  actually  paid  is  the 
each.  The  total  amount  of  the  stock  capital  stock  of  the  company.  Citi- 
thus  taken  constitutes  the  subscribed  zens'  Pass.  Ry.  Co.  v.  Philadelphia,  49 
capital  of  the  company.  Some  of  Pa.  St.  251.  Neither  the  cost  of  the 
these  subscriptions  may  not  be  paid  road,  nor  the  authorized  capital  can 
and  may  be  uncollectible,  but  when  be  made  the  basis  of  dividends  or 
the  amount  subscribed,  or  called  for  taxation,  but  these  must  rest  on  the 
upon  subscriptions,  has  been  collected,  amount  of  capital  stock  actually  paid 
so  far  as  collection  is  practicable,  the  in.  Second  &  Third  St.  Pass.  Ry.  Co. 
amount  so  gathered  into  the  treasury  T.  Philadelphia,  51  Pa.  St.  465 ;  Phila- 
constitutes  the  actual  capital  on  which  delphia  v.  Philadelphia  &  Gray's 
the  business  is  undertaken.  The  Ferry  Pass.  Ry.  Co.,  52  Pa.  St.  177; 
amount  paid  by  each  subscriber  Philadelphia  t>.  Ridge  Avenue  Ry.  Co., 


§90] 


PRIVATE  CORPORATIONS. 


105 


§  90.  When  a  statutory  limitation  of  indebtedness  does 
not  apply. —  In  a  Minnesota  case  where  the  corporation,  a  mill- 
ing company  organized  under  the  general  statute  of  that  state, 


102  Pa.  St.  190.  The  company 
appellant  proposes  to  exercise  a  power 
and  incur  a  liability  upon  the  basis  of 
its  capital  stock,  and  for  this  purpose, 
as  for  purposes  of  taxation  or  pay- 
ment of  dividends,  its  rights  must  be 
measured  not  by  nominal  or  author- 
ized capital,  but  by  the  actual  amount 
of  capital  paid  in.  The  issuing  of 
certificates  of  stock  to  the  subscribers 
does  not  add  to  the  common  stock  in 
the  treasury  or  business  of  the  cor- 
poration, nor  does  it  increase  the  inter- 
est of  the  individual  stockholder.  He 
takes  this  certificate  when  issued,  sub- 
ject to  all  the  unpaid  installments  of 
the  subscription  and  the  terms  and 
conditions  on  which  the  subscription 
was  made.  Its  value  to  him,  as  be- 
tween him  and  the  corporation,  is 
what  he  has  paid  upon  it ;  no  more, 
no  less.  That  value  may  be  increased 
or  diminished  in  a  commercial  sense 
by  the  success  of  the  business,  the 
ability  of  the  management,  or  other 
similar  consideration,  and  such  in- 
crease or  decrease  makes  the  market 
value  greater  or  less  than  the  amount 
he  has  paid  upon  it,  as  the  case  may 
bo ;  but  as  between  himself  and  the 
corporation  or  his  fellow-stockholders 
the  consideration  of  market  value  has 
no  place.  He  must  pay  his  subscrip- 
tion as  calls  are  made  whether  the  ven- 
ture prospers  or  fails.  If  the  value  of 
the  stock  is  measured  by  what  has 
been  paid  upon  it,  is  the  'par  value' 
measured  in  the  same  manner  when 
the  right  of  the  corporation  to  do  a 
given  act  is  to  be  settled  ?  The  par 
value  of  the  stock  of  this  corporation 
for  purposes  of  taxation  or  payment 
of  dividends,  is,  as  we  have  already 
seen,  the  amount  actually  paid  upon 
it,  or  one  hundred  thousand  dollars, 
This  is  well  settled  by  the  cases  we 
14 


have  cited,  which  hold  that,  for  the 
purposes  enumerated,  the  par  value 
has  no  necessary  relation  to  cither  the 
authorized  or  the  market  values,  but 
is  fixed  by  the  amount  actually  paid, 
and  is  the  equivalent  or  par  of  the 
value  of  the  shares  as  shown  by  the 
stock  account.  The  issuing  of  certifi- 
cates does  not  affect  our  question.  If 
issued  they  cannot  increase  the  money 
in  the  treasury,  or  confer  any  inde- 
pendent right  on  the  stockholder. 
They  simply  afford  evidence  of  the 
extent  of  his  interest  in  a  more  con- 
venient form  than  the  books  of  the 
company  furnish,  but  leave  him  sub- 
ject to  all  the  liabilities  resting  on 
him  before  they  come  into  his  hands. 
We  see  no  good  reason  for  dis 
tinguishing  this  case  from  the  cases 
cited  above,  but  regard  it  as 
substantially  ruled  by  them.  The 
[corporation  here]  has  received  just 
one  hundred  thousand  dollars  from 
the  subscribers  to  its  stock.  So 
far  as  the  paper  books  advise 
us,  this  is  all  it  has  ever  asked  for 
in  the  more  than  fifteen  years  of  its 
corporate  life,  and  all  it  expects  to  re- 
ceive. The  other  nine  hundred  thou- 
sand dollars  of  authorized  capital  arc 
uncalled  and  unpaid.  The  par  value 
of  all  its  shares  taken  together  is  one 
hundred  thousand  dollars,  because 
that  is  the  sum  paid  upon  them,  the 
value  they  represent.  The  par  value 
of  each  share  is  fixed  in  like  manner. 
Its  value  is  the  equal,  or  par,  of  the 
corponite  capital  it  represents,  which 
is  the  amount  paid  upon  by  the  sub- 
scriber or  applied  to  it  out  of  the  earn- 
ings of  the  corporation.  *  *  * 
We  have  the  fact  on  the  record  that 
but  one-tenth  of  the  nominal  value 
[of  the  stock]  has  been  paid.  Thecor- 
poration  is  the  party.  It  has  one  hun- 


106  GENERAL  POWER  TO  INCUR  PECUNIARY  LIABILITY.          [§  90 


one  of  the  original  articles  of  incorporation  of  which  provided 
that  "  the  highest  amount  of  indebtedness  or  liability  to  which 
said  corporation,  shall  be  subject  shall  not  exceed  $5,000,"  was 
sued  upon  a  promissory  note  issued  by  it  in  payment  of  a  balance 
upon  settlement  of  an  account,  to  one  who  was  an  officer  of  the 
company  and  a  member  of  a  banking  firm  through  which  the 
financial  business  of  the  corporation  was  largely  done,  and  by 
him  transferred  before  maturity  to  the  bringer  of  this  action,  the 
corporation  made  the  defense  that  the  giving  of  the  promissory 
note  was  ultra  vires.  The  Supreme  Court  affirmed  the  order  of 
the  trial  court  giving  judgment  in  favor  of  the  plaintiff.1 


dred  thousand  dollars  in  its  treasury 
and  no  more;  yet  it  asks  us  to  hold 
that  the  par  value  of  its  stock  is  one 
million  dollars,  and  permit  it  to  exer- 
cise an  important  power  on  that  basis. 
This  we  decline  to  do.  The  par  value 
of  its  shares  is  measured  by  the 
money  it  has  received  upon  them,  and 
not  by  the  broken  promises  of  those 
who  subscribed  for  them." 

1  Auerbach  v.  Le  Sueur  Mill  Co., 
(1881)  28  Minn.  291;  s.  c.,  9  N.  W.  Rep. 
799.  Reasoning  in  support  of  their 
judgment,  the  court  said:  "Where  a 
private  corporation  has  authority  to 
issue  negotiable  securities,  such  in- 
struments, when  issued,  possess  the 
legal  character  ordinarily  attaching  to 
negotiable  paper,  and  the  holder  in 
good  faith  before  maturity,  and  for 
value,  may  recover,  even  though,  in 
the  particular  case,  the  power  of  the 
corporation  was  irregularly  exercised 
or  was  exceeded;  or,  to  state  the  legal 
proposition  in  its  application  to  this 
case,  this  defendant  having  power  to 
incur  debts  to  a  limited  extent  and  to 
issue  its  negotiable  notes  therefor,  the 
plaintiff,  as  a  bona  fide  holder  of  the 
note  in  suit,  may  recover  upon  it, 
although,  in  this  particular  case,  the 
indebtedness  of  the  corporation  at  the 
Lime  of  giving  this  note  already  ex- 
ceeded the  limits  prescribed  by  its 
articles  of  association.  Stoney  v.  Amer- 
ican Life  Ins.  Co.,  11  Paige,  635; 


Mechanics'  Banking  Assn.  v.  New 
York  &  Saugerties  White  Lead  Co.,  35 
N.  Y.  505;  Mclntire  v.  Preston,  10  111. 
48;  Monument  Nat.  Bank  v.  Globe 
Works,  101  Mass.  57;  Bissell  v.  Mich. 
Southern  &  Northern  Ind.  R.  Co.,  22  N. 
Y.  258, 289;  City  of  Lexington  v.  Butler, 
14  Wall  282;  Moran  v.  Miami  County, 
2  Black,  722;  Angell  &  Ames  on  Corp. 
§  268;  Field  on  Corp.  303;  Green's 
Brice's  Ultra  Vires,  273,  274,  729.  Al- 
though in  such  a  case  the  corporation 
or  its  officers  exceeded  the  corporate 
authority,  and  its  contract  would  be, 
hence,  in  a  sense,  ultra  Tires,  yet  other 
legal  principles,  besides  those  merely 
relating  to  the  powers  of  the  corpora- 
tion, come  in  to  affect  the  result.  It 
is  true,  a  corporation  is  a  being  created 
by  the  law,  and  has  properly  no 
authority  but  such  as  is  conferred 
upon  it,  expressly  or  by  implication, 
by  the  law  of  its  creation;  yet  it  may 
become  legally  bound  to  observe  and 
perform  contracts  which  it  had  not 
authority  to  enter  into.  The  ends  of 
justice  may  require,  as  in  this  cast-, 
that  the  corporation  which  has  ex- 
ceeded its  powers  should  be  estopped 
by  its  own  acts  from  pleading,  in 
defense  of  its  assumed  obligations, 
that  they  were  ultra  tires.  "To  ap- 
ply the  principle  of  estoppel  is  not  to 
enlarge  the  powers  of  the  corporation; 
nor  does  it  give  warrant  to  a  corpora- 
tion to  disregard  or  violate  the  re- 


§90] 


PRIVATK  CORPORATIONS. 


107 


stri' 'lions  which  have  been  expressly 
imposed  upon  it,  or  which  exist  in  the 
absence  of  power  conferred.  It  was 
said  by  the  court  in  Bradley  v.  Bul- 
Urd.  55  111.  413:  'This  doctrine 
[estoppel]  is  applied  only  for  the 
purpose  of  compelling  corporations  to 
be  honest,  in  the  simplest  and  com- 
monest sense  of  honesty,  and  after 
whatever  mischief  may  belong  to  the 
performance  of  an  act  ultra  vires  has 
been  acomplished.'  In  Railway  Co. 
9.  McCarthy,  96  U.  S.  258,  the  court 
say:  '  The  doctrine  of  ultra  vires, 
when  invoked  for  or  against  a  cor- 
poration, should  not  be  allowed  to 
prevail  where  it  would  defeat  the 
ends  of  justice  or  work  a  legal 
wrong.'  Whether  the  plea  of  ultra 
vires  should  be  allowed  as  a  defense 
to  assumed  obligations  should  not  be 
determined  without  regard  to  the 
character  and  objects  of  the  cor- 
poration, the  nature  of  the  powers 
conferred  or  withheld,  the  par- 
ticular character  of  the  obligations 
assumed  on  contract  entered  into,  the 
relations  of  the  contracting  parties, 
and  the  bona  fide*  of  him  against 
whom  the  doctrine  of  ultra  tires  is 
asserted.  In  this  case  the  defense 
sought  to  be  made  to  the  note  is  that 
in  giving  it  the  article  of  the  defend- 
ant's incorporation,  limiting  the 
amount  of  its  indebtedness,  was  vio- 
lated. The  debt  was  incurred  in  the 
ordinary  prosecution  of  the  business 
of  the  corporation.  The  defendant  re- 
ceived and  appropriated  the  money 
which  was  the  consideration  of  the 
note,  and  having  authority  to  issue 
negotiable  paper,  it  put  forth  the  note 
in  question,  negotiable,  calculated  to 
circulate  as,  and  perform  the  office  of, 
commercial  paper,  and  expressing 
upon  its  face  the  obligation  and 
promise  of  the  maker  to  pay  the 
bearer,  at  all  events,  the  sum  named. 
It  has  come  into  the  hands  of  a  bona 


fide  purchaser,  and  simple  justice,  as 
well  as  plain  principles  of  law,  forbid 
that  courts  should  listen  to  the  plea 
that  in  this  particular  case  the  corpo- 
ration had  not  authority  to  issue  its 
note.  It  ought  to  be  and  is  estopped. 
To  so  hold  does  not  weaken  the  sanc- 
tion of  the  law  which  restrains  the  ex- 
ercise of  corporate  power  within  the 
limits  prescribed  by  the  creative  act. 
To  refuse  to  recognize  and  enforce, 
when  necessary  to  the  attainment  of 
justice  and  prevention  of  wrong,  such 
contracts,  made  in  violation  of  the 
corporate  charter,  is  not  to  afford  a 
remedy  for  the  wrongful  acts  of  the 
corporation.  When,  in  a  case  like 
this,  the  unauthorized  contract  has 
been  executed  by  the  corporation,  and 
it  has  reaped  the  benefits  of  it,  public 
policy  does  not  require  the  courts  to 
refuse  to  administer  justice  between 
the  parties  in  accordance  with  the 
plain  principles  of  law.  In  such  a 
case,  the  remedy  for  the  violation  by 
the  corporation  of  its  charter  power 
lies  elsewhere.  We  are  here  seeking  to 
administer  justice  as  between  these 
contracting  parties.  If  justice  did  not 
invoke  the  application  of  other  princi- 
ples of  law,  the  defense  of  ultra  tires 
might  be  sufficient;  but  the  doctrine 
Of  estoppel,  as  a  principle  of  law,  is  as 
positive  and  well  recognized  as  is  the 
law  that  a  corporation  may  not  exceed 
its  corporate  powers,  and  although  the 
defendant  exceeded  its  authority,  it 
should  be  denied  the  right  to  assert  the 
fact  of  its  own  wrong,  when  to  allow 
its  plea  would  work  injustice  and 
wrong  to  him  who  has  been  misled  by 
its  acts,  perfonned  within  the  general 
scope  of  its  powers.  What  has  been 
said  should  be  regarded  only  as  said 
with  reference  to  this  case,  and  should 
not  be  considered  as  stating  a  rule  of 
law  which  should  prevail  generally  in 
the  case  of  contracts  not  negotiable. " 


CHAPTER  III. 


POWER  OF  AGENTS  AND  OFFICERS  —  PUBLIC  CORPORATIONS. 


§   91.  General  rules. 

92.  More  general  rules. 

93.  Illustrations  of  the   duty    and 

powers  of  municipal  officers. 

94.  Ratification  by  municipal  cor- 

porations of  contracts  made 
by  their  agents  and  officers. 

95.  Agents   and  officers  of  coun- 

ties —  generally. 

96.  Power  of    county    officers    in 

California. 

97.  Power    of     county    boards  in 

Illinois. 

98.  Power  of  county  commission- 

ers in  Indiana. 

99.  Power  of  supervisors  of  coun- 

ties in  Iowa. 

100.  Power  of  county  commission- 

ers in  Kansas. 

101.  Power    of    County  Courts   in 

Kentucky. 

102.  Power  of  supervisors  in  Mich- 

igan. 


i.  Power    of     County  Courts  in 
Missouri. 

104.  Power  of  county  supervisors  in 

New  York. 

105.  Power  of  county  commission- 

ers in  Pennsylvania. 

106.  Power    of    county    board    in 

Wisconsin. 

107.  Power  of  township  trustees  in 

Indiana. 

108.  Power  of  selectmen  of  towns  in 

Massachusetts. 

109.  Power  of  selectmen  of  towns  in 

New  Hampshire. 

110.  Power  of  supervisors  of  town- 

ships in  Pennsylvania. 

111.  Power  of  selectmen  and  agents 

of  towns  in  Vermont. 

112.  Power     of     town    officers   in 

Wisconsin. 

113.  Power   of   officers    of    school 

districts. 


§  91.  General  rules. —  Municipal  officers  have  no  general 
authority  to  bind  the  corporation.  Their  authority  as  agents  is 
special.1  The  contracts  of  such  officers,  entered  into  with  its 
knowledge,  though  not  expressly  authorized,  will  bind  the  corpo- 
ration.2 In  like  manner  as  individual  and  private  corporations, 
municipal  or  public  corporations  may  make  contracts  through 
their  officers  or  agents,  appointed  properly  for  the  purpose,  in  all 
matters  that  appertain  to  the  corporation.  And  such  contracts 
may  be  by  parol.3  Parol  contracts  made  by  authorized  agents  of 
a  municipal  corporation,  within  the  scope  of  its  purposes,  are 
express  promises  of  the  corporation.4  But  contracts  not  within 

'Ross  v.  City  of  Philadelphia,  115  3  Duncombe  t>.  City  of  Fort  Dodge, 

Pa.  St.  222;  s.  c.,  8  All.  Rep.  398.  (1874)  38  Iowa,  281;  City  of  Indianola 

1  Allegheny  City  v.  McClurkan,  14  v.  Jones,  29  Iowa,  282. 

Pa.  St.  81.  4  San  Antonio  v.  Lewis,  9  Tex.  69. 


§  91]  PUBLIC  CORPORATIONS.  109 

the  scope  of  their  authority  are  not  enforceable  against  the  corpo- 
ration.1 For  instance,  under  the  ordinances  of  a  Maryland  city, 
as  appeared  in  this  case,  the  city  commissioner  could  make  con- 
tracts for  grading  and  paving,  and  assess  taxes  for  the  same  in  two 
classes  of  cases,  to  wit :  (1)  Upon  application  of  the  proprietors 
of  a  majority  of  front  feet,  where  the  street  had  been  condemned  \ 
and  (2)  upon  the  like  application  of  all  the  proprietors  of  ground 
fronting  on  the  street,  where  it  had  not  been  officially  condemned. 
The  Court  of  Appeals  held  that  without  such  an  application  the  city 
commissioner  was  entirely  destitute  of  the  official  character  and 
power,  in  and  by  which  alone  he  could  take  any  legal  proceeding  or 
make  any  valid  contract  for  grading  and  paving,  and  the  power  of 
the  mayor  to  approve  of  his  determinations  to  grade  and  pave,  and 
of  his  contracts  for  the  same  was  limited  likewise  and  controlled  by 
the  same  conditions ;  therefore,  it  followed  that  a  contract  made  by 
the  city  commissioner  for  grading  and  paving  a  street  not  formally 
condemned,  upon  the  application  of  the  owners  of  a  majority  of 
feet  fronting  on  it,  and  not  of  all  the  proprietors  of  ground  on  it, 
was  an  invalid  contract,  and  not  binding  on  the  city.2  The  govern- 
ment or  other  public  authority  of  a  municipality  will  not  be  bound 
by  acts  of  public  agents,  unless  it  manifestly  appears  that  the  agent 
is  acting  within  the  scope  of  his  authority,  or  he  has  been  held  out 
as  having  authority  to  do  the  act,  or  has  been  employed  in  his 

1  Addis  t.  City,  85  Pa.  St.  379;  Wahl  tion  to  grade  and  pave  the  contract 

v.  Milwaukee,  23  Wis.  272.  was  made,  was  the  public  agent  of  a 

•Mayor  &  City  Council  of  Balti-  municipal  corporation,  clothed  with 
more  v.  Eschbach,  (1861)  18  Md.  276.  duties  and  powers  specially  defined 
In  this  case  the  Court  of  Appeals  of  and  limited  by  ordinances  bearing  the 
that  state  have  expressed  themselves  character  and  force  of  public  laws,  ig- 
fully  upon  the  principles  governing  norance  of  which  can  be  presumed  in 
the  contracts  of  public  agents  in  these  favor  of  no  one  dealing  with  him  m 
words  :  "  The  fact  thi^t  the  contract  matters  thus  conditionally  within  his 
made  related  to  a  subject  within  the  official  discretion.  For  this  reason  the 
scope  of  his  powers,  does  not  make  it  law  makes  no  distinction  between  the 
obligatory  on  the  [municipality]  if  effect  of  the  acts  of  an  officer  of  a  cor- 
there  was  a  want  of  specific  power  to  poration  and  those  of  an  agent  for  a 
make  it.  Although  a  private  agent,  principal  in  common  cases.  In  the 
acting  in  violation  of  specific  instruc-  latter  the  extent  of  authority  is  neces- 
tions,  yet  within  the  scope  of  a  general  sarily  known  only  to  the  principal  and 
authority,  may  bind  his  principal,  the  agent,  while  in  the  former  it  is  a  mat- 
rule  as  to  the  effect  of  a  like  act  of  a  ter  of  record  in  the  books  of  thecorpo- 
public  agent  is  otherwise.  The  city  ration  or  of  public  law." 
commissioner,  upon  whose  determina- 


110  POWER  OF  AGENTS  AND  OFFICEES.  [§  92 

capacity  as  a  public  agent  to  make  the  declaration  or  representa- 
tion for  the  government.1 

§  92.  More  general  rules. —  The  legislature  of  a  state  invest- 
ing a  public  corporation  with  the  power  to  do  certain  acts,  the 
governing  board  of  the  corporation  will  have  an  implied  right  to 
use  the  tit  and  appropriate  means.  For  instance,  where  the 
County  Court  of  a  county  under  the  authority  conferred  upon  it 
to  subscribe  to  the  stock  of  a  railroad  corporation  may  make  an 
order  for  the  subscription,  they  may  subsequently  make  an  order 
appointing  an  agent  to  enter  the  subscription  upon  the  books  of 
the  railroad  corporation  as  a  proper  method  for  completing  the 
subscription.2  Where  a  city  has  lawful  authority,  say  to  con- 
struct sidewalks,  involved  in  this  authority  would  be  the  right  to 
direct  the  mayor,  and  the  chairman  of  the  committee  on  streets 
and  alleys,  to  make  a  contract  on  behalf  of  the  city  for  doing  the 
work.3  So  a  municipal  corporation,  a  city,  may  employ  a  third 
person,  not  an  officer  or  regularly  constituted  agent,  to  negotiate 
for  it  in  procuring  a  right  of  way  for  a  ditch,  for  instance.4  It 
is  well  settled  that  public  officers  or  agents  are  held  more  strictly 
within  the  limits  of  their  prescribed  powers  than  private  general 
agents  —  not  only  because  the  extent  of  their  power  is  more 
easily  seen,  but  because  the  rights  of  large  communities  are  in 
greater  need  of  diligent  guards  than  those  of  individuals,  whose 

1  Mayor  &  City  Council  of  Baltimore  ficers,  done  beyond  the  scope  of  their 

v.  Reynolds,  (1863)  20  Md.  1.     It  was  authority.    Acts  of  ratification  by  such 

said  by  the  court:  "Cities  and  other  bodies  politic  should  be  direct,  explicit, 

purely    municipal     corporations    or  unequivocal,  with  full  knowledge  of 

bodies  politic  which  are  allowed  to  as-  the  facts." 

surae  some  of  the  duties  of  the  state,  *  Hannibal  &  St.    Joseph  R.  R.  Co. 

in  a  partial  or  detailed  form,  having  v.  Marion  County,  (1865)  36  Mo.  294. 

neither  property  nor  power  for  the  The  court  said:  "The  County  Court 

purposes  of  personal  aggrandizement,  *    *    *    has  the  control  and  manage- 

can  be  considered  in  no  other  light  ment  of  the  property,  real  and  per- 

than  as  auxiliaries  of  the  government,  sonal,  of  the  county.     It  is  the  agent 

and  as  secondary  and  deputy  trustees  of  the  county,  and  may  lawfully  and 

and  servants  of  the  people.     McKim  T.  of  right  do  whatever  is  necessary  to 

Odom,  3  Bland  Ch.  (Md.)  417;  Ang.  &  carry    out   and     execute    the    trusts 

AmesonCorp.il.   Agents  themselves,  reposed  in  it." 

not    principals,   answerable    to   their  'Hitchcock  v.  Galveston,  (1877)  96 

constituents,  they  are  not  to  be  pre-  U.  S.  341. 

sumcd  to  recognize  and  individually  4  Stewart  v.  City  of  Council  Bluffs, 

ratify  and  confirm  the  acts  of  their  of-  (1882)  58  Iowa,  642. 


£  92]  PUBLIC  CORPORATIONS.  Ill 

selfishness  is  quite  apt  to  hold  in  frequent  review  the  acts  of  all 
<  inployees.1  It  is  well  settled  that  the  fact  that  the  contract 
iiisule  by  a  public  agent,  related  to  a  subject  within  the  general 
scope  of  his  powers,  does  not  bind  his  principal,  if  there  was  a 
want  of  specific  power  to  make  it.  Although  a  private  agent 
acting  in  violation  of  specific  instructions,  yet  within  the  scope  of 
his  general  authority,  may  bind  his  principal,  the  rule  as  to  the 
effect  of  a  like  act  of  a  public  agent  is  otherwise.2  From  this  it 
follows  that  one  who  contracts  or  deals  with  the  agents  or  officers 
of  a  municipal  or  public  corporation  must,  at  his  peril,  take 
notice  of  the  limits  of  their  powers.8  The  United  States  Supreme 
Court  has  approved  the  rule  as  declared  by  Judge  DILLON  in  his 
work  on  Municipal  Corporations,  section  283,  in  these  words :  "  As 
&  general  rule,  it  may  be  stated  that  not  only  where  the  corporate 
power  resides  in  a  select  lody,  as  a  city  council,  but  where  it  has 
been  delegated  to  a  committee  or  agents,  then,  in  the  absence  of 
special  provisions  otherwise,  a  minority  of  the  select  body  or  of 
the  committee  or  agents,  are  powerless  to  bind  the  majority  or 
do  any  valid  act.  If  all  the  members  of  the  select  body  or  com- 
mittee, or  of  all  of  the  agents  are  assembled,  or  if  aU  have  been 
duly  notified,  and  the  minority  refuse  or  neglect  to  meet  with  the 
others,  a  majority  of  those  present  may  act,  provided  those 
present  constitute  a  majority  of  the  whole  number.  In  other 
words,  in  such  a  case,  a  majority  part  of  the  whole  is  necessary 
to  constitute  a  quorum,  and  a  majority  of  the  quorum  may  act. 
If  the  major  part  withdraw  so  as  to  leave  no  quorum,  the  power 
of  the  minority  to  act  is,  in  general,  considered  to  cease."4 

1  Pareel  r.  Barnes  &  Bro.,  (1868)  25  Starin  r.  Genoa,  23  N.  Y.  489,  452;  Peo- 

Ark.  261.  pie  v.  Mead,  36  N.  Y.  224;  Dodge  t>. 

'Ibid.     Mayor,   etc.,   of  Baltimore  County    of    Platte,    82    N.    Y.  218; 

«.  Reynolds,  (1862)  20  Md.   1;   Dela-  United     States     <•.     City      Bank    of 

field    «.   State   of    Illinois,   (1841)  26  Columbus,      (1858)    21    How.      856; 

Wend.  192.  DcVoss  r.  Richmond,  (1868)  18  Gratt. 

1  Mayor,  etc.,  of  Baltimore  «.   Mus-  (Va.)    339;     Lewis    r.    Harbour    Co. 

grave,  (1877)  48  Md.  272;  State  ex  rel.  Comrs.,  8  Fed.  Rep  191. 

Mayor,  etc.,   r.   Kirkley,   29  Md.  85;  4 Brown    r.   District    of    Columbia, 

Horn  v.  Mayor,  etc.,  30  Md.  218.     See,  (1888)  127  U.  S.  579,  586.    This  rule  is 

also,  The  Floyd  Acceptances,  (1868)  7  supported    by    the    following    cases: 

Wall.  f>06;    Marsh  r.   Fulton  County,  Day    r.    Green,    (1849)  4  Cush.  438; 

(1870)  10  Wall.  676;  Clark  v.  DesMoincs,  Fisher  r.  Attluborough.  (1849)  4  Cush. 

(1865)  19  Iowa,  199,  210;  Treadwell  t>.  494 ;   Kingsbury   t>.    School    District, 

Commissioners,  (1860)  11  Ohio  St.  183;  (1846)  12  Met.  99;  Coffin  t>.  Nantucket, 

Gould    c.    Sterling.    23    N.    Y.    464;  (1850)  5  Cush.  269;  Damon  c.  Granby, 


112  POWEK  OF  AGENTS  AND  OFFICERS.  [§  93 

§  93.  Illustrations  of  the  duty  and  powers  of  municipal 
officers. —  A  city  comptroller,  being  required  to  perform  "  such 
duties  in  relation  to  the  finances "  as  "  shall  be  prescribed  by 
ordinance,"  would  be  authorized,  upon  an  ordinance  properly 
passed  giving  him  the  power,  to  negotiate  and  dispose  of  city 
bonds.  It  is  his  official  duty,  when  such  bonds  are  in  his  hands 
in  shape  to  be  negotiated,  to  keep  them  safely,  until  he  lawfully 
disposes  of  them,  and  an  unauthorized  disposition  of  such  bonds 
will  subject  him  and  sureties  to  liability  upon  his  bond  for  the 
proceeds.1  The  common  council  of  a  city  being  given  the  power 
by  its  charter  to  audit  and  allow  accounts,  and  the  comptroller 
being  only  permitted  by  the  charter  to  receive,  examine  and 
report  upon  them,  the  comptroller  has  no  power  to  modify  a  con- 
tract on  the  part  of  the  city.2  A  director  of  the  poor  appointed 
by  the  council  of  a  city,  his  duties  and  powers  being  expressly 
such  as  officers  of  like  kind  in  townships,  has  no  power  to  bind 
the  city  by  a  contract  with  a  surgeon  to  perform  a  surgical  opera- 
tion upon  a  pauper  for  a  fixed  sum.3  A  city  charter  providing 
that  no  moneys  could  be  lawfully  paid  out  of  its  treasury,  except 
upon  warrants  regularly  drawn  according  to  the  charter,  its  treas- 
urer cannot  justify  any  payments  of  moneys  made  by  him  other- 
wise, as  to  contractors,  for  instance,  doing  work  for  the  city.4  A 
mayor  and  council  of  a  city  have  no  authority  to  contract  with  a 
city  treasurer  that  the  latter  may  use  the  funds  of  the  city  and 
pay  a  percentage  therefor ;  such  a  contract  would  be  illegal  and 
void,  and  would  not  authorize  the  treasurer  to  so  use  the  funds.5 
A  city  cannot  be  made  liable,  by  a  resolution  of  the  city  alder- 
men, for  the  expense  of  defending  contempt  proceedings  against 
its  aldermen  who  have  been  convicted  of  contempt  in  disobeying 
an  injunction,  the  conviction  not  having  been  reversed.6  In 
entering  into  a  contract  for  the  grading  of  a  street  a  street  com- 
missioner of  a  city  has  no  power  to  contract,  except  according  to 

(1824)  2  Pick.  345,  355;  State  v.  Jersey  3  Barber  v.  City  of  Saginaw,  (1876) 

City,  27  N.  J.  Law,  493;   Charles  «.  34  Mich.  52. 

Hoboken,  27  N.  J.  Law,  203;  Dey  u.  *  McCormick  v.  Bay  City,  (1871)  23 

Jersey  City,  (1869)  19  N.  J.  Eq.  412 ;  Mich.  457. 

Mayor,  etc. ,  of  Baltimore  v.  Poultney ,  5  Manley  0.  City  of  Atchison,  (1872) 

(1866)  25  Md.  18.  9  Kans.  358. 

1  Stevenson  t>.  Bay  City,  (1872)  26  •  West  «.  City  of  Utica,  71  Hun,  540; 

Mich  44  s.  c.,  24  N.  Y.  Supp.  1075. 

1  Advertiser  &  Tribune  Co.v.  Detroit, 
43  Mich.  116;  s.  c.,  5  N.  W.  Rep.  72. 


§  94]  PUBLIC  CORPORATIONS.  113 

the  resolution  of  the  common  council  directing  the  doing  of  the 
work  tinder  his  direction,  and  the  proposals  and  estimates  received 
in  pursuance  of  the  advertisement  of  the  same.1  There  being  no 
limitation  of  the  power  of  a  city  to  make  purchases  for  fitting  up 
rooms  for  the  use  of  city  officers,  and  no  particular  manner  for 
making  contracts  for  such  a  purpose  prescribed  in  its  charter,  the 
city  council  may  confer  the  power  on  a  committee,  as  the  act  to 
be  performed  would  be  a  mere  business  act,  and  not  of  the  class 
relating  to  the  government  of  the  city,  which  they  could  not 
delegate.2  Where  an  order  was  given  by  a  single  'member  of  a 
committee  appointed  by  a^cjty  council  to  perform  a  business  act, 
for  work  to  be  done  and  goods  furnished,  the  New  York  Court  of 
Appeals  held  that  the  city,  having  enjoyed  the  benefit  of  the  same, 
was  liable  for  the  work  and  goods  on  a  quantum  ineruit?  Under 
a  city  charter  in  California  authorizing  the  library  board  "  to  con- 
trol and  order  the  expenditure  of  all  moneys  at  any  time  in  the 
library  fund,"  and  "  generally  to  do  all  that  may  be  necessary  to 
carry  out  the  spirit  and  intent  of  this  charter  in  establishing  a 
public  library  and  reading  room,"  the  Supreme  Court  of  that 
state  has  held  that  the  library  board  might  appropriate  money  to 
pay  the  expense  of  a  delegate  to  a  congress  of  librarians.4 

§  94.  Ratification  by  municipal  corporations  of  contracts 
made  by  their  agents  or  officers. — A  contract,  neither  immoral 
nor  unlawful,  entered  into  by  an  agent  of  a  municipal  corpora- 
tion, and  such  as  it  might  make  itself,  may  be  ratified  by  the 
corporation,  as  by  an  individual,  either  formally  or  by  its  con- 
duct.5 The  contract  of  a  municipal  corporation,  which  is  invalid 
when  made,  as  in  violation  of  some  mandatory  requirement  of 
its  charter,  can  be  ratified  only  by  an  observance  of  the  condi- 
tions essential  to  a  valid  agreement  in  the  first  instance.8  But 
where  the  forms  and  conditions  prescribed  are  not  intended  as  a 

1  Bonesteel  t>.   City  of  New  York,  •  City  of  Findlay  t>.  Pertz,  (U.  8.  C. 

(1860)  22  N.  Y.   162.  affirming  Bone-  C.  A.  1895)  66  Fed.  Rep.  4  J7. 

steel  v.  City  of  New  York,  6  Bosw.  «  Gutta-Percha  &    Rubber  Manuf. 

550.  Co.  «.  Village  of  Ogalalla.  (Neb.  1894) 

•  Kramrath  v.  City  of  Albany,  (1891)  59  N.  W.  Rep.   513;  citing  Town  of 

127  N.  Y.   575;  8.  C.,  28  N.   E.   Rep.  Durango  r.  lYnninirt.m,  8  Colo.  •- 

400.  c.,  7  Pac.  Rep.  14;  McCrocken  t>.  City 

•Ibid.  of  San  Francisco,    16  Cal.    623;    San 

4  Kelso  v.  Teale,  (Cal.  1895)  89  Pac.  Diego  Water  Co.  r.  City  of  San  Diego. 

Rep.  948.  59  Cal.  522;  Cory  c.   Board,  44  N.  J. 
15 


114  POWER  OF  AGENTS  AND  OFFICERS.  [§  94: 

limitation  upon  the  powers  of  the  corporation,  a  compliance  with 
such  conditions  is  not  essential  to  a  binding  ratification.1  A  cor- 
poration retaining  and  using  money  borrowed  for  it  by  its  officer 
in  excess  of  his  authority  ratifies  the  transaction  arid  is  liable.2 
A  public  corporation  cannot,  by  subsequent  ratification,  make 
good  an  act  of  an  agent  which  it  could  not  have  directly  author- 
ized.3 A  contract  made  in  behalf  of  a  municipal  corporation, 
void  in  its  inception  from  want  of  authority  in  the  officer  to  make 
it,  cannot  be  validated  by  the  subsequent  approval  of  the  council.4 
A  school  district,  by  its  action  in  completing  a  school  building,  left 
unfinished  by  an  absconding  contractor,  by  furnishing  the  build- 
ing with  desks,  seats  and  other  necesS&iry  schoolhouse  furniture, 
by  occupying  the  building  for  school  purposes  and  insuring  the 

Law,  445;  Keeney  v.  Jersey  City,  47  der  the  board  of  finance,  to  make  the 
N.  J.  Law,  449;  s.  c.,  1  Atl.  Rep.  511;  loan,  and  that  there  could  be  a  recov- 
Newman  t>..  City  of  Emporia,  32  Kans.  ery  upon  the  note  without  first  dispos- 
456;  8.  c.,  4  Pac.  Rep.  815;  McBrian  ing  of  the  collaterals.  As  to  what 
v.  Grand  Rapids,  56  Mich.  103;  s.  c.,  22  would  show  a  valid  contract  by  ratifl- 
N.  W.  Rep.  206;  McDonald  v.  Mayor,  cation  on  the  part  of  the  county,  see 
etc.,  68  N.  Y.  23;  Smith  v.  City  of  Leon  County  v.  Vaiin,  (Tex.  1894)  27 
Newburgh,  77  N.  Y.  130;  Bank  v.  S.  W.  Rep.  258. 
South  -Hadley,  128  Mass.  503.  8  Hodges  v.  City  of  Buffalo,  2  Denio, 

1  Gutta-Percha  &  Rubber  Manuf.  110;  Halstead  v.  Mayor,  etc.,  of  New 
Co.  ».  Village  of  Ogalalla,  (Neb  1894)  York,  3  N.  Y.  430;  Boom  «.  City  of 
59  N.  W.  Rep.  513.  An  action  to  re-  Utica,  2  Barb.  104;  Cowen  r.  Village 
cover  the  value  of  goods  sold  to  the  of  West  Troy,  43  Barb.  48.  When  a  rat- 
village,  ification  will  bind  the  corporation,  see 

*  Willis  v.  St.  Paul  Sanitation  Co.,  Peterson  v.  Mayor,  etc.,  of  New  York, 
(1893)  53  Minn,  370;  s.  c.,  55  N.  W.  17  N.  Y.  449;  People  v.  Flagg,  17  N. 
Rep.  550.  In  White  v.  City  of  Rah-  Y.  584;  8.  c.,  16  How.  Pr.  36.  In 
way,  11  Fed.  Rep.  853,  it  appearing  Scott's  Exrs.  v.  Shreveport,  20  Fed. 
that  the  treasurer  of  a  city,  under  the  Rep.  714,  it  was  held  that  the  agent  of 
board  of  finance,  borrowed  of  a  bank  the  city,  having  no  authority  to  bind 
a  sum  of  money  and  the  city  ratified  the  city  by  giving  a  note,  for  lack  of 
the  loan  made  by  its  agent  by  a  re-  power  in  the  city  to  raise  money  to  do- 
newal  of  the  note  from  time  to  time,  nate  to  &  railroad  company,  the  obli- 
and  by  payments  upon  it  at  different  gation  could  not  be  made  binding  on 
times,  and  when  the  note  was  executed  the  corporation  by  any  subsequent  act 
by  the  treasurer  he  pledged  as  security  of  the  municipal  authorities. 
for  its  payment  bonds  of  the  city,  sub-  *  Ruggles  v.  Collier,  (1869)  43  Mo. 
sequently  substituting  therefor  other  353.  As  to  ratification  of  contract  of 
ten-year  bonds  of  the  city,  and  there  an  agent  by  a  municipal  corporation, 
remaining  a  sum  due  and  unpaid  upon  see  McCloskey  r .  City  of  Albany,  7 
the  note,  it  was  held  in  the  federal  Hun,  472.  Where  it  cannot  be 
court  that  under  the  laws  of  New  Jer-  inferred,  see  Burns  0.  Mayor  of  New 
sey  the  treasurer  was  authorized,  un-  York,  5  T.  &  C.  371. 


§95] 


PUBLIC  CORPORATIONS. 


115 


same,  will  ratify  and  make  binding  upon  the  district  a  contract 
for  constructing  the  school  building  void  because  made  by  only 
one  member  of  the  school  board.1  So  a  school  district  which  had 
received,  retained  and  used  for  a  long  period  of  time  school  fur- 
niture bought  for  it  by  the  members  of  the  school  district  board, 
acting  separately  without  any  meeting  of  the  board,  has  been 
hcM  to  have  ratified  the  purchase  and  a  recovery  allowed  upon 
the  contract  against  the  district.3  he  Appellate  Court  of  Mis- 
souri has  held  that,  as  the  board  of  directors  of  a  school  district 
can  act  only  when  assembled  in  a  meeting  as  a  board,  and  neither 
two  nor  all  can  bind  the  district  by  a  contract,  the  fact  that  fur- 
niture purchased  by  them  under  a  contract  made  outside  of  a 
board  meeting  had  been  placed  in  the  schoolhouse  and  used 
would  not  amount  to  a  ratification  of  this  illegal  contract.8 

§  95.  Agents  and  officers  of  counties  —  generally. —  The 
character  of  the  agency  which  the  officers  of  a  county  hold  in 
connection  with  its  financial  affairs  is  well  expressed  and  defined 
by  the  Iowa  Supreme  Court  in  an  early  case  when  the  county 
judge  was  charged  with  the  management  of  the  affairs  of  a 
county  in  that  state.  They  said :  u  The  analogy  between  this 
officer  and  an  agent  will  hold  good  but  a  little  way.  It  does  not 
hold  good  in  any  valuable  sense.  It  is  true  that  the  statute  in 
creating  him  styles  him  the  general  agent  of  the  county.  But 
this  is  not  to  institute  this  relation  properly.  It  was  to  declare 
him  to  be  the  general  rather  than  the  special  agent.  At  the  I>e8t 
he  is  but  a  quasi  agent.  Properly  shaking,  he  has  no  principal, 
and  so  far  as  he  has,  this  principal  only  appoints  him  and  has  no 
further  power  over  him.  He  does  not  derive  his  powers  from 
the  county  but  from  the  law,  and  the  county  cannot  revoke  them. 
It  cannot  act  itself  in  any  case.  He  is  the  head  and  hand  of  the 
county.  In  short,  he  is  an  officer  of  the  law,  deriving  his  powers 
from  the  law,  and  governed  by  it."4  The  governing  boards  of 
counties  are  known  under  different  titles  in  the  different  states. 


1  School  District  No.  89  in  Brown 
County  r.  Sullivan,  (1892)48  Kans.  624; 
8.  c.,  29  Pac.  Rep.  1141. 

1  Union  School  Furniture  Co.  «. 
School  District  No.  60  of  Elk  County, 
(1898)  60  Kans.  727;  8.  C.  82  Pac.  Rep. 
868. 

'Thomas  Kane   &   Co.   t>.    School 


Dist.  of  Calhoun,  (1893)  48  Mo.  App. 
408. 

*  Clapp  t».  County  of  Cedar,  (1857)  5 
Iowa,  15,  55.  a  case  involving  the  au- 
thority of  a  county  judge  in  tho 
issuance  of  county  bonds  in  payment 
of  a  subscription  to  the  stock  of  a  rail- 
road company. 


116  POWER  OF  AGENTS  AND  OFFICERS.  [§  95 

County  Courts  in  some,  board  of  county  commissioners  in  others  ; 
supervisors  in  some  and  boards  of  chosen  freeholders  in  others, 
as  well  as  other  titles.  We  will  give  some  illustrations  in  this 
chapter  of  the  powers  of  these  different  officers  in  the  financial 
management  of  the  counties  from  different  state  decisions  which 
may  guide  in  determining  the  powers  of  similar  officers  in  any 
other  state.  The  County  Court  in  Arkansas  may  levy  a  tax  for 
the  payment  of  a  judgment  recovered  against  a  county  for  a 
valid  debt  evidenced  by  warrants  duly  issued  by  the  county 
authorities.1  In  affirming  an  order  for  a  peremptory  writ  of 
mandamus  to  compel  a  county  treasurer  to  pay  certain  warrants 
issued  by  order  of  a  board  of  county  commissioners,  the  Colorado 
Court  of  Appeals  has  held  that  a  county  treasurer  is  not  clothed 
with  power  to  pass  on  the  legality  of  the  action  of  the  governing 
body  of  the  county.  "  Power  to  determine  the  validity  of  all 
claims,"  they  said,  is  intrusted  to  the  board.  When  they  have 
audited  and  allowed  a  claim,  and  a  warrant  is  issued  in  accord- 
ance with  their  determination,  we  cannot  see  that  the  statute  has 
clothed  the  treasurer  with  the  supervisory  power  to  determine  the 
validity  of  their  acts.2  County  commissioners  cannot  legally 
transact  county  business  except  at  a  regular  session  of  the  county 
board  or  one  specially  called  by  the  county  clerk,  of  which  notice 
is  given  in  the  mode  provided  by  law.3  The  money  in  the  hands 
of  a  county  treasurer  in  Nebraska  under  the  revenue  bond  road 
laws  of  that  state,  being  held  in  trust  by  the  treasurer  for  the 
road  districts,  the  board  of  county  commissioners  have  no  authority 

1  Bush  v.  Wolf,  (1891)  55  Ark.  124;    what  cases  and  under  what  circura- 
s.  c.,  17  S.  W.  Rep.  709.  stances  such  funds  shall  be  paid  out, 

*  Beeney,  County  Treasurer,  v.  IT-  unless  it  be  in  those  cases  where  fixed 
win, (Colo.  App.  1895)  39  Pac.  Rep.  900.  rights  are  conferred  by  statute.  In 
Leading  up  to  their  conclusion,  the  and  of  itself  this  fact  should  be  de- 
court  used  this  language:  As  we  said  cisive  of  the  present  inquiry.  Wher- 
in  Commissioners  v.  Lee,  3  Colo.  App.  ever  a  broad,  universal  and  sweeping 
177;  s.  c.,  32  Pac.  Rep.  841:  "  Under  power  is  thus  given  to  a  governing 
the  statutory  plan  which  divides  the  body  it  cannot  be  conceded  that,  by 
state  into  counties  and  regulates  the  implication,  any  other  body,  whether 
government  of  those  territorial  sub-  it  be  a  court  or  one  resembling  the 
divisions  all  power  to  fix,  control,  de-  board  of  county  commissioners,  should 
termine,  or  in  any  manner  dispose  of  likewise  have  power  to  dispose  of  the 
the  funds  of  a  county,  is  devolved  on  public  revenues." 
the  board  of  county  commissioners.  3  Morris  v.  Merrel,  (Neb.  1895)  62  N» 
They  alone  have  the  right  to  disburse  W.  Rep.  865. 
the  public  moneys  and  to  decide  in 


§96] 


PUBLIC  CORPORATIONS. 


to  draw  warrants  against  such  funds.1  Under  the  New  Jersey 
statutes  in  regard  to  such  matters,  a  board  of  chosen  freeholders 
are  not  empowered  to  make  an  excessive  appropriation  for  some 
particular  class  of  expenditures  that  it,  with  the  surplus,  may  make 
up  deficiencies  in  other  classes  of  expenditures.1  Under  the 
statute  of  New  Jersey,  a  board  of  chosen  freeholders  can 
improve  any  ordinary  highway  under  their  control  only  with 
money  obtained  from  the  sale  of  road  bonds.8  A  county  com- 
missioners' court  in  Texas  by  electing,  with  knowledge  of  a  con- 
tract of  a  county  judge  to  purchase  county  bonds  for  the  perma- 
nent school  fund,  to  carry  out  its  provisions  and  to  hold  the  bonds, 
has  been  held  to  be  a  ratification  of  the  contract.4  The  Wash- 
ington Supreme  Court  has  held  that  a  board  of  county  commis- 
sioners in  that  state,  having  power  to  contract  for  the  services  of 
a  county  physician,  though  their  term  of  office  be  about  to 
expire,  may  contract  with  a  physician  for  one  year  extending  into 
the  term  of  office  of  their  successors.5  The  different  statutes  of 
Utah,  the  one  which  empowers  the  County  Court  in  Utah  to  lay 
out  and  maintain  public  roads  and  perform  other  acts  from  which 
indebtedness  must  arise ;  another  which  provides  that  no  county 
shall  incur  any  indebtedness  or  liability  in  any  manner  or  for  any 
purpose  to  an  amount  exceeding,  etc.;  another,  that  the  County 
Court  must  not  contract  liabilities  except  in  pursuance  of  law,  and 
the  one  which  provides  that  warrants  drawn  by  order  of  such 
court  must  specify  the  liability  for  which  they  are  drawn,  have 
been  held  by  the  Supreme  Court  of  that  territory  to  confer  by 
implication  on  the  County  Court  the  power  to  create  indebted- 
ness against  the  county.6 

§  96.  Power  of  county  officers  in  California. —  A  board  of 
supervisors  of  a  county  have  no  power  to  create  a  debt  or  liability 
on  the  part  of  the  county  for  any  purpose  except  as  provided  by 
law.7  And  no  order  made  by  a  board  of  supervisors  is  valid  or 
binding  unless  it  is  authorized  by  law ;  thus,  if  they  allow  claims 

1  Oakley  r.    Valley   County,  (Neb.  (1894)  86  Tex.   234;  a.  c.,  24  8.  W. 

1894)  59  N.  W.  Rep.  868.  Rep.  272. 

•    City    of    Paterson    r.    Board    of  •  Webb  t>.  Spokane  County,  (Wash. 

Chosen   Freeholders,  (N.  J.   1894)  29  1894)  87  Pac.  Hep.  282. 

All.  Rep.  831.  •  Fenton  r.  Blair,    (Utah,  1895)  89 

1  Ibid.  Pac.  Rep.  485. 

4  Boydston    t.    Rockwall    County,  '  Foster  e.Coleman,  (1858)10Cal.  278. 


118  POWER  OF  AGENTS  AND  OFFICERS.  [§  96 

not  legally  chargeable  to  a  county,  neither  the  allowance  nor  the 
warrants  drawn  therefor  create  any  legal  liabilities.1  They  are 
authorized  to  erect  a  county  jail  without  a  law  authorizing  the 
levy  of  a  special  tax  therefor,  and  the  expenses  of  such  erection, 
as  among  the  expenses  of  a  current  year,  may  be  paid  for  out  of 
the  money  raised  by  the  general  tax  which  the  board  are  author- 
ized to  levy.  And  a  contract  entered  into  by  a  board  of  super- 
visors for  this  purpose,  for  and  on  behalf  of  the  county,  and 
signed  by  the  chairman  of  the  board,  would  be  the  contract  of 
the  county.2  So  far  as  concems  the  examination  arid  settlement 
of  accounts  and  claims  against  a  county,  its  board  of  supervisors 
are  a  quasi  judicial  body,  and  the  allowance  and  settlements  of 
such  a  board  is  an  adjudication  of  the  claims,  and  is  conclusive. 
And  an  auditor  of  a  county  cannot  assume  to  set  up  his  judgment 
in  opposition  to  that  of  a  board  of  supervisors  in  respect  to  the 
issuance  of  a  warrant  on  an  account  against  the  county,  except  in 
cases  where  the  board  have  exceeded  their  powers.4  Nor  can  he 
refuse  to  issue  a  warrant  when  the  board  of  supervisors  has 
ordered  its  issue,  because  the  person  in  whose  favor  it  is  to  be 
drawn,  and  whose  account  has  been  allowed,  has  committed  a 
fraud  on  the  county  in  relation  to  procuring  the  contract  on 
which  the  warrant  is  to  be  issued.5  If  by  a  contract  of  a  board  of 
supervisors  for  the  erection  of  a  county  jail  it  be  provided  that 
the  work  and  labor  be  paid  for  in  installments,  on  the  certificate 
of  the  architect  that  a  certain  sum  has  been  expended,  an  account 
giving  the  sum  total  of  an  installment,  without  "  all  the  items  of 
the  claim  "  certified  by  the  architect,  would  be  a  sufficient  compli- 
ance with  the  statute  (Pol.  Code  Cal.  §  4072)  to  authorize 
the  board  to  allow  the  same.6  It  cannot  set  apart  a  portion  of 
the  revenue  of  the  county  as  a  fund  for  current  expenses.7  They 
have  no  authority  to  allow  an  unaudited  claim  against  a  county, 
except  within  one  year  after  the  claim  accrues  and  becomes  due.8 
The  board  must  first  give  public  notice  of  a  special  meeting  at 
which  it  proposes  to  settle  with  the  county  treasurer,  and  specify 

1  Linden  «.  Case,  (1873)  46  Cal.  171.  4  Babcock  v.  Goodrich,  (1874)  47  CaL 

s  Babcock  v.  Goodrich,  (1874)  47  Cal.  488. 

488.  •  Ibid. 

1  El  Dorado  Co.  v.  Elstner,  18  Cal.  6Ibid. 

144;  Tilden  v.  Sacramento  Co.,  41  Cal.  '  Laforge  0.  Magee,  6  Cal.  285. 

68;  Col  usa  County  v.  De  Jarnett,  55  8  Carroll    v.    Siebenthaler,    37    Cal. 

Cal.  373.  193. 


§  97]  PUBLIC  CORPORATIONS.  119 

in  the  notice  that  such  business  will  be  transacted ;  otherwise 
they  cannot  settle  with  the  officer.1  Unless  specially  authorized 
by  law,  the  board  cannot  allow  the  salary  of  a  county  treasurer 
out  of  county  funds.3  A  county  treasurer,  authorized  to  adver- 
tise for  bids  for  the  surrender  of  bonds  of  the  county,  in  order 
that  he  may  redeem  them  with  money  in  the  treasury,  lias  no 
authority  in  the  advertisement  to  insert  a  condition  upon  which 
bids  will  be  received,  which  is  not  to  be  implied  from  the  duty  to 
advertise,  and  which  is  not  necessary  to  the  exercise  of  his  author- 
ity, such  as  that  the  bonds  must  accompany  the  bid.8  The  County 
Government  Act  of  California  authorizes  the  county  boards  of 
supervisors  to  issue  bonds,  and  provides  that  the  bonds  shall  be 
delivered  to  the  county  treasurer,  by  whom  they  shall  be  sold  to 
the  highest  bidder.  Under  the  section  of  that  act,  which  further 
authorizes  these  boards  to  do  "  all  other  acts  and  things  *  *  * 
which  may  be  necessary  to  the  full  discharge  of  the  duties  of  the 
legislative  authority  of  county  government,"  they  have  been  held 
to  have  no  power  to  employ  an  agent  to  procure  bids  to  be  made 
for  such  bonds.4 

§  97.  Power  of  county  boards  in  Illinois. — The  governing 
authorities  of  a  county,  elected  by  the  people  and  becoming 
their  agents  for  the  management  of  the  financial  affairs  of  the 
county,  when  they  act  within  the  scope  of  their  authority,  how- 
ever indiscreet  the  action,  it  is  binding  upon  the  county.  In  an 
Illinois  case,  the  agents  making  the  contract  for  a  county  jail  for 
a  price  in  excess  of  what  was  ordered  by  the  County  Court,  yet 
the  County  Court,  acting  as  such,  having  received  the  jail  and 
appropriated  it  to  the  use  of  the  county,  and  acknowledged  that 
the  county  owed  the  contractors  the  balance  due  upon  the  con- 
tract price,  this  final  action  of  the  County  Court  was  held  to 
bind  the  county  to  pay  the  full  amount  due  the  contractors,  not- 
withstanding the  fact  that  those  making  the  contract  exceeded 
their  authority  so  far  as  the  price  fixed  for  the  cost  of  the  build- 
ing was  concerned.5  Only  such  powers  can  be  exercised  by 
County  Courts,  when  sitting  for  the  disposition  of  county  busi- 

1  El  Dorado  Co.  r.  Reed,  11  Cal.  131.  4  Smith    e.    Loe    Angeles    County, 

'County  of  San  Joaquin  r.  Jones,  (1894)  99  Cal.  638;  s.  c.,  84  Pac.  Rep. 

18  Cal.  827.  439. 

•  Mills  r.    Belhncr,    (1874)   48    Cal.  *  County  of  Jackson  r.  Hall,  (1870) 

1-.M.  58111.440. 


120  POWER  OF  AGENTS  AND  OFFICERS.  [§  97 

ness,  as  have  been  conferred  on  them  by  express  law  or  that  it 
may  be  necessary  to  exercise  in  order  to  carry  into  effect  the 
powers  granted  to  them.  So,  where  an  act  to  enable  counties  to 
liquidate  their  debts  provides  that  the  County  Courts  or  other 
governing  boards  may  levy  a  special  county  tax  for  that  purpose, 
the  county  board  has  no  authority  to  take  up  its  outstanding 
orders  and  give  bonds  in  the  place  of  them,  bearing  interest. 
Such  obligations  cannot  be  issued  without  express  statutory 
authority.  Another  statute,  under  which  the  board  would  be  acting 
in  such  case,  would  confine  the  court  to  a  liquidation  through  a 
levy  of  taxes  for  that  purpose.1  A  county  board  having  author- 
ity to  contract  for  the  repair  of  a  county  court  house  and  build- 
ing of  fire-proof  vaults,  in  the  absence  of  any  restrictions  of  law 
as  to  the  amount  of  the  price  they  should  pay  or  its  mode  of  pay- 
ment, it  is  open  to  such  board  to  contract  to  pay  for  such  work 
in  interest-bearing  orders  as  well  as  in  non-interest-bearing  orders.2 
The  governing  authorities  of  a  county,  intrusted  with  exclusive 
power  over  the  county  revenues  and  their  collection,  if,  in  their 
judgment  a  tax -already  ordered  be  found  to  be  unnecessary,  have 
a  right  to  rescind  the  order  and  arrest  the  collection  of  such  tax.3 
They  are  not  authorized  to  allow  in  a  settlement  with  him  to  a 
collector  more  than  the  sum  fixed  by  law  as  fees  or  commissions, 
and  an  allowance  of  the  kind  does  not  bind  the  county,  nor  is  the 
county  estopped  by  the  action  of  the  board  to  object  to  such 
allowance.4  It  being  their  duty  to  protect  the  county's  interest, 
they  have  the  power  to  appoint  agents,  to  employ  counsel,  and 
make  legal  contracts  for  procuring  information  and  evidence 
necessary  and  proper  in  defense  of  suits  against  the  county.5 
The  power  given  by  statute  to  the  board  of  county  commission- 
ers to  construct  a  court  house,  for  instance,  and  connected  with 
it  the  power  to  make  contracts  for  its  construction,  carries  with  it 
of  necessity  the  power  to  exercise  its  discretion  of  settling  and 
adjusting  claims  against  the  county  arising  from  such  construc- 

1  County  of    Hardin    T.   McFarlan,  8  People    ex  rel.   Chase  v.   County 

(1876)  82  111.  138.  Court  of  Macoupin  County,  (1870)  54 

'County  of  Jackson  t>.  Rendleman,  111.  217. 

(1881)  100  111.  379,  holding  such  orders  4  Board  of  Supervisors  of  Cumber- 
valid  and  the  interest  collectible.  The  knd  County  n.  Edwards,  (1875)  76  111. 
court  distinguished  County  of  Hardin  544. 

t>.  McFarlan,  82  111.  138,  141,  and  Hall  BGillett  ?.  Board  of  Supervisors  of 

«.  Jackson  County,  95  111.  352.  Logan  County,  (1873),  67  111.  256. 


§  98]  PUBLIC  CORPORATIONS.  121 

tion,  and  in  case,  under  this  power,  in  the  use  of  their  discretion, 
a  board  has  settled  and  compromised  a  claim  about  which  there 
was  dispute,  in  the  absence  of  anything  showing  fraud  or  cor- 
ruption on  their  part,  a  court  of  equity  has  no  jurisdiction  to 
prevent  the  consummation  of  the  agreement  of  the  board  for  a 
compromise  by  process  of  injunction.1 

§  98.  Power  of  county  commissioners  in  Indiana. —  The 
board  of  county  commissioners  in  Indiana  is  a  body  corporate 
and  politic,  under  the  statute.  The  statute  authorizes  the  board 
to  make  contracts,  and  it  may  make  them  by  parol  in  some  cases, 
and  be  bound  thereby ;  but  it  cannot  make  contracts  of  all 
descriptions  and  for  all  purposes  for  which  natural  persons  may. 
It  is  confined  in  making  contracts  to  the  powers  expressly 
granted  to  it  by  the  act  of  its  creation,  and  to  the  implied  powers, 
incidental  and  necessary  to  the  execution  of  such  expressed  pow- 
ers and  the  performance  of  the  duties  enjoined  upon  it.  For 
these  purposes,  it  may  make  contracts,  and  it  will  be  bound  to 
perform  them  the  same  as  individuals.2  The  law  of  Indiana  con- 
ferring no  powers,  and  enjoining  no  duty,  upon  the  board  of 
commissioners  of  a  county  to  aid  in  the  arrest,  prosecution  or 

1  Harms     t.     Fitzgerald,    (1878)     1  the  board  in  such  a  matter  is  final,  see 

Bradw.  (111.)  325.     In  support  of  this  Supervisors  of  Orleans  t>.  Bowen,  4 

rule,  see  Attorney -General  r.   Aspin-  Lans.  24,  38;  Shank  v.  Shoemaker,  18 

nil.     2   Mylne  &  C.  618;  Parr  ».  At-  N.  Y.  489;  Russell  r.  Cook,  3  Hill,  504; 

torney-General,   8    Clark    &  F.   409;  Stover  t>.  Mitchell,  45  111.  218;  County 

Attorney -General  r.  Poole,  4  Mylne  &  Comrs.  of  Lucas  County  r.  Hunt,  5 

C.   17;   Attorney- General  v  Lirhfield,  Ohio  St.  488. 

18  Sim.  547;  Attorney-General  u.  Nor-  *  Hight  r.  Board  of  Comrs.  Monroe 
wich,  16  Sim.  225;  Mooers  «.  Smed  County,  (1879)  68  Ind.  575;  citing 
ley,  6  Johns.  Ch.  28;  Livingston  r.  Seibrecht  t>.  City  of  New  Orleans,  12 
Hollenbeck,  4  Barb.  10,  14 ;  Meserole  La.  Ann.  496;  Douglass  r.  Mayor  & 
t.  Mayor  &  Common  Council  of  Bd.  of  Aldermen  of  Virginia  City,  5 
Brooklyn.  8  Paige,  198;  Gillespio  r.  Nev.  147;  Hayward  r.  Davidson,  41 
Broas,  23  Barb.  870;  Andrews  c.  Ind.  212;  McCabe  r.  Board  of  Corn- 
Board  of  Supervisors  Knox  County,  missioners  of  Fountain  County,  46 
70  111.  65;  City  of  Galena  r.  Cor  with,  Ind.  880;  Burnett  c.  Abbott,  51  Ind 
48  111.  423;  Brush  r.  City  of  Carbon-  254;  Gordon  t>.  Board  of  Comrs. 
dale,  78  111.  74;  Conrad  r.  Trustees  of  Dearborn  County,  52  Ind.  822;  Board 
Ithaca,  16  N.  Y.  168;  Storrs  t.  City  of  of  Comrs.  Jackson  County  t>.  Apple- 
Utica,  17  N.  Y.  104.  As  to  the  power  white,  62  Ind.  464;  Board  of  Comrs. 
of  county  board,  see  Prest.  and  Trus-  Jennings  County  c.  Verbarg,  63  Ind. 
tecs  of  Town  of  Petersburg  t.  Map-  107. 
pin.  14  111.  193.  That  the  decision  of 

16 


122  POWER  OF  AGENTS  AND  OFFICERS.  [§  98 

conviction  of  a  person  charged  with  the  commission  of  crime, 
either  by  an  offer  of  reward  or  by  the  employment  of  detective 
or  professional  skill,  a  contract  by  euch  a  board  to  pay  a  reward1 
for  the  arrest  of  a  criminal  has  been  held  to  be  beyond  its  powers 
and  not  enforceable  against  the  county.1  A  county  board  cannot 
authorize  the  county  treasurer  to  employ  an  attorney  to  assist 
in  the  collection  of  delinquent  taxes,  at  the  county  expense.2 
County  boards  have  no  authority  to  make  allowances  for  services 
done  or  things  furnished  voluntarily  for  which  they  cannot  law- 
fully contract.8  Should  such  improper  allowances  be  made, 
relief  may  be  had  from  it  by  an  appeal.4  County  boards  may 
contract  for  an  examination  and  adjustment  of  the  accounts  of  a 

1  Board  of  Comrs.  of  Grant  Co.  t>.  that  '  The  boards  of  commissioners 
Bradford,  (1800)  72  Ind.  455.  The  may  make  allowances  at  their  discre- 
court  considered  the  case  within  the  tion,'  etc.,  but,  as  was  said,  in  Roth- 
principle  of  Hight  v.  Board  of  Com-  rock  v.  Carr,  55  Ind.  334,  this  does 
missioners  of  Monroe  County,  (1879)  '  not  mean  an  arbitrary,  uncontrolled, 
68  Ind.  575,  where  it  was  held  that  unlimited  discretion,  contrary  to  law, 
such  board  had  no  power  to  employ  a  or  without  authority  of  law;  for  where 
person  to  aid  the  state's  attorneys  in  there  is  no  law  there  is  no  act  to  do, 
prosecuting,  and  procuring  to  be  pros-  and,  therefore,  no  discretion  to  be 
ecuted,  a  person  charged  with  crime,  exercised.'  The  discretion,  therefore, 
To  the  same  effect,  see  Board  of  Comrs.  must  be  according  to  and  in  subordi- 
Ripley  County  v.  Ward,  (1880)  69  lud.  nation  to  the  law,  and  not  outside  and 
441,  holding  that  the  board  had  no  in  violation  of  it."  English  v.  Smock, 
power  to  employ  an  attorney  to  assist  34  Ind.  115;  s.  c.,  7  Am.  Rep.  215. 
in  the  prosecution  of  one  under  indict-  *  *  *  "Where  the  board'of  com- 
ment for  embezzling  county  funds.  missioners  of  their  own  motion  do  an 

'Miller  v,  Embree,  (1882)  88  Ind.  act  which  under  the  law  they  may  do 
133.  or  not,  as  in  the  exercise  of  their 

8  Ibid.  discretion  seems  best,  and  the  time 

4 Board  of  Comrs.,  etc.,  v.  Gregory,  and  mode  of  doing  the  act  are  not 
42  Ind.  32;  Grusenmeyer  v.  City  of  prescribed  by  law,  no  appeal  lies  from 
Logansport,  76  Ind.  549;  Rothrock  v.  their  decision  in  such  a  case.  But 
Carr,  55  Ind.  334.  See  Waymire  v.  when  they  make  an  allowance  which 
Powell,  (1885)  105  Ind.  328,  holding  is  illegal  and  appears  so  on  its  face, 
an  allowance  by  a  board  of  commis-  any  one  aggrieved  may  appeal."  In 
sioners  to  one  or  more  of  its  members  the  cases  of  Nichols  v.  Howe,  7  Ind.  506; 
for  services  rendered  in  inspecting,  Board  of  Comrs.,  etc.,  t.  Boyle,  9  Ind. 
examining  and  measuring  the  abut-  296;  Sims  v.  Board  of  Comrs.,  etc.,  39 
ments  of  a  bridge  which  had  been  Ind.  40;  Mofflt  v.  State  ex  rel.,  40 
built  under  a  contract  made  with  the  Ind.  217;  Board  of  Comrs.,  etc.,  f>. 
board,  to  be  an  illegal  allowance,  and  Richardson,  54  Ind.  153,  where  such 
that  any  person  interested  had  a  right  an  appeal  was  denied,  the  allowances 
to  appeal  from  such  allowance.  The  were  for  services  which  might  have 
court  said:  "  [The  statute]  provides  been  made  the  subject  of  a  contract. 


PUBLIC  CORPORATIONS.  123 

county  treasurer.1  The  county  commissioners  have  no  power  to 
declare,  even  by  express  contract,  a  man's  taxes  paid  before  they 
are  assessed,  and  merely  ministerial  officers,  such  as  the  treasurer 
and  auditor,  have  no  such  authority.3  Among  the  powers  of 
such  boards  fixed  and  designated  by  law  is  not  the  right  to  inter- 
fere with,  or  in  any  way  affect,  the  course  marked  out  for  the  col- 
lector or  treasurer  of  the  county.  They  can  neither  abridge  nor 
enlarge  the  duties  or  liabilities  of  those  officers.  It  follows  that 
an  order  of  such  a  board  giving  the  collector  of  the  county  reve- 
nue a  longer  time  for  payment  of  the  revenue  of  the  year  than 
the  law  prescribes,  would  be  without  authority,  and  inoperative.8 
A  board  of  county  commissioners,  under  the  statutes,  have  no 
power  to  direct  the  county  treasurer  how,  or  where,  he  shall  keep 
the  county  funds ;  and  if  a  county  treasurer,  under  an  order  of 
such  board,  they  having  purchased  an  iron  safe,  keep  the  county 
funds  in  such  safe,  this  order,  being  without  authority,  would  not 
release  the  collector  from  his  liability  to  the  county  to  make  good 
the  loss,  in  case  the  funds  be  stolen  from  the  safe.4  County 
commissioners  in  Indiana  are  not  empowered  by  the  statute 
relating  to  proceedings  to  secure  free  gravel  roads  to  order  pay- 
ments of  fees  of  attorneys  rendered  to  the  petitioners  for  such 
roads.5 

§  99.  Power  of  supervisors  of  counties  in  Iowa. —  County 
boards  of  supervisors  must  act  as  a  board  in  session  in  order  to 
bind  a  county,  they  not  being  authorized  to  bind  the  county  by  a 

1  Duncan    c.    Board    of    Comrs.  of  4  Halbert  r.    State  ex  rel.  Board  of 

Lawrence  County,  (1884)  101  Ind.  403.  Comrs.  Martin  County.  (1864)  22  Ind. 

It  was  said:    "The  board  of  comiuis-  125.     As  to  contracts  in   relation  to 

sinners  have  very  full  powers  in  refer-  bridges  entered  into  by  county  boards 

encc  to  the  management  of  the  affairs  or  superintendents  appointed  by  the 

of  their  respective  counties.     It  is,  for  board,     see     Board     Comrs.     Carroll 

all  financial  purposes,  the  county,  and  County  ».  O'Connor,    (1894)  137   Ind. 

its  contract  in  relation  to  the  adjust-  622;  8.  c..  87  N.  £.  Rep.  16;  Smith  r. 

ment  of  the  finances  of  the  county  is  Comrs.,  6  Ind.  App.  153.     As  to  county 

the  contract  of  the  county,  and  valid  board  contracting  with  a  physician  for 

asnuch."     See  Hoffman  r.  Board,  etc.,  services    in   attending  the  poor,   Bee 

96  lud.  84;  Moon  ».  Board,  etc.,  97  Woodruff  r.  Comrs.  of  Noble  County, 

Ind.    176;    Nixon  v.  State  ex  rel.,  06  (1894)  10  Ind.  App.  179;  8.  c.,  37  N. 

Ind.  111.  E.  Hep.  T,tt. 

1  Scobey  r.  Decatur  County,  (1880)  •  Board  of  Comrs.  of  Rush  County, 

78  Ind.  551.  <  'ole,  (1891)  2  Ind.  App.  475;  8.  c., 

'Coman  r.  State  ex  rel.  Armstrong,  28  N.  E.  Rep.  772. 
(1836)  4  Blackf.  (Ind.)  241. 


12<t  POWER  OF  AGENTS  AND  OFFICERS.  [§  99 

contract  made  by  them  individually.1  That  a  contract  made 
with  a  board  of  supervisors  be  entered  on  the  supervisors'  record 
is  not  necessary  to  its  validity,  as  the  contract  may  be  proved  by 
parol.2  There  is  no  authority  in  the  chairman  of  the  board  of 
supervisors  to  contract  with  an  attorney  for  services  in  a  suit  in 
which  the  county  is  interested,  but  the  board  of  supervisors  may 
confer  such  authority  upon  the  chairman,  and,  in  case  this  is  done, 
such  a  contract  would  bind  the  county.3  A  county  has  been 
held  not  to  be  bound  by  a  contract  for  building  materials  for  a 
public  building,  made  by  the  chairman  of  a  building  committee 
who  was  also  chairman  of  the  board  of  supervisors  of  the  county, 
as  there  was  shown  no  special  authority  from  the  board  to  him 
to  make  such  contract,  and  such  authority  could  not  be  inferred 
from  the  simple  facts  that  he  was  chairman  of  the  building  com- 
mittee and  of  the  board  of  supervisors.4  Further,  that  no  obliga- 
tion could  be  created  against  the  county  by  an  assurance  of  the 
chairman  of  the  board  that  they  would  pay  the  bill,  as  to  bind 
the  county  a  majority  of  the  members  must  assent  to  such  an 
assurance.5  These  boards  have  power,  implied  from  their  power 
under  statutes  "  to  represent  their  respective  counties,  and  to  have 
the  care  and  the  management  of  the  property  and  business  of  the 
county  in  all  cases  where  no  other  provision  is  made,"  to  employ 
one  to  assist  in  the  collection  of  taxes  not  collectible  by  the  county 
treasurer  in  the  discharge  of  his  duty.6  It  has  been  held  that 
they  have  the  power  to  offer  a  reward  for  the  recovery  of  money 
stolen  from  the  county,  by  necessary  implication  from  the  stat- 
utes giving  them  full  control  of  county  property,  and  the  care 
and  management  thereof;7  but  not  for  the  arrest  of  persons 
charged  with  the  commission  of  crime.8 

'Jordan  n.    Osceola  County,  (1882)  6Wilhelm  v.  Cedar  County,  (1878) 

59  Iowa,  388;  s.    c.,   13  N.  W.  Rep.  50  Iowa,  254. 

344.  7  Hawk  v.  Marion  County,  (1878)  48 

*Ibid.,  following  Tatlock  v.  Louisa  Iowa,  472. 

County,  46  Iowa,  138.     The  same  rule  8Ibid.     The  court  said:    "Itiathe 

recognized     in     Baker     v.    Johnson  duty  primarily  of  the  state  to  cause 

County,  33  Iowa,  151,  153;  Rice  v.  Ply-  the  arrest  and  conviction  of  criminals, 

mouth  County,  43  Iowa,  136.  in  the  performance  of  which  the  state 

3  Tatlock  v.  Louisa  County,   (1877)  makes  use  of  such  officers  and  agencies 
46  Iowa,  138.  as  it  sees  proper,  and,  if  the  general 

4  Rice  v.  Plymouth  County,  (1876)  assembly    saw    proper,    there    is    no 
43  Iowa,  136.  doubt  a  duty  in  respect  thereto  could 

5  Ibid.  be  legitimately  imposed  on  counties. 


§  100]  PUBLIC  CORPORATIONS.  125 

§  loo.  Power  of  county  commissioners  in  Kansas. —  After 
a  vote  of  the  people  in  favor  of  it,  county  commissioners  have 
power  to  borrow  money  to  meet  the  current  expenses  of  the 
county  in  case  of  a  deficit  in  the  county  revenue  and  to  issue  the 
bonds  of  the  county  for  the  loan.1 .  It  is  within  the  scope  of  the 
authority  of  a  board  of  county  commissioners  to  determine 
whether  an  election  hae  been  hud  authorizing  them  to  subscribe 
stock  in  a  railroad  company,  and  to  subscribe  such  stock  when 
such  election  has  been  held,  and  to  make  all  necessary  orders  with 
reference  to  the  matter.8  The  county  commissioners  alone  pos- 
sess the  power  to  contract  for  the  county  or  to  create  an  indebt- 
edness against  the  county  for  articles,  as  mattings  for  the  floor, 
for  instance,  to  be  used  about  the  court  houses.8  And  the  board 
will  not  be  bound  for  a  debt  created  for  such  purposes  by  the 
court  or  the  sheriff  of  the  county,  without  the  consent  of  the 
county  commissioners.4  They  have  no  power  to  appropriate  the 
fund  raised  by  taxation  to  defray  county  charges  and  expenses  of 
the  current  year  to  the  erection  of  permanent  county  buildings.5 
And  in  casevi  board  has  contracted  for  the  erection  of  permanent 
county  buildings,  when  it  was  beyond  their  power  as  county  offi- 
cers to  make  such  contracts,  and  propose  to  carry  out  the  terms 
of  the  contract  at  the  cost  of  the  county,  and  to  use  the  general 
revenue  fund  to  pay  for  the  work  done  under  such  contract,  they 
may  be  restrained  by  injunction  from  erecting  the  buildings,  or 
from  drawing  any  warrants  on  the  county  treasurer  on  account  of 
the  contract.6  Medical  services  to  prisoners  confined  in  county 

•But  instead  of  doing  so,  the  statute  adopted  in  Borough  of  York  v.  Forscht, 

expressly  authorizes  the  governor,  in  23  Pa.  St.  391,  on  the  ground  that  the 

certain  specified  cases,  to  offer  a  re-  burgesses  of  the  borough  were  a  part 

ward  for  the  apprehension  of  persons  of  the  public  police.     Janvrin  r.  Town 

charged  with  crimes  of  murder  or  ar-  of  Exeter,  48  N.  H.  83,  is  not  applicable 

son.      Code,   §  58.     The  statutes  in  because  the  power  in  that  state  is  con- 

Muine,  as  to  the  power  of  towns,  in  ferred  by  statute,  and  such  is  true  as 

this  respect,  are  much  like  ours  as  to  to  Crawshaw   t.  City  of  Roxbury,  7 

counties,  and  there  also  the  governor  Gray.  374." 

is  authorized  to  offer  rewards  in  cer-  '  Doty  v.  Ellsbree,  1 1  Kans.  209. 

tain  cases.     It   was  held  in   Qale   r.  *  State  ex  rel.  t>.  Allen,  5  Kans.  213. 

South  Berwick.  51  Me.  174,  that  towns  *Neosho   County    v.    Stoddart,    13 

in  that  state  had  no  power  to  offer'  re-  Kans.  207. 

wards    for    the    arrest  of    criminals.  4  Ibid. 

Such  seems  also  to  be  the  rule  in  Illi-  'State  ex  rel.  t>.  Marion  County,  21 

nois.    County  of  Crawford  v  Spenney,  Kans.  419. 

21  111.  288.     But  a  contrary  rule  was  •  Ibid. 


126  POWEB  OF  AGENTS  AND  OFFICERS.  [§  101 

jails  must  be  authorized  by  the  county  board,  otherwise  the 
county  will  not  be  liable  for  them.1  A  county  having  no  poor- 
house  may  be  bound  by  a  township  trustee  to  pay  for  medical 
services  furnished  to  a  poor  person,  who  is  a  resident  of  the 
county  and  township,  and  who  is  temporarily  a  pauper.2  The 
allowance  of  a  claim  against  a  county  by  its  county  commissioners 
is  not  final  and  conclusive.  The  board  itself  may  re-examine  it, 
and,  on  appeal,  it  may  be  examined  and  disallowed  in  whole  or  in 
part  by  the  court  to  which  the  right  of  appeal  in  such  cases  is 
given.8  Where  a  claim  against  a  county  has  been  disallowed  in 
whole  or  in  part  by  the  countv  commissioners,  it  is  the  right  of 
the  claimant  to  appeal  to  the  District  Court  or  to  commence  an 
original  action  for  it.4  Two  members  of  a  board  of  county  com- 
missioners cannot  enter  into  a  contract  to  bind  the  county,  outside 
of  the  county,  without  previous  authority  from  the  board. 9 
Under  the  statute  of  Kansas  empowering  the  Bounty  commission- 
ers of  a  county  "  to  purchase  at  their  true  value  any  and  all 
bridges  built  upon  the  public  highways  of  said  county  by  any 
township  or  private  person  or  persons,  and  pay  for  the  same  in 
county  bonds,"  they  have  no  authority  to  purchase  such  bridges 
and  pay  for  them  with  county  warrants  or  orders ;  nor  have  they 
power  to  purchase  such  bridges  at  the  original-cost  of  their  con- 
struction, where  that  cost  exceeds  the  "  true  value "  of  the 
bridges.6 

§  101.  Power  of  County  Courts  in  Kentucky. —  County 
courts  have  no  power  to  impose  a  tax  in  aid  of  a  railroad  on  the 
people  of  a  county  or  to»submit  the  question  of  taxation  to  popular 
vote  without  some  special  legislative  enactment  authorizing  it.7 
Such  courts  have  power  to  employ  counsel  to  defend  a  suit 
against  the  counties  and  test  the  validity  of  a  subscription  of  the 
counties  to  a  private  corporation  and  to  bind  the  counties  for  a 
reasonable  fee.8  And  in  a  suit  by  the  attorney  for  the  recovery 

1  Roberts  t>.  Pottawatomie  County,  10  v.  Webb,  (1891)  47  Kans.  104;  8.  c.,  27 

Kans.  29.  Pac.  Rep.  825. 

1  Board  of  Comrs.  of  Clay  County  v.  6  State  of  Kansas  v.  Pierce,  (1893) 

Renner,  27  Kans.  225.  52  Kans.  521;  s.  c.,  35  Pac.  Rep.  19. 

•Leavenworth  County  v.  Keller,  6  7B.  G.  &  M.  R.  R.  Co.  t>.  Warren 

Kans.  510.  County  Court,  10  Bush,  718. 

4  Leavenworth  County  v.  Brewer,  *  Garrard  County  Court  t>.  McKee, 

9  Kans.  307.  11  Bush,  236. 

•Board  of  Comrs.  of  Hamilton  Co. 


§  102]  PUBLIC  CORPORATIONS.  127 

of  his  fee,  the  judgment  of  the  County  Court  as  to  what  was 
iciul  for  tin*  count  v.  and  the  employment  of  counsel  to  effect 
the  object  cannot  be  questioned.1  So  have  they  power  to  employ 
counsel  to  resist  the  application  of  a  railroad  company  for  a 
mandamus  to  compel  the  court  to  subscribe  for  its  stock  and  to 
issue  the  bonds  of  the  county  to  pay  the  subscription  ;  and  the 
County  Levy  Court  should  make  provision  for  the  payment  of  a 
reasonable  compensation  for  the  services  rendered  under  such 
employments.2  They  may  appropriate  money  toward  paying  the 
cost  of  additional  buildings  erected  by  a  society  which  supports 
a  portion  of  the  poor  children  of  the  county,  as  the  authority 
given  them  to  purchase  land  and  establish  poorhouses  is  not  com- 
pulsory and  could  not  constructively  abolish  the  power  to  provide 
for  the  poor  in  other  modes.3  The  power  given  to  employ  phy- 
sicians to  inoculate  the  poor  does  not  empower  them  to  employ 
a  physician  for  the  general  treatment  01  the  smallpox.4  They 
are  authorized  to  employ  medical  aid  for  the  relief  of  poor  per- 
sons afflicted  with  smallpox  without  regard  to  the  color  of  such 
persons.5  The  county  judge  and  justices,  those  constituting  the 
tribunal  in  charge  of  county  matters  in  Kentucky,  are  the  judges 
of  the  need  of  a  poorhouse,  and  may  purchase  land  for  such  pur- 
pose and  make  the  necessary  improvements.6 

§  102.  Power  of  supervisors  in  Michigan. —  Unless  dis- 
tinctly authorized  by  legislation,  a  board  of  supervisors  cannot 
•incur  debts  or  make  engagements,  except  as  the  basis  of  benefit 
to  the  county  it  represents.7  The  power  of  raising  money 
reposed  in  boards  of  supervisors  is  confined  to  raising  it  for  none 
but  necessary  uses,  and  all  loans  negotiated  by  them  must  be  for 
some  of  the  purposes  mentioned  in  the  statute.8  They  cannot 
delegate  to  a  committee  or  third  parties  such  powers  as  the  law 
requires  to  be  submitted  to  their  own  discretion  and  judgment.9 
They  cannot  delegate  to  the  county  treasurer  the  auditing  of 

1  Ibid.  •  Jones  e.  Pendleton  County  Court, 

1  Washington     County     Court     t>.  (Ky.  1892)  19  8.  W.  Rep.  740. 

Thompson,  13  Bush,  341.  '  Stamp  r.  Cass  County,  47  Mich. 

'Orphan   Society   of    Lexington   o.  380;  8.  c..  11  N.  W.  Rep.  183. 

Fayette  County,  6  Bush,  415.  *  Davis  r.   Board  of  Supervisors  of 

*Puscy   P.   Moade  County  Court,  1  Ontonagon  County,  64  Mich.  404;  s. 

Bush,  218.  c.,  81  N.  W.  Rep.  405. 

1  Rod  man     r.     Justices    of    Larue  'Maxwell  r.  Bay  City  Bridge  Co.,  41 

County,  3  Bush,  145.  Mich.  453;  s.  c.,  2  N.  W.  Rep.  689; 


128  POWEK  OF  AGENTS  AND  OFFICEBS.  [§  103 

accounts  against  the  county.1  A  resolution  of  a  board  of  super- 
visors providing  for  the  raising  of  money  to  be  paid  over  to  the 
towns,  without  any  definition  of  purposes,  and  to  be  spent  under 
a  town  officer's  direction,  would  be  invalid,  as  the  board  must 
exercise  its  own  judgment  in  expending  money  for  roads  under 
its  control.2  There  is  a  presumption  that  the  action  of  a  board 
of  supervisors  in  voting  money  for  a  bridge  or  for  county  build- 
ings is  lawful.3  In  allowing  pay  for  services  as  to  which  the  law 
is  silent,  a  board  of  supervisors  Las  considerable  discretion,  which 
it  must  exercise  if  a  proper  case,  in  its  judgment,  arises.4  "Where 
the  determination  of  a  board  of  supervisors  is  conclusive  not  only 
as  to  the  propriety  of  making  an  allowance,  but  as  to  the  amount, 
mandamus  will  not  lie  to  control  their  action.5  Neither  will  man- 
damus lie  to  compel  a  board  of  auditors  to  allow  a  demand 
rejected  by  it  on  the  ground  of  non-performance  of  the  services 
charged  for.6 

§  103.  Power  of  County  Courts  in  Missouri. —  County 
Courts  in  Missouri  are  the  administrative  agents  of  the  counties, 
and  can  only  exercise  the  powers  conferred  on  them  by  statute.7 
Their  acts  within  the  course  prescribed  by  the  statutes  are  bind- 
ing upon  the  county  ;  if  beyond,  they  are  not  binding.8  They 
may  make  verbal  contracts,9  but  cannot  bind  the  counties  to  all 
the  contracts  they  may  choose  to  make.10  If  an  order  of  record 
of  a  County  Court  show  the  subsequent  ratification  and  approval 
of  a  contract  made  by  an  agent,  under  a  mere  verbal  appoint- 
ment, the  contract  will,  notwithstanding  the  irregularity,  be  as 
binding  upon  the  county  as  if  the  appointment  had  been  properly 

People  v.  St.  Clair  County  Officers,  15  6  People    v.    Wayne    Auditors,    10 

Mich  85.  Mich.  307. 

1  Vincent  v.  Meeosta  County  Super-  7  State  v.  Shortridge,  (1874)  56  Mo. 

visors,  52  Mich.  340;  s.  c.,  17  N.  W.  126. 

Rep.  938.  8  Saline  County  v.  Wilson,  (1875)  61 

9  Attorney-General    v.    Bay   Super-  Mo.  237;  Sturgeon  «.  Hampton,  (1885) 

visors,  34  Mich.  46.  88  Mo.  203.     County  Courts  as  agents. 

'Stockle  v.  Silsbee,  41  Mich.  615;  s.  State  ex  rel.  Quincy,  Mo.  &  Pac.  Ry. 

c.,  2  N.  W.  Rep.  900.  Co.  t>.  Harris,  (1888)  96  Mo.  29;  B.  c., 

4  Lee   v.   Board  of    Supervisors  of  8  S.  W.  Rep.  794. 

Ionia  County,  68  Mich.  330;  s.  c.,  36  »Hase  v.   Warren  County,  (1877)  3 

N.  W.  Rep.  83.  Mo.  App.  567. 

*  Mixer  v.  Manistee  County  Super-  I0  Alderson  v.   St.    Charles  County, 

visors,  26  Mich.  422.  (1879)  6  Mo.  App.  420. 


§103] 


PUBLIC  COKPORATION8. 


199 


made  in  the  first  instance.1  Contracts  with  County  Courts  must 
be  proved  by  the  record  alone,  and  cannot  be  varied,  contradicted 
or  destroyed  by  oral  evidence  of  the  intention  of  the  judges.* 
Their  contracts  cannot  bind  parties  with  whom  they  profess  to 
contract  by  simply  reciting  the  alleged  contracts  on  their  records. 
The  assent  of  the  contracting  party  must  appear.8  They  have  no 
implied  power  to  levy  a  tax.  The  power  must  be  clearly  and 
expressly  given  by  statute.  And  if  the  statute  imposes  conditions 
upon  which  it  is  to  be  exercised,  those  conditions  must  be 
observed  before  the  exercise  of  the  power  to  levy  a  tax  would 
be  lawful.4  They  cannot  alter  the  assessment  of  taxes  to  build 
school  houses  on  the  mere  ground  that  a  school  house  was  unneces- 
sary,5 but  may  compromise  disputed  claims  for  taxes.6  They 
may  contract  for  insurance  upon  the  county  buildings  against  lire 
or  lightning.7  They  would  have  no  authority  to  employ  counsel 
at  the  expense  of  the  county  to  litigate  a  question  as  to  whether 
a  scheme  of  separation  had  been  adopted,  the  effect  of  which  was 
to  abolish  the  County  Court,  but  in  which  the  county  asserted  no 
claim  adverse  to  that  of  either  party  ;8  but  may,  by  an  order  of 
record,  employ  attorneys  to  aid  the  prosecuting  attorney  in  any 
civil  business,  upon  such  terms  as  they  may  deem  proper,  if,  in 
the  judgment  of  the  courts,  the  interests  of  the  counties  require 
it.9  They  have  no  power  to  issue  county  certificates  of  indebted- 
ness;10 neither  is  it  in  their  power  to  discount  county  warrants  in 
payment  of  a  county  debt."  They  have  no  authority  to  issue  a 
a  warrant  for  money  expended  by  the  sureties  of  a  defaulting  and 
absconding  county  treasurer  in  bringing  him  back  to  the 
county.12  In  case  a  county  treasurer  pays  a  warrant  when  there 
is  no  money  in  the  fund  on  which  it  is  drawn,  he  cannot  recover 


1  Walker  t>.  Linn  County,  (1880)  72 
Mo.  650. 

•County  of  Johnson  «.  Wood.  (1884) 
84  M.I.  489. 

•Riley  t>.  Pettis  County,  (1888)  96 
Mo.  818;  s.  c.,  9  8.  W.  Rep.  906. 

4  State  ex  rel.  Clinton  County  v. 
Hiinnilnl  &  St.  Joseph  R.  R.  Co.,  (1885) 
87  Mo.  230. 

•  In  re  Petition  of  Powers,  (1873)  53 
Mo.  218. 

•8t.  Louis,  Iron  Mt  &  So.  Ry.  Co. 
«.  Anthony,  (1881)  78  Mo.  481. 

17 


'  Walker  t>.  Linn  County,  (1880)  72 
Mo.  650. 

•Henley  t>.  Clover,  (1878)  6  Mo. 
App.  181. 

•  Thrasher  t.  Greene  County,  (1885) 
87  Mo.  419. 

'"Smallwood  r.  Lafayette  County, 
(1882)  75  Mo.  450. 

11  Bauer  t>.  Franklin  County,  (1878) 
51  Mo.  205. 

"Hooper  «.  Ely,  (1870)  46  Mo. 
505. 


130  POWEB  OF  AGENTS  AND  OFFICERS.  [§  104r 

the  amount  from  the  county  ;  and  it  does  not  matter  that  the 
payment  be  made  at  the  instance  of  the  County  Court,  and  upon 
their  promise  that  the  amount  would  be  made  good,  nor  that  the 
warrant  was  received  from  the  treasurer  and  canceled  by  the 
court.1 

§  104.  Power  of  county  supervisors  in  New  York. —  A 

county  cannot  be  bound  by  any  acts  of  a  board  of  supervisors, 
except  within  the  limits  of  the  express  power  conferred  upon 
them  by  statute.2  A  county  may  be  bound  by  a  majority  of  the 
board  of  supervisors,  lawfully  convened,  unless  it  be  otherwise 
expressly  provided  by  law.3  Such  boards  having  no  inlierent 
power  to  borrow  money  or  to  issue  negotiable  paper,  must  have 
statutory  authority,  express  or  implied,  to  do  so.4  Money  having 
been  properly  raised  for  a  legitimate  object,  a  board  of  super- 
visors of  a  county  may  change  its  appropriation,  and  devote  it  to 
another  object  within  the  scope  of  their  powers.5  Under  a  power 
given  a  board  of  supervisors  to  provide  for  a  perrnament  location 
of  an  armory,  by  erecting  it,  they  may  hire  a  building  for  that 
purpose  for  a  term  of  years.6  The  execution  of  its  mechanical 
and  physical  work  may  be  delegated  by  a  board  of  supervisors 
when  acting  as  a  mere  business  corporation  in  the  same  manner 
as  by  any  other  corporation.7  A  building  committee  authorized 
by  a  resolution  of  a  board  of  supervisors  "  to  advertise  for  sealed 
proposals,"  the  work  "  to  be  let  to  the  lowest  responsible  bidder, 
the  building  committee,  together  with  the  architect,  to  furnish 
the  necessary  plans  and  specifications,"  would  not  be  authorized 
to  enter  into  a  contract,  but  simply  to  take  the  steps  preliminary 
to  the  execution  of  one.8  A  board  of  supervisors  has  no  authority 
to  contract,  in  advance,  for  necessary  printing  for  county  officers, 
but  they  are  bound  to  audit  an  account  for  such  printing.9  And 

1  Cook  D.  Putnam  County,  (1879)  70  7  People    v.    Supervisors    of    Rens- 

Mo.  668.  selaer,  52  Hun,  446;   s.  c.,  5  N.  Y. 

*Cbemung    Canal   Bank  v.   Super-  Supp.  600. 

visors  of  Chemung,  5  Denio,  517.  8Ibid. 

3 People  v.  Brinkerhoff ,  68 N.  Y.  259.  'People  v.  Supervisors  of  Cortland. 

4  Parkers.  Supervisors  of  Saratoga,  58  Barb.  139;  s.  c.,  40  How.  Pr.  53. 

106  N.  Y.  392;   s.  c.,  13  N.  E.  Rep.  As  to  the    principle,   see  People  «. 

308.  Supervisors  of  New  York,  21   How. 

'People  c.  Baker,  29  Barb.  81.  Pr.    288;    People    v.    Supervisors    of 

•  People  ex  rel.  Stockwell  v.  Earle,  New  York,  22  How.  Pr.  71. 
(1874)  47  How.  Pr.  370. 


§104] 


PUBLIC  CORPORATIONS. 


131 


they  cannot  bind  a  county  for  the  payment  of  the  expenses  of  a 
litigation  by  an  individual  to  establish  his  rights  to  an  office.1 
They  have  no  power  to  control  the  disbursements  of  the  poor 
fund  in  the  hands  of  the  county  treasurer.8  The  general  power 
of  supervisors  of  a  county  to  maintain  actions  includes  the  power 
to  compromise  a  doubtful  claim  on  which  an  action  has  been 
brought.8  Under  the  power  conferred  by  statute  upon  the 
supervisors  of  a  county  to  provide  for  the  erection  of  bridges, 
they  may  appoint  commissioners  to  carry  out  the  work.4  A 
board  of  supervisors  may  pass  upon  and  audit  a  claim  for  repairs 
to  a  county  building  in  case  the  facts  proved  raise  an  inference 
that  the  committee  of  the  board  ordering  the  repairs  to  be  made 
were  authorized  to  do  so  by  the  board,  and  gave  directions  for 
the  repairs  by  one  of  its  members.5  A  board  of  supervisors, 
where  no  deh'nite  or  fixed  sum  is  prescribed  as  compensation  for 
services  rendered  for  a  county,  is  vested  with  discretion,  and  may 
allow  such  sum  as  may  seem  just.8  In  the  statutory  power  of  a 
l>oard  of  supervisors  to  examine,  settle  and  allow  all  accounts 
chargeable  against  a  county,  is  implied  the  exercise  of  judgment 
and  discretion,  and  they  have  the  right  and  power  to  reject  a 
claim  for  sufficient  reasons.7  A  board  of  supervisors,  in  case  they 
have  been  induced  by  misconception  of  fact  to  audit  and  allow 
a  claim  against  a  county,  may  reconsider  and  reverse  their  action 
in  the  matter.8  Supervisors  should  ascertain  whether  the  county 
is  liable  for  services  rendered  at  the  request  of  an  overseer  of  the 
poor  who  has  confessed  judgment  for  the  same  before  they  allow 
the  claim  against  the  county.9  They  cannot  allow  a  claim  against 
a  county  on  their  own  notions  as  to  its  being  an  equitable  one.10 


•Supervisors  of  Richmond  County 
«.  Ellis,  (1875)59  N.  Y.  620. 

•People  r.  Demarest,  16  Hun,  123. 

•Supervisors  of  Orleans  County  v. 
Bowen.  4  Lans.  24. 

4  People  r.  Meach,  14  Abb.  Pr.  (N. 
8.)  429. 

•Cogan  r.  Mayor,  etc.,  of  New 
York.  5  Hun,  291. 

•People  ex  rel.  f.  Supervisors  of 
St.  Lawrence  County,  80  How.  Pr. 
178. 

1  People  ».  Supervisors  of  Dutchess 
County,  9  Wend.  608;  People  t>. 


Supervisors  of  Warren  County,  1 
How.  Pr.  116. 

•People  ex  rel.  r.  Supervisors  of 
Broonie  County,  65  N.  Y.  222. 

•  Gere  c.  Supervisors  of  Csyuga 
County,  7  How.  Pr.  255;  People  t>. 
Supervisors  of  Delaware  County,  12 
How.  Pr.  60. 

10Chemung  Canal  Bank  ».  Super- 
visors of  Cbemung  County,  5  Denio, 
617.  As  to  the  duty  of  supervisors  in 
auditing  claims  against  a  county,  see 
People  ex  rel.  «.  Supervisors  of  St. 
Lawrence  County,  80  How.  Pr.  178. 


132  POWER  OF  AGENTS  AND  OFFICERS.  [§§  105-107 

They  have  no  power  to  indemnify  a  justice  of  the  peace  against 
the  expenses  of  his  defense  in  impeachment.1 

§  105.  Power  of  county  commissioners  in  Pennsylvania. 
— A  county  is  not  bound  by  a  contract  made  by  one  county  com- 
missioner.11 But  two  of  the  commissioners  may  bind  the  county 
by  a  contract  made  in  their  official  capacity,  though  not  at  their 
office.8  County  commissioners  in  Pennsylvania  have  power  to 
purchase  everything  necessary  for  the  accommodation  of  persons 
employed  in  conducting  a  general  election.4  But  they  cannot 
bind  a  county  by  a  prior  agreement  to  pay  costs  on  a  nolle 
prosequi  with  leave  of  court.5  To  bind  a  county  by  an  informal 
agreement  made  by  two  of  its  commissioners  within  the  scope  of 
their  powers,  such  agreement  must  be  expressly  or  impliedly 
ratified  and  confirmed  by  its  commissioners  acting  as  a  board.6 
They  may  also  bind  a  county  by  a  contract  for  the  removal  of  an 
insane  prisoner  to  a  hospital  and  his  maintenance  therein.7 
County  commissioners  can  only  contract  with  counsel  to  repre- 
sent the  county  in  litigation  for  a  reasonable  compensation.8 

§  106.  Power  of  county  boards  in  Wisconsin. — A  county 
board  may  bind  the  county  by  contracts  as  to  matters  within 
their  control,  but  not  as  to  matters  intrusted  to  a  particular  officer.* 
A  county  board  may,  by  resolution,  confer  upon  a  committee  of 
its  number  the  power  to  purchase  a  poor  farm.10  And  the  county 
will  be  bound  by  the  action  of  such  committee  in  making  a  pur- 
chase of  a  poor  farm  and  accepting  the  deed  and  liable  for  the 
price  of  the  same  without  any  further  action  of  the  county  board 
ratifying  the  purchase.11 

§  107.  Power  of  township  trustees  in  Indiana. — Township 
trustees  may  levy  a  tax  to  build  school  houses.12  And  a  contract 

1  People  v.  Lawrence,  6  Hill,  244.  1  Allegheny    County     v.     Western 

8  Trdchler  v.  Berks  County,  2  Grant's  Pennsylvania    Hospital,    48    Pa.    St. 

Cas.  (Pa.)  445.  123. 

'Jefferson    County    v.    Slagle,    66  8  County    v.    Barber,    97    Pa.    St. 

Pa.  St.  202.  455. 

4  Commonwealth  v.   Commissioners  *  Beal  ».  St.  Croix  County,  13  Wis. 

of  Philadelphia,  2  Serg.  &  R.  193.  500. 

8  Berks  County  v.  Pile,  18  Pa.  St.  I0  French  v.  Dunn  County,  58  Wis. 

493.  402. 

•Township    v.    County,    2   Wood-  "Ibid, 

ward's  Dec.  (Pa.)  194.  "  Adamson  v.  Auditor,  9  Ind.  175. 


§107] 


PUBLIC  CORPORATIONS. 


133 


of  township  trustees  for  building  such  houses  is  binding  on  the 
township.1  An  order  of  a  board  of  trustees  of  a  township  signed 
by  the  clerk  and  president  of  the  board,  requiring  the  treasurer 
to  pay  a  fixed  sum  for  building  a  school  house,  was  in  this  case 
held  to  be  a  valid  demand  against  the  township.'  A  township 
trustee  has  no  authority  to  borrow  money  or  to  execute  notes  in 
the  name  of  the  school  township.8  The  trustee  of  the  school 
township  in  this  case  borrowed  money  from  a  bank  and  executed 
notes  of  the  corporation  for  the  loan.  He  deposited  the  money 
in  the  bank  in  his  own  name  and  drew  upon  it  as  an  individual. 
Tin-  Supreme  Court  of  Indiana  held  that  this  was  a  transaction 
between  him  and  the  bank,  and  that  the  township  was  not  liable 
upon  the  note.4  On  the  petition  for  a  rehearing  of  this  case  the 
court  adhered  to  the  opinion  that  the  trustee  of  a  school  corpora- 
tion was  a  special  agent  of  very  limited  authority  ;  that  not  only 
was  he  a  special  agent,  but  that  he  was  one  whose  authority  was 
only  such  as  the  public  statute  conferred  upon  him.5 


1  Crist  v.  Brownsville  Township,  10 
Ind.  461. 

•  Heal    v.    Jefferson    Township    of 
Grant  County,  (1860)  15  Ind.  431. 

•  Union  School  Township  v    First 
National    Bank    of     Crawfordsville, 
(1885)  103  Ind.  464;  Bicknell ».  Widner 
School  Township.  73  Ind.  501;  Wallis 
«.  Johnson  School  Township,  75  Ind. 
888;  First    National    Bank    v.   Union 
School   Township,  75  Ind.  361;  Pine 
Civil  Township  v.  Huber  Manufactur- 
ing Co.,  83  Ind.   121;    Reeve  School 
Township  r.  Dodson,  98  Ind.  497. 

4  Union  School  Township  t>.  First 
Nat.  Bank  of  Crawfordsville,  (1885) 
103  Ind.  464.  It  was  said:  "The 
trustee,  in  the  management  of  the 
financial  affairs  of  the  school  township, 
is  a  special  agent  with  limited  statu- 
tory powers.  He  has  no  general  au- 
thority to  bind  the  corporation.  His 
acts  create  a  binding  obligation  against 
the  school  township  only  when  he  does 
the  acts  which  the  law  authorizes,  and 
does  them  in  the  manner  which  it  pro- 
scribes. All  who  deal  with  him  arc 
bound  to  take  notice  of  the  scope  of 


his  authority  *  *  *."  The  court 
said  in  Axt  v.  Jackson  School  Town- 
ship, 90  Ind.  101:  "In  dealing  with 
such  trustee  the  appellant  was  bound 
to  take  notice  of  his  fiduciary  charac- 
ter, and  to  know  that  he  could  only 
bind  his  township  by  his  words  and 
deeds  which  were  authorized  by  law." 
It  was  not  in  [this  trustee's]  power,  by 
checks,  notes  or  other  instruments,  to 
bind  the  school  corporation  unless  the 
claim  for  which  they  were  given  ex- 
isted against  the  township,  and  in  this 
case  no  claim  did  exist.  Even  if  the 
trustee  had  been  guilty  of  fraud  the 
school  corporation  would  not  have 
been  bound.  Lowell  Five  Cents  Sav- 
ings Bank  v.  Inhabitants  of  Winches- 
ter, 8  Allen,  109;  Beuoit  r.  Inhabitants 
of  Conway,  10  Allen,  528;  Dickinson  t. 
Inhabitants  of  Conway,  12  Allen,  487; 
Kelley  t.  Lindsey,  7  Gray,  287;  Rail- 
road Nat.  Bank  r.  City  of  Lowell,  109 
Mass.  214. 

•  Union  School  Township  t>.  First 
National  Bank  of  Crawfordsville, 
(1885)  102  Ind.  464,  478.  ELLIOTT.  J., 
speaking  for  the  court,  said:  "That 


134  POWER  OF  AGENTS  AND  OFFICERS.  [§  108,  109 

§  108.  Power  of  selectmen  of  towns  in  Massachusetts.— 
A  town  cannot  be  bound  by  an  unauthorized  oral  promise  of  its 
selectmen  to  pay  bounty  to  a  soldier.1  Where  the  inhabitants  of 
a  town  have  by  vote  authorized  their  treasurer  to  borrow  money 
for  the  adjustment  of  a  state  tax  for  the  reimbursement  of  boun- 
ties to  volunteers,  and  the  tax  had  been  adjusted  without  the 
necessity  of  borrowing  money,  it  was  held  that  the  treasurer's 
authority  to  borrow  money  under  that  vote  of  the  inhabitants  ceased 
upon  the  adjustment  of  the  tax.2  Selectmen  have  no  authority, 
merely  virtute  officii,  to  make  a  contract  on  behalf  of  a  town  for 
the  hiring  of  a  building  in  which  town  meetings  may  be  held.3 
Selectmen  of  a  town  have  no  authority  to  bind  the  town  by  an 
offer  of  a  reward  for  the  apprehension  and  conviction  of  a  person 
who  has  not  been  charged  with  a  crime  by  complaint  or 
indictment.4 

§  109.  Power  of  selectmen  of  towns  in  New  Hampshire.— 

Selectmen  of  towns  have  no  general  authority  to  bind  the  town 
by  contract.5  They  cannot  borrow  money  upon  the  credit  of  the 
town.6  Being  general  agents  for  towns  in  respect  to  pecuniary 
matters,  unless  restrained  by  specific  instructions,  they  are  war- 
ranted in  paying  any  existing  debts  of  towns  which,  in  the  exer- 
cise of  a  sound  discretion  on  their  part,  should  be  paid.7  They 

this  conclusion  is  a  just  one  cannot  be  authority  that  is  not  possessed  by  his 

doubted  by  one  who  considers  the  na-  principal.     It    is    perfectly    obvious, 

ture  of  a  school  corporation  and  the  therefore,  that  one  who  deals  with  a 

character  of  the  authority  of  its  agent,  school  trustee  must,  at  his  peril,  ascer- 

the  trustee.     The  corporation  is  itself  tain  that  the  trustee  is  acting  within 

organized  for  a  limited  and  local  pur-  his  authority.     It  is  incumbent  upon 

pose.     It  is  not  a  corporation  with  gen-  a  person  seeking  to  hold  the  corpora- 

eral  powers;  it  has  neither  the  general  tiou  liable  for  a  debt  created  by  the 

power  to  contract  debts  nor  to  buy  trustee  in  the  name  of  the  corporation, 

property.     Its  power  is  to  conduct  the  to  affirmatively  show  that  it  was  one 

local  school  affairs,  and  to  do  this  with  he  had  authority  to  confer." 

the  money  derived  from  the  revenues  '  Barker  v.   Chesterfield,   (1869)  102 

set  apart  for  school  purposes.     There  Mass.  127. 

is,  in  strictness,  no  power  in  the  cor-  *  Benoit  v.  Inhabitants  of  Conway, 

poration  to  obtain  or  to  expend  money  (1865),  10  Allen,  528. 

derived  from  any  other  source  than  3  Goff  v.  Rehoboth,  (1846)  12  Met.  26. 

the  school  revenues.     Wallis  v.  John-  4  Day  v.  Otis,  8  Allen,  477. 

son   School   Township,    75  Ind.   368.  » Andover  v.  Graf  ton,  7  N.  H.  298. 

Thus  is  the  power  of  the  corporation  « Rich  v.  Errol,  51  N.  H.  350. 

itself  circumscribed,  and  its  agent,  the  '  Sanborn  v.  Deerfleld,  2  N.  H.  251 

trustee,  can  by  no  possibility  possess 


§110]  ITULIC  CORPOKA i ;  I;;.'- 

may,  in  some  cases,  bind  the  town  by  a  promissory  note,  but  the 
holder  must  show  that  in  giving  the  note  the  selectmen  acted 
within  the  scope  of  their  authority.1  They  may  institute  a  suit 
in  the  name  of  a  town  to  recover  back  usurious  interest.8  Nego- 
tiable notes,  the  property  of  a  town,  may  be  sold  and  transferred 
by  selectmen.8  Adjustment  of  suits  or  controversies  of  a  town, 
not  being  in  their  power,  as  selectmen,  they  cannot  bind  the  town 
to  the  payment  of  money  for  such  an  adjustment  by  a  written 
contract.4  A  town  may  be  bound  by  its  selectmen  for  medical 
services  in  vaccinating,  but  not  for  medical  services  rendered  per- 
sons sick  with  smallpox,  who  are  not  paupers.  The  health  officers 
of  a  town  have  no  authority  to  bind  the  town  for  medicines  and 
medical  services  furnished  to  inhabitants  who  are  not  paupers.5 

§  1 10.  Power  of  supervisors  of  townships  in  Pennsyl- 
vania.—  A  township  cannot  be  bound  by  one  of  its  supervisors 
in  a  matter  requiring  deliberation,  consultation  and  judgment. 
Such  a  matter  must  be  determined  by  a  majority  of  the  board  at 
a  regular  meeting.6  Nor  can  it  be  bound  by  a  contract  made  by 
one  supervisor,  without  the  assent  of  his  colleague,  with  an  attorney 
for  a  year  at  a  fixed  sum.7  A  township  may  be  bound  by  a  mere 
ministerial  act  of  a  single  supervisor,  such  as  the  employment  of 
hands  and  giving  due  bills  for  the  amount  of  work  done  on  its 
roads.8  In  a  matter  where  the  township  is  bound  by  law  to  per- 
form the  contract  made  by  a  single  supervisor,  it  is  in  the  power 
of  this  single  supervisor  to  contract  if  the  other  refuse  his  assent.* 
A  supervisor  has  no  authority  to  bind  a  township  by  his  agree- 
ment to  pay  a  bounty  for  enlistment  in  United  States  service.10 

1  Andover  P.  Grafton,  7  N.  H.  298.  •  Dull  v.  Ridgway,  9  Pa.  St.   272; 

1  Albany  r>.  Abbott,  61  N.  H.  157.  McNeal   t>.    Allegheny    Township,   1 

«  West  r.  Errol,  58  N.  H.  233.  Am.  Law  Reg.  124. 

4  Underhill  v.  Gibson,  2  N.  H.  352.  4Pottsville  v.  Norwegian  Township, 

*  Wilkinson  «.  Albany,  28  N.  H.  9;  14  Pa.  St.  543.     As  to  contracts  that 

Farmington  t>.  Jones,  30  X.  II.  271;  Me-  cannot  be  made  by  a  single  supervisor 

Intire  t>.  Pembroke,  53  N.  II.  462.  which  will    bind    the   township,   see 

•Township  v.  fcibboncy,  94  Pa.  St.  Cooper  r.  Latnpetur  Township,  8 
534.  As  to  liability  of  a  township  for  Watts,  125:  McNeal  v.  Allegheny 
a  contract  made  by  its  supervisors  Township,  1  Am.  Law  Reg.  124;  Bat- 
within  the  apparent  scope  of  their  au-  ten  ».  Brandy  wine,  8  Clark,  (Pa.) 
thority,  sec  Cook  c.  Deerflcld,  64  Pa.  462. 
St.  445.  I0  Scarce  o.  Township,  27  W.  N.  C. 

f  Boban  v.  Township,  4  Kulp.  (Pa  )  (Pa.)  213. 
234 


136  POWEB  OF  AGENTS  AND  OFFICERS.  [§  111 

Supervisors  of  a  township  may  borrow  money  for  the  purpose  of 
repairing  roads  and  building  bridges,  and  confess  judgment 
against  the  township  for  the  amount  borrowed.1  Supervisors  of 
townships  have  p}wer  to  contract  for  making  new  roads  ordered 
to  be  opened  and  building  the  necessary  bridges.2  It  is  within 
the  general  powers  of  the  supervisors  of  a  township  to  contract 
for  the  erection  of  a  township  bridge  in  place  of  one  destroyed 
by  a  freshet.3  They  may  bind  the  township  by  a  promise  to 
repay  voluntary  subscriptions  to  a  bounty  fund.4  And  in  case 
supervisors  agree  to  a  division  of  the  charge  of  the  affairs  of  the 
township,  by  apportioning  to  each  a  certain  part  of  the  district, 
the  acts  of  each,  within  the  limits  assigned  to  him,  will  be  bind- 
ing on  the  township.5  Supervisors  have  no  right  to  take  up  an 
old  certificate  of  indebtedness  issued  by  the  township  and  issue  a 
new  one  to  the  assignee  of  the  original  payee.6 

§  in.  Power  of  selectmen  and  agents  of  towns  in  Ver- 
mont.—  A  town  cannot  be  bound  by  a  contract  made  by  one 
selectman,  without  the  knowledge  or  consent  of  the  others.7  In 
case  it  be  shown  that  the  three  selectmen  of  a  town  agreed 
together  as  to  the  mode  in  which  the  business  of  the  town  should 
be  transacted  and  the  business  was  intrusted  by  two  of  them  to 
the  third  one,  and  he  made  the  contracts  with  reference  to  the 
business  of  the  town,  a  jury  would  be  justified  in  finding  such 
assent  on  the  part  of  the  others,  or  any  of  them,  as  to  make  the 
act  of  the  one  contracting  the  act  of  the  majority  and  binding 
upon  the  town.8  Selectmen  of  a  town  have  no  right  to  receive 
money  collected  by  a  sheriff  on  an  execution  in  favor  of  a  town 
and  discharge  him,  it  being  the  duty  of  the  sheriff  to  pay  it  to 
the  town  treasurer.9  Selectmen  have  no  authority  to  draw  town 

1  Maneval  p.  Township,  9  Pa.  Co.  Ct.  (Pa.)  385,  where  the  supervisors  had 

Rep.  28.  divided  their  district,    the    township 

*  Childs  v.  Brown  Township,  40  Pa.  was  held  liable  for  stone  purchased  by 
St.  332.  one  of  the  supervisors  for  the  use  of 

*  Oakland  Township  r.  Martin,  104  the  township,   and  the  other  super- 
Pa.  St.  303.  visors    had    not    dissented    from  the 

4  Juniata  Township  r.  Reamer,  2  W  purchase. 
N.  C.  (Pa.)  91.  «Snyder  Township  t>.  Bovaird,  122 

*  Commonwealth  t.    Supervisors  of  Pa.  St.  442;  a  c.,  15  Atl.  Rep.  910. 
Colley,   29  Pa.  St.  121;  Hope  well  t>.       '  Hunkins  v.  Johnson,  45  Vt.  131. 
Putt,  2  W.  N.  C.  (Pa.)  46.     In  Shep-       8  Curette  v.  Bolton,  46  Vt.  228. 
pard  t    Township,   4  Del.  Co.  Rep.       »Middlebury  r.  Rood,  7  Vt.  125. 


PUBLIC  CORPORATIONS. 


137 


orders  in  their  own  behalf  in  settlement  of  their  own  private 
claims  against  the  town ;  nor  are  such  orders  made  effectual  by 
the  allowance  of  the  town  auditors.1  Selectmen  of  a  town  may 
submit  to  arbitration  a  claim  against  the  town,  for  instance,  for 
building  a  bridge,  under  the  statutory  powers  given  them  "  to 
audit,  and  in  their  discretion  to  allow,  the  claim  of  any  person 
against  the  town  for  money  paid  or  services  performed  for  the 
town."3  So  they  may  submit  to  arbitration  claims  against  their 
towns  for  damages  sustained  upon  the  highways  of  the  towns.8 
The  selectmen  of  a  town  have  the  power  to  settle  and  stop  a  suit 
against  a  party  brought  to  recover  a  penalty  for  not  removing  an 
obstruction  out  of  the  highway  under  an  order  of  the  selectmen.4 
And  the  general  authority  of  the  selectmen  over  the  subject 
would  not  be  limited  by  a  vote  of  the  town  "  to  direct  the  town 
agent  to  manage  the  law  suits  as  he  thinks  best.*'8  A  town 
having  appointed  an  agent  for  the  purpose  of  "  compromising  "  a 
claim  for  damages  in  the  laying  of  a  highway,  the  agent  may 
refer  the  claim  to  arbitration.8  A  town  agent,  appointed  to 
defend  and  prosecute  suits,  has  no  authority  as  such  to  bind  the 
town  by  a  promise  to  pay  a  certain  sum  on  settlement  of  a  suit 
against  the  town  to  recover  for  an  injury  occasioned  by  insuffi- 
ciency of  a  highway.7  A  town  would  be  bound  for  professional 
services  of  the  town  agent,  who  is  an  attorney,  where  he  is  author- 
ized as  town  agent  to  employ  an  attorney  to  prosecute  and  defend 


1  Davenport  P.  Johnson,  49  Vt.  403. 
In  Burnham  v.  Strafford,  53  Vt.  610, 
an  action  of  assumpsit  brought  by  a 
selectman  against  the  town,  the  evi- 
dence tended  to  prove  that  he  borrowed 
for  the  town  a  sum  of  money  and  gave 
a  town  order  for  the  same,  to  which 
he  attached  his  own  name  and  the 
names  of  the  other  two  selectmen,  and 
paid  the  money  into  the  town  treasury; 
that  the  town  denied  his  authority  to 
give  the  order  and  refused  to  pay  it, 
and  denied  that  he  hud  paid  the  money 
into  the  treasury,  or  that  the  town  ever 
received  any  part  of  it;  and  upon  this 
refusal  and  denial  on  the  part  of  the 
town,  the  selectmen  took  up  the  order 
by  paying  the  holder  the  amount  for 
18 


which  it  called.  The  Supreme  Court 
held  that,  although  he  could  not  re- 
cover for  the  amount  paid  to  take  up 
the  order  as  for  money  paid  at  the 
town's  request,  the  town  having  re- 
pudiated the  order,  nor  upon  the  order 
itself,  it  not  being  negotiable,  yet,  if  in 
fact  he  paid  into  the  treasury  the  sum 
originally  borrowed  and  he  had  him- 
self repaid  the  loan,  he  could  recover 
in  this  action. 

1  Dix  r.  Dummerston,  19  Vt.  262. 

*  Hollister  t>.  Pawlet,  43  Vt.  425. 

4  Town  of  Cabot  t>.  Britt,  (1863)  86 
Vt.  849. 

•Ibi.l. 

•Schoff  r.  Bloomfleld.  8  Vt  472. 

1  Clay  r.  Wright,  44  Vt.  .588. 


138  POWER  OF  AGENTS  AND  OFFICERS.  [§§  112,  113 

suits  on  behalf  of  the  town.1  In  road  cases,  where  the  town 
ugent  provides  no  counsel  and  makes  no  objection  to  the  employ- 
ment of  counsel  by  the  selectmen  of  a  town,  it  is  within  the 
scope  of  the  implied  powers  of  the  selectmen  to  protect  the  inter- 
ests of  their  town  by  the  employment  of  counsel  at  the  charge  of 
the  town  in  such  cases.2  And  the  assent  of  the  town  agent  to 
such  employment  of  counsel  by  the  selectmen  may  be  presumed 
where  he  neglects  to  employ  counsel  and  no  dissent  on  his  part  is 
shown.8 

§  112.  Power  of  town  officers  in  Wisconsin. —  The  officers 
of  a  town  when  transcending  their  lawful  authority  cannot  bind 
the  town.4  A  town  may  be  bound  by  a  contract  which  it  is 
authorized  to  make  by  the  joint  act  of  two  supervisors.9  A  town 
board  of  supervisors  is  not  authorized  to  compromise  and  dis- 
charge an  existing  valid  judgment  in  favor  of  the  town,  without 
full  payment  in  money  or  its  equivalent.6  A  town  board  may, 
without  special  authority  from  the  electors,  defend  a  suit  against 
the  town,  or  take  an  appeal  therein.7  The  chairman  of  a  town 
board  may  be  directed  by  such  board  to  execute  a  subscription  or 
bond  authorized  to  be  issued  by  the  town,  and  the  act  of  the 
chairman  will  be  essentially  the  act  of  the  board.8 

§  113.  Power  of  officers  of  school  districts. — School  dis- 
tricts can  be  bound  by  their  directors  by  their  official  acts,  and  of 
these  acts  the  minutes  of  the  board  are  the  best  evidence.9  They 
cannot,  by  contract,  divest  themselves  of  powers  conferred  for  a 
public  purpose.10  School  directors  have  an  absolute  discretion  as 
to  the  necessity  of  erecting  new  school  houses  and  of  borrowing 
money  to  pay  for  them.11  Where  a  committee  has  been  appointed 
by  a  school  board  to  get  up  plans  for  a  new  school  building  and 
submit  them  to  the  board  for  approval,  the  committee  would  be 
authorized  to  contract  with  an  architect  for  plans  and  specifica- 

1  Langdon  r.  Castleton,  30  Vt.  285.  8  Hewitt  v.  Town  of  Grand  Chute,  7 

8  Burton  v.  Norwich,  34  Vt.  345.  Wis.  282. 

3  Ibid.  "Wachob  v.  Bingham   School   Dis- 

4  Hubbard  v.  Lyndon,  28  Wis.  674.  trict,  8  Phil.  568. 

*  Beaver  Dam   v.  Frings.   17    Wis.  10Conley  v.  Directors  of  West  Deer, 

398.  32  Pa.  St.  194. 

'Butternut  v.  O'Malley,  50 Wis.  329.  "In    re    School  Directors,  3  Kulp, 

7  Haner  v.  Town  of  Polk,  6  Wis.  (Pa.),  104;  In  re  School  Directors,   2 

350.  Pa.  Co.  Ct.  Rep.  497. 


$   1 13]  PUBLIC  CORPORATIONS.  139 

tions.1  Contracts  with  a  school  teacher  cannot  be  made  except 
by  a  vote  of  the  school  board  ;  one  made  by  the  president  and 
secretary  of  the  board  cannot  be  enforced.*  AB  incidents  to 
their  power  to  sell,  directors  of  school  districts  have  power  to 
mortgage  the  real  estate  held  by  them.8  Where  school  officers 
are  authorized  to  make  contracts  only  with  the  assent  of  a 
majority  of  the  electors,  a  contract  made  by  them  without  such 
assent  would  be  void.4  The  officers  of  a  school  district  may 
make  a  valid  contract  with  a  qualified  teacher  extending  beyond 
their  own  term.5  A  valid  contract  with  one  of  their  number  for 
the  purchase  of  a  site  for  a  school  house  in  exchange  for  bonds 
may  be  made  by  commissioners  to  receive  and  negotiate  bonds 
and  purchase  school  sites,  the  vendor  not  acting  in  the  transac- 
tion as  a  commissioner.6  A  school  district  may  avoid  a  contract 
between  a  school  board  and  one  of  the  members  of  the  board  for 
the  erection  of  a  school  house  by  the  latter.7  Directors  of  a 
school  district  voting  for  a  misapplication  of  the  public  funds  are 
personally  liable  therefor  to  the  township.8  Where  it  was  found 
that  a  school  board  had  conspired  with  a  contractor  to  defraud  the 
district  in  the  erection  of  a  school  building,  it  has  been  held  in 
Iowa  that  under  the  statute  authorizing  such  boards  to  employ 
counsel  in  suits  brought  against  any  of  the  school  officers  to 
enforce  the  provisions  of  the  school  law,  they  had  no  power  to 
employ  counsel  in  a  suit  to  enjoin  them  from  accepting  and  pay- 
ing for  the  scnool  building.9  A  de  facto  trustee  of  a  school  dis- 
trict may  bind  the  district  by  his  contract  with  a  teacher  for  the 
schools.10  The  officers  of  school  districts  are  limited  to  the  pur- 
poses named  in  the  statute  prescribing  their  powers  in  the  matter 
of  raising  or  expending  funds  of  the  school  district.  In  an 
action  against  members  of  a  school  board  of  education,  for 
instance,  for  damages  to  the  business  reputation  of  parties  by 

1  McKeesport  District  t>.   Miller,   1  •  » Pickett  t.  School  District,  25  Wis. 

Pennypacker  (Pa.),  510.  651. 

«  School  District  r.  Padden,  89  Pa.  •  Dickinson  Township    t>.   Linn,  86 

St.  895.  Pa.  St.  481. 

» Morrisville  School  District,  8  Phil.  •  Scott  «.  Independent    District   of 

181.  Hardin  County,  (Iowa,  1894)  59  N.  W. 

4  Peck  *.  School  District,  21  Wis.  Rep.  15. 

516.  "O'Neil  r.  Battie,  (1892)  62  HUH, 

•Webster  t>.  School  District,  16  Wis.  618;  a  c.,  18  N.  Y.  Supp.  255.    See, 

316.  also,  O'Neil  P.  Battie,  61  Hun,  622; 

•Cady  r.  Watertown,  18  Wis.  822.  &  c.,  15  N.  Y.  Supp.  818. 


140  POWER  OF  AGENTS  AND  OFFICERS.  [§  113 

reason  of  a  refusal  on  their  part  to  entertain  a  bid  of  such  par- 
ties for  furnishing  supplies  for  the  schools  on  the  ground  that 
such  parties  had  before  dealt  dishonestly  with  the  district,  the 
school  board  would  not  be  authorized  to  expend  the  moneys  of 
the  district  in  defending  the  suit,  it  being  such  a  matter  as  the 
district  itself  has  no  interest  in.1  A  member  of  a  district  school 
board  having  no  school  funds  in  his  hands,  not  being  its  treasurer, 
it  has  been  held  in  New  Hampshire  could  not  recover  of  the  dis- 
trict the  money  he  had  paid  to  a  teacher  hired  by  himself  to 
teach  one  of  the  schools  and  for  board  he  had  furnished  the 
teacher  on  the  ground  that  he  could  contract  only  on  the  credit 
of  the  school  money  of  the  district  and  not  on  the  credit  of  the 
district  itself.2  Directors  of  a  school  district  in  Iowa  have  power 
to  borrow  money  to  discharge  a  debt  which  has  been  legitimately 
created,  and  may  pledge  the  credit  of  the  district  for  that  pur- 
pose. But  the  obligation  evidencing  the  debt  can  only  bear  six 
per  cent  interest.3  The  district  board  of  primary  school  districts 
in  Michigan  may  contract  with  qualified  teachers  for  such  term 
as  shall  be  determined  by  the  qualified  voters  of  the  district  at 
the  annual  school  meeting  thereafter  to  be  held.4  The  presump- 
tion that  a  contract  with  a  teacher  was  authorized  by  a  vote  of 
the  school  board  pursuant  to  the  statute  of  Wisconsin  upon  the 
subject  will  be  raised  by  the  fact  that  the  officers  constituting  the 
board  signed  it.  And  the  mere  fact  that  the  officers  were  not 
together  when  they  signed  it  would  not  tend  to  disprove  that  it 
was  so  authorized.5 

1  Hotchkiss   v.    PJunkett .  (1891)  60       *  Cleveland  v.  Amy,  (1891)  88  Mich. 
Conn.  230;  s.  c.,  22  All.  Kep.  535.          374;  8.  c.,  50  N.  W.  Rep.  293. 

8  Wheeler  v.  Alton,  (£L  H.  1892)  23       5  Dolan  v.  Joint  School  District  No. 
Atl.  Rep.  89.  13,    Towns    of   Utica    &    Freeman, 

'Austin    V    District    Township  of   (1891)  80  Wis.  155;   s.  c.,  49  N.  W. 
Colony,  (1879)  51  Iowa,  102;  s.  c.,  49   Rep.  960. 
N.  W.  Rep.  1051. 


CHAPTER  IV. 


POWER  OF  AGENTS  AND  OFFICERS  —  PRIVATE  CORPORATIONS. 


114.  Agency  in  general. 

115.  Rules  as  to  an  agent's  acts. 

116.  To  what  the  powers  conferred 

on  an  agent  may  be  extended. 

117.  Illustrations    of    the    binding 

force  of  an  agent's  act. 

118.  Power  of  general  agents. 

119.  When  the  authority  of  a  general 

agent  will  not  bo  implied. 

120.  Power  of  officers  generally. 

121.  The  same  subject  continued. 

122.  Power   of   directors  —  general 

rules. 

123.  Directors  for  the  first  year. 

124.  Directors  do  facto. 

125.  Illustrations  of  the  power  of 

directors. 

126.  More  illustrations  on  this  sub- 

ject. 

127.  Illustrations  of  a  lack  of  power 

in  directors. 

128.  When  notes  will  be  held  to  have 

been  authorized  by  a  board  of 
directors. 

129.  Waiver  by  directors  of   their 

power  to  repudiate  a  con- 
tract. 

180.  Power  of  trustees  of  a  corpora- 
tion. 

131.  Power  of  officers  of  a  corpora- 
tion to  employ  attorneys. 

182.  When  officers  may  use  bonds 
as  collateral. 

138.  When  the  execution  of  a  note 
is  not  authorized. 

184.  Execution  of  promissory  notes 

and  transfer  of  choses  in 
action. 

185.  Notes  signed  by  officers  of  cor- 

poration. 

186.  Power  of  bank  officers. 


187.  Power  of  a  bank  cashier. 

188.  When    the    authority    of    ita 

cashier  cannot  be  questioned 
by  a  bank. 

139.  Indorsement    of    a    draft   by 

cashier  and  president   of   a 
bank. 

140.  Power  of  a  treasurer  of  a  sav- 

ings bank. 

141.  Power    of   officers  of   mining 

corporations. 

142.  General  rules  as  to  the  power 

of  a  president. 

143.  Rule   as  to  evidence  in  such 

cases. 

144.  Power  of  president  as  to  trans- 

fer of  assets. 

145.  When  a  president's  act  is  bind- 

ing. 

146.  Illustrations  of  the  power  of  a 

president. 

147.  Illustrations  of  a  lack  of  power. 

148.  What  would  show  the  author- 

ity of  a  president. 

149.  Question  of  authority  for  the 

jury. 

150.  Power  of  a  president  as  to  exe- 

cution of  notes. 

151.  In  what  cases  the  authority  of 

a  president  may  not  be  ques- 
tioned. 

152.  Giving  a  judgment  note — New 

Jersey. 
158.  The  same  subject  —  Illinois. 

154.  Where  contract  of  purchase  in- 

cludes  giving    a    judgment 
note. 

155.  What  raises  a  presumption  of 

authority. 

156.  Power  of  officers  acting  con- 

jointiy. 


142 


POWER  OF  AGENTS  AND  OFFICERS. 


157.  An  illustration  on  this  subject. 

158.  One  holding  several  offices. 

159.  Note  executed  by  a  secretary. 

160.  Power  of  superintendents,  etc. 

161.  A  manager's  power. 

162.  Manager  of  a  foreign  corpora- 

tion. 

163.  Authority  of  a  manager. 

164.  What  is  not  within  the  duties 

of  a  cashier  of  a  corporation. 

165.  Auditing  board  of  a  corporation. 

166.  Power  of  a  treasurer  generally. 

167.  Power  of  a  treasurer  as  to  trans- 

fer of  a  note. 

168.  Power  of  a  treasurer  as  to  exe- 

cution of  a  note. 

169.  Authority  of  a  treasurer  to  bor- 

row money  by  means  of  ster- 
ling contracts. 

170.  Power  of  a  treasurer  to  indorse 

in  name  of  corporation  a  note 
for  accommodation. 


171.  Power  of  a  treasurer  to  indorse 

a  note  of  another  corporation. 

172.  When    a    corporation  will   be 

bound  by  a  note  executed  by 
its  treasurer. 

173.  When  a  corporation  is  bound 

by  acts  of  its  treasurer. 

174.  When  a  corporation  will  not  be 

bound  by  the  act  of  its  treas- 
urer. 

175.  Another  illustration  of  such  a 

case. 

176.  When  contracts  of  a  chief  en- 

gineer will  bind  a  railroad 
corporation. 

177.  Ratification  by  corporation  of 

agent's  acts  —  general  rules. 

178.  Modes  of  ratification. 

179.  Illustration  of   ratification   of 

conduct  of  agent. 

180.  What  does  not  amount   to   a 

ratification. 


§  114.  Agency  in  general. — A  corporation  can  only  act 
through  a  duly  authorized  agent  or  committee.1  Authority  may 
be  conferred  by  a  single  resolution  of  the  directors  for  action  in  a 
class  of  cases  as  well  as  by  a  separate  resolution  in  each  case.* 
Though  a  corporation  must,  in  general,  act  through  its  common 
seal,  yet  it  may  appoint  an  agent  whose  acts,  within  the  sphere  of 
his  powers,  do  not  require  any  such  appendage  to  impart  to  his 
acts  validity.8  The  powers  of  an  agent  of  a  corporation  are  such 
as  he  is  allowed  by  the  directors  or  managers  of  the  corporation 
to  exercise  within  the  limits  of  the  charter.  The  silent  acqui- 
escence of  the  directors  or  managers  may  be  as  effectual  to  clothe 
the  agent  with  power  as  an  express  letter  of  attorney.4  A  cor- 
poration will  be  bound  by  a  promissory  note  executed  by  its 
agent  should  he  act  within  the  sphere  of  his  power  or  his  act  be 
subsequently  ratified.5  An  agent  of  a  corporation  acting  within 
the  scope  of  his  authority  may  bind  his  principal  in  the  same  way 

1  Merchants'  Union  Barb  Wire  Co.  v. 
Rice,  (1886)  70  Iowa,  14;  s.  c.,  28  N. 
W.  Rep.  494. 

*  Elwell  v.  Dodge,  33  Barb.  336. 

'Everett  v.  United  States,  (1837)  6 
Port.  (Ala.)  166;  citing  Bank  of  Colum- 
bia «.  Patterson,  7  Cranch,  299;  Me- 


chanics' Bank  of  Alexandria  v.  Bank 
of  Columbia,  5  Wheat.  326;  Fleckner 
v.  United  States  Bank,  8  Wheat.  339, 
358. 

«Olcott  e.  Tioga  R  R.  Co.,  27  N. 
Y.  546. 

6  Butts  v.  Cuthbertson,  6  Ga,  166, 


§  114]  PRIVATE  CORPORATIONS.  143 

X 

as  if  he  were  the  agent  of  a  natural  person  unless  the  charter 
expressly  provides  otherwise.1  Should  an  agent  of  a  corporation 
having  authority  to  execute  a  mortgage  and  affixes  to  one  he 
executes  anything  which  the  law  recognizes  as  a  seal  when 
affixed  by  a  natural  person,  it  will  be  presumptively  a  good 
execution  by  the  corporation.2  A  contract  in  writing  may  be 
binding  on  a  corporation  though  a  private  seal  of  one  its  officers 
be  used  instead  of  the  corporate  seal,  and  though  no  record  may 
be  found  authorizing  the  officer  to  make  the  contract  if  proven 
by  other  evidence  that  he  had  such  authority  or  that  the  corpora- 
tion ratified  his  act  afterwards.8  The  authority  of  an  agent  to 
bind  a  corporation  by  a  contract  for  borrowing  money  may  be 
inferred  from  proof  of  the  character  of  the  agency,  the  acts  of 
the  agent  and  the  knowledge  of  the  officers  and  directors  of  his 
iiabit  to  make  similar  contracts  and  their  acquiescence  in  the 
same  and  the  fact  of  the  money  being  applied  to  the  use  of  the 
corporation.4  Whatever  the  purpose  of  the  agency,  an  agent  of 
a  corporation  may  be  appointed  without  the  use  of  a  seal.5  The 
appointment  of  an  agent  by  a  corporation  may  be  inferred  from 
the  permission,  or  acceptance,  of  his  services.6  If  one  has  long 
acted  in  the  capacity  of  managing  director  of  a  corporation  with- 
out objection,  and  his  services  as  such  have  been  invariably 
accepted,  it  matters  not,  as  against  strangers,  whether  or  not  he 
has  received  a  specific  appointment  to  such  position  from  the 
directors.7  It  is  not  necessary  that  the  authority  be  given  by  a 
formal  vote  in  matters  where  the  acts  of  the  agent  of  a  corpora- 
tion in  the  transfer  of  personal  property  require  no  formal 
instrument  under  seal,  as  in  the  sale  or  mortgage  of  personal 

1  City  of  Covington  r.  Coviugton  &  vote  entered  upon  their  record  book. 

Cincinnati  Bridge  Co.,  (1873)  10  Bush  they  appointed  an  agent  to  execute  a 

(Ky.),  09.  mortgage  deed  of  real  estate  to  secure 

•Johnston  c.  Crawley,  25  Ga.  310.  a  creditor.     The  appointment  of  the 

1  Eureka  Company  «.  Bailey  Com-  agent,  though  not  otherwise  evidenced 

pany,  (1870)  11  Wall.  488.  or  authenticated  by  the  corporate  seal, 

4  Allen  t>.  Citizens'  Steam  Naviga-  was  held  valid   for  the  purpose  in- 

lion    Co  ,    22  Cal.    28.     In    Savings  tended.     See,  also,  Beck  with  r.  Wind 

Bank    of    New    Haven    r.    Davis,   8  sor  Manufacturing  Co.,  14  Conn.  603. 

Conn.     201,    it     appeared     that    the  *  Fitch  r.  Lewistou  Steam  Mill  Co., 

directors   of    a    corporation,   by   the  80  Me.  84;  s.  c.,  12  Ail.  Hep.  782. 

charter,  had  the  power  of  disposing  of  •  Burgess  r.  Pue,  2  Gill  (Md.),  254. 

ita  property  and  of  appointing  such  '  Walker  r.  Detroit  Transit  R.  Co., 

agents  as  should  be  requisite  for  per-  47  Mich.  888;  8.  c.,   UN.  W.   Rep. 

forming  ita  business,  and  that,  by  a  187. 


POWER  OF  AGENTS  AND  OFFICEES.  [§  114 

property.1  The  authority  of  an  agent  of  a  private  corporation 
to  bind  it  by  a  contract  for  borrowing  money  may  be  shown 
without  proof  of  a  resolution  of  the  managing  board  directly  con- 
ferring the  authority  or  of  any  formal  ratification  of  the  contract 
by  such  board.  His  authority  may  be  inferred  from  proof  of 
the  character  of  the  agency,  of  the  acts  of  the  agent  or  other 
knowledge  of  the  officers  and  directors  of  such  habit  to  make 
such  contracts  and  their  acquiescence  in  the  same  and  the  fact  of 
the  money  being  applied  to  the  use  of  the  corporation.2  The 
authority  to  an  agent  of  a  corporation  to  contract  in  its  behalf, 
either  under  seal  or  otherwise,  need  not  be  conferred  at  a  meet- 
ing of  the  directors  unless  that  is  the  usual  mode  of  their  doing 
such  an  act.  Should  the  board  adopt  the  practice  of  giving 
assent  to  the  execution  of  contracts  by  their  agents,  assent  so 
given  is  of  the  same  force  as  if  done  at  a  regular  meeting  of  the 
board.3  Where  an  act  of  incorporation  does  not  require  that  the 
appointment  of  an  agent  of  the  corporation  shall  be  by  written 
instrument,  and  it  does  not  appear  to  have  been  so  made,  the 
appointment  may  be  proved  by  parol.4  It  is  not  necessary  to 
enter  on  the  minutes  of  a  corporation  a  vote  or  resolution  of  the 
directors  appointing  an  agent.  His  appointment  may  be  infer- 
red from  the  permission  or  acceptance  of  his  services  by  the  cor- 
poration.5 The  appointment  as  well  as  the  authority  of  an  agent 
of  a  corporation  may  be  implied  from  the  adoption  or  recognition 

'Fitch  v.  Lewiston  Steam  Mill  Co.,  mouth  n.  Koehler,  35  Mich.  22.  As 
80  Me.  34;  s.  c.,  12  Atl.  Rep.  732.  to  proving  by  parol  evidence  their 
As  to  formally  authorizing  the  acts  official  capacity,  see  Cahill  v.  Kal. 
of  officers  being  or  not  being  neces-  Mut.  Ins.  Co.,  2  Douglass  (Mich.), 
sary,  see  Calvert  v.  Idaho  Stage  Co.,  124;  Druse  v.  Wheeler,  22  Mich.  439. 
(1894)25  Or.  412;  s.  c.,  36  Pac.  Rep.  4 Hamilton  v.  New  Castle  &  Dan- 
24;  Brown  t>.  Grand  Rapids  Parlor  ville  R.  R.  Co.,  (1857)  9  Ind.359;  Rich- 
Furniture  Co.,  58  Fed.  Rep.  286;  s.  c.,  ardson  v.  St.  Joseph  Iron  Co. ,  5Blackf. 
70.  C.  A.  225;  Burch  v.  Paper  Co.,  (Ind.)  146;  Madison  v.  Ross,  3Ind.  236 
141  111.  519;  s.  c.,  31  N.  E.  Rep.  420.  Cincinnati,  etc.,  Co.  v.  Clarkson.  7  Ind. 

9  Allen  v.  Citizens'    Steam  Naviga-  595;  Jones  v.  Milton,  etc.,  Co.,  7  Ind. 

tion  Company,  (1863)  22  Cal.  28.  547. 

'Bank  of  Middlebury  v.  Rutland  &  5 Burgess  v.  Pue,  2  Gill  (Md.),  254; 

Washington   R.    R.   Co.,  30  Vt.    159;  Warren  V.  Ocean  Insurance  Co.,  16  Me. 

Stark  Bank  t.  U.   S.  Pottery  Co.,  34  439;  Jones,   Admr.,  etc.,  u.  Trustees 

Vt.  144;  State  ex  rel.  Page  v.  Smith,  Florence  Wesleyan  University,  46  Ala. 

48  Vt.   266.     As    to  appointment  of  626;  State  Bank  v.  Comegys,  12  Ala. 

agents  of  corporations    by  parol,  see  772. 
Jhons  v.  People,    25  Mich.  499;  Tay- 


§  115]  PRIVATE  CORPORATIONS.  145 

of  his  acts  by  the  corporation.1  So,  also,  from  the  course  of  deal- 
ing and  from  contemporaneous  and  subsequent  acts  on  the  part 
of  the  corporation.3  An  agent  of  a  corporation  will  not  be  per- 
sonally liable  upon  a  contract  in  his  own  name  under  seal  with 
another  person  where,  in  the  body  of  the  contract,  it  is  stated  that 
the  agent  contracted  in  behalf  of  the  body  corporate.8 

§  115.  Rules  as  to  an  agent's  acts. —  The  power  of  an  agent 
of  a  corporation,  unless  otherwise  shown,  will  be  limited  to  the 
business  of  the  corporation,  connected  with  or  relating  to  the 
object  and  design  of  the  charter  of  the  corporation.4  And  he  can 
only  make  such  contracts  as  the  corporation  can  lawfully  make.8 
If  the  acts  of  an  agent  of  a  corporation  are  some  within,  and  some 
beyond,  the  corporate  powers,  the  corporation  may  ratify  his  acts 
so  far  as  they  were  within  its  powers.6  Agents  of  a  corporation 
are  not  required,  by  any  rule  of  the  common  law,  to  act  by  deed 
in  behalf  of  their  principals,  where  they  might  act  themselves  by 
parol.7  Though  not  reduced  to  writing,  their  contracts  bind  a 
corporation.8  Wherever  a  corporation  is  acting  within  the  scope 
of  the  legitimate  purposes  of  its  institution,  all  parol  contracts 
made  by  its  authorized  agents  are  express  promises  of  the  cor- 
poration ;  and  all  the  duties  imposed  on  them  by  law,  and  all 
benefits  conferred  at  their  request,  raise  implied  promises,  for  the 
enforcement  of  which  an  action  will  lie.9  The  acts  of  agents  of 
corporations,  within  the  ordinary  line  of  their  duty,  bind  corpora- 
tions without  any  formal  vote.10  The  name  of  the  corporation  as 

1  Kiley  v.  Forsee,  (1875)  57  Mo.  890;  •  Bangor  Boom  Corporation  t>.  Whit- 
Southgate  t>.  Atlantic  &  Pacific  R.  R.  ing.  (1848)  29  Me.  123. 
Co.,  (1875)  61  Mo.  89.     As  to  imply-  '  Buncombe  Turnpike  Co.  ».  McCar- 
ing  an    agency    for    a    corporation  son,  1  Dcv.  &  Bat.  (N.  C.)  300. 
from    facts    and    circumstances,    see  'City  Bank  of    Baltimore  ».  Bate- 
Northern  Central  Ry.  Co.  «.  Bastian,  man,  7  H.  &  J.  (Md.)104;  Union  Bank 
15  Md.  494.  t>.  Ridgely,  1  H.  &  Q.  (Md.)  826. 

1  Washington  Mut.  Fire  Ins.  Co.  t>.  *Bank    of    Columbia  t>.   Patterson, 

St.  Mary's  Seminary,   (1873)  52  Mo.  7  Cranch.  299,  306;  Eastman  t>.  Coos 

480.  Bank,  1  N.  H.  23;  Smith  t>.  Nashua  & 

•McDonough  t>.  Templeman,   1  H.  Lowell  Railroad,  27  N.  H.  88;  Olid- 

&J.  (Md.)156.  den  ».    Unity,   33    N.  H.  571;  Great 

4 Pennsylvania,    Del.    &   Maryland  Falls  Bank  r.  Farmington,  41  N.  H. 

Steam  Navigation  Co.  t.  Dandridge,  8  83;  Andover  t>.    Kendrick,   42  N.  H. 

G.  &  J.  (Md.)  243.  824. 

•  Downing    p.    Mount    Washington  lo  Foot  t.  Rutland   &  Whitehall  R. 

Road  Co.,  40  N.  H.  280.  R.   Co.,  82  Vt.  688.    As  to  acts  of 
19 


146  POWER  OF  AGENTS  AND  OFFICERS.  [§  116 

the  contracting  party  should  be  in  the  body  of  the  contract, 
where  an  agent  would  bind  the  corporation  only  in  making  a 
contract  in  its  behalf,  and  the  agent  should  sign  it  as  agent  or 
officer.1  A  committee  appointed  by  a  corporation,  having  made 
a  settlement  of  matters  between  the  corporation  and  third  par- 
ties, and  it  appearing  that  the  corporation  had  received  the  check 
of  the  third  party  from  its  committee,  it  has  been  held  was  suffi- 
cient to  justify  the  trial  court  in  submitting  the  question  of  rati- 
fication of  the  committee's  action  by  the  corporation  to  the  jury.2 
An  attorney  at  law  representing  a  corporation  in  a  suit  in  the 
courts,  must  have  special  authority  to  compromise  the  same.  But, 
in  case  he  makes  such  a  compromise,  the  facts  of  which  may  be 
known  to  the  officers  of  the  corporation  intrusted  with  its  affairs, 
and  they  frequently  advise  with  the  attorney  about  the  matter, 
and  make  no  objection  to  it,  and  the  corporation  accept  the 
benefit  of  the  compromise,  as  by  receiving  the  money  agreed  to 
be  paid  it,  this  would  amount  to  a  ratification  of  the  attorney's 
acts.3  Authority  to  give  a  negotiable  promissory  note  for  the 
amount  advanced  is  not  included  in  an  authority  to  advance 
money  for  a  corporation.4  A  corporation  will  not  be  bound  by 
the  acts  or  knowledge  of  one  of  its  officers  in  a  matter  in  which  he 
acts  for  himself  and  deals  with  the  corporation  as  if  he  had  no 
official  relations  with  it.5 

§  116.    To  what  the  powers  conferred  on  agents  may  be 
extended. —  The  authority  to  give  to  the  lender  of  money  bor- 

agents  of  corporations  being  done  in  Guttschlick,  14  Pet.  19;  Bank  of  U.  8. 
the  line  of  such  agency  in  order  to  v.  Dandridge,  12  Wheat.  67;  Bank  of 
bind  the  corporations,  see  Queen  v.  Sec-  Columbia  v.  Patterson,  7  Cranch,  299; 
ond  Ave.  R.  R.  Co.,  (1872)  35  N.  Y.  Fleckner  v.  U.  8.  Bank,  8  Wheat.  339. 
Super.  Ct.  154.  There  can  arise  no  pre-  '  Hamilton  v.  New  Castle  &  Dan- 
sumption  that  an  agent  Las  authority  to  ville  R.  R.  Co.,  (1857)  9  Ind.  359; 
transact  business,  which  the  corpora-  Hankins  v.  Shoup,  2  Ind.  342. 
tion  is  not  authorized  by  its  charter  to  2  Merchants'  Union  Barb  Wire  Co. 
engage  in.  Alexander  n.  Cauldwell,  v.  Rice,  (1886)  70  Iowa,  14;  a.  c.,  28 
(1881)  83  N.  Y.  480.  As  to  corporations  N.  W.  Rep.  494. 

being  bound  by  the  acts  of  their  agents  a  Wetherbee  v.  Fitch,  (1886)  117  111. 

made  in  the    ordinary  discharge    of  67;  s.  c.,  7  N.  E.  Rep.  513. 

their  duty,  though  not  authorized,  or  *  Webber  v.  Williams  College,  (1839) 

executed,    under   corporate    seal,  see  23  Pick.  302. 

Mechanics'  Bank  v.  Bank  of  Columbia,  5  Platt    v.    Birmingham    Axle    Co., 

5  Wheat.   326;    Fanning  v.  Gregoire,  (1874)  41  Conn.  255. 
16  How.  524;  Bank  of  Metropolis  v. 


§11*!  |  PRIVATE  CORPORATIONS.  147 

rowed,  or  to  the  seller  of  things  purchased,  the  ordinary  securities 
of  a  corporation  is  included  in  a  general  power  conferred  upon  an 
agent  of  a  railroad  corporation  to  borrow  money  on  its  behalf,  in 
sucii  sums,  for  such  length  of  time  and  at  such  a  rate  of  interest 
as  he  may  think  proper,  and  to  purchase  iron  rails,  locomotives, 
machinery,  etc.,  as  he  may  deem  advisable,  and,  in  order  to  do 
so,  to  make,  execute  and  deliver  obligations,  bills  of  exchange, 
contracts  and  agreements  of  the  corporation.1  And  the  authority 
from  a  corporation  to  an  agent  to  give  a  company  "note"  has 
been  held  to  authorize  drawing  a  bill  of  exchange  on  a  person 
who  had  no  funds,  and  where  the  company  would  not  by  law  be 
chargeable  with  damages  on  dishonor.2  While  a  factor  employed 
by  the  general  agent  of  a  corporation  to  sell  its  manufactured 
goods  and  to  purchase  stock  has  power  to  buy  on  credit,  he  is  not 
authorized  to  give  the  note  of  the  corporation  for  the  purchases 
he  makes  on  its  account.8  An  agent  of  a  manufacturing  corpora- 
tion was  empowered  by  its  by-laws  to  manage  the  affairs  of  the 
corporation  committed  to  his  care,  and  to  exercise  the  powers 
committed  to  him  according  to  his  best  ability  and  discretion, 
and  promptly  to  collect  all  assessments  and  other  sums  that 
should  become  due  to  the  corporation,  and  to  disburse  them 
according  to  the  order  of  the  board  of  directors,  who  were  made 
a  board  of  control  over  him.  The  Supreme  Court  of  Judicature 
of  Massachusetts  held  that  the  agent,  the  board  of  directors  not 
interposing  to  control  his  proceedings,  had  authority  to  employ 
workmen  to  carry  on  the  business  of  the  corporation,  and  to  pay 
them  with  its  funds,  or,  not  being  in  funds,  to  give  the  notes  of 
the  corporation  in  payment.4  An  agent  of  an  incorporated  manu- 
facturing company,  authorized  by  its  by-laws  to  raise  money  and 
create  liability  on  its  part,  may  also  waive  demand  and  notice 
on  a  note  indorsed  by  such  company,  and  this,  too,  after  the  note 
has  been  negotiated.  He  may  waive  demand  and  notice  to  pro- 
cure delay  of  payment  of  the  note  and  bind  the  corporation, 
although,  in  procuring  delay,  he  may  also  be  the  agent  of  the 
maker.  And  the  fact  that  he  agreed  to  pay  more  than  the  legal 
rate  of  interest  for  such  delay  would  prevent  a  recovery  against 

1  Hatch  t?.  Coddington,  (1877)  95  U.  •  Emerson  r .  Providence  Hat  Manu- 

8.  48.  factoring  Co.,  (1815)  12  Mass.  237. 

'Trippr.  Swanzey  Paper  Co.,  (1882)  4  Bates  c.  Keith  Iron  Co.,  (1848)7 

18  Pick.  291.  Met.  224. 


148  POWER  OF  AGENTS  AND  OFFICERS.  [§  117 

the  company,  upon  their  indorsement,   of  the   amount  legally 
due.1 

§  117.  Illustration  of  the  binding  force  of  an  agent's 
acts. —  In  a  New  York  case  it  appeared  that  the  president  of  a 
Pennsylvania  corporation,  a  coal  company,  was,  during  all  the 
time  of  the  transactions  involved  in  the  action,  the  actual  manager 
of  the  business  of  the  corporation,  and,  with  the  nominal 
treasurer  of  the  corporation,  owned  all  its  stock,  except  a  few  shares 
held  by  persons  employed  in  the  office  of  the  company,  sufficient 
to  qualify  them  for  directors,  and  thus  to  make  and  maintain  a 
corporate  organization.  As  president,  he  drew  the  drafts  and 
indorsed  the  checks  and  other  commercial  paper  of  the  company, 
and  directed  all  the  financial  affairs  of  the  corporation  with  the 
knowledge  of  the  other  directors  and  stockholders.  The  com- 
pany's business,  the  sale  of  coal  mined  by  them,  for  cash  and  on 
credit,  at  wholesale  and  retail,  was  quite  large  in  one  of  the  cities 
of  New  York.  The  president  of  the  coal  company  addressed  a 
letter  to  the  president  of  a  bank  it  that  city  informing  him  that 
a  certain  person  was  "  the  authorized  agent  of  the  [corporation] 
for  the  sale  of  its  coal  at  [that  city],"  and  then  added :  "  Any 
paper  he  may  take  for  coal  sold  for  said  company  he  is  authorized 
to  indorse  as  the  agent  of  said  company,  and  get  it  discounted 
at  your  [the  Marine]  bank,  and  that  any  and  all  such  paper  so 
indorsed  which  you  may  discount  for  him  the  said  company  will 
see  paid. 

"  [Signed  by]  [his  name],  President" 

This  was  an  action  by  the  bank  against  the  company  on  its 
indorsement  of  a  number  of  these  notes  discounted  by  it,  which 
were  not  paid  by  the  makers,  and  for  an  overdraft  made  by  this 
agent.  The  Supreme  Court  of  New  York,  in  General  Term, 
sustained  the  conclusion  of  a  referee  in  the  suit  awarding  a 
recovery  to  the  bank.2 

'Whitney  v.  South  Paris  Manufac-  dorse  them  for  the  defendant.  The 

turing  Co.,  (1855)  39  Me.  316.  letter  [above  quoted]  gave  the  [bank] 

*  Marine  Bank  of  Buffalo  T.  Butler  notice  of  [his]  authority  as  agent  of 

Colliery  Co.,  (1889)  52  Hun,  612;  the  defendant  to  sell  its  coal  at  Buffalo, 

8.  c.,  5  N.  Y.  Supp.  291.  Arguendo,  to  take  notes  for  coal  sold,  to  indorse 

it  was  said:  "The  notes  were  evi-  such  notes  for  the  defendant  and  to 

dently  discounted  by  the  [bank],  procure  their  discount  at  the  [bank], 

relying  upon  the  apparent  au-  The  authority  of  [the  writer]  to  write 

thority  of  Hubbell,  the  agent,  to  in-  the  letter  and  to  bind  the  defendant 


§118] 


PRIVATE  CORPORATIONS. 


149 


§  118.  Power  of  general  agents. —  A  general  agent  of  a  cor- 
poration has  power  to  direct  and  control  its  general  business,  to 
make  contracts  which  will  bind  the  corporation  in  the  ordinary 
course  of  its  business,  and  to  borrow  money  for  such  purpose  on 


thereby  is  clearly  established  by  the 
undisputed  evidence  of  the  manner  in 
which  the  business  of  the  corporation 
was  conducted.  During  all  the  years 
covered  by  the  transactions  in  question 
the  president  of  the  corporation  was 
permitted  to  be,  and  to  hold  himself 
out  to  the  world  as  being,  the  general 
manager  and  director  of  its  business. 
The  act  in  question  was  within  the 
scope  of  the  authority  thus  practically 
accorded  to  him,  and  the  defendant 
cannot  set  up  its  by-laws,  never  pub- 
lished to  the  world  and  habitually  dis- 
regarded by  itself,  as  countervailing 
the  authority  thus  publicly  conferred. 
Martin  v.  Niagara  Falls  Paper  Manu- 
facturing Co.,  (1887)  44  Hun,  130, 138; 
Martin  v.  Webb,  110  U.  8.  7;  8.  c.,  8 
Sup.  Ct.  Rep.  428.  That  the  notes 
were  within  the  terms  of  the  letter 
has  been  found  by  the  referee  on  un- 
disputed evidence.  They  were  given 
for  coal  sold  by  the  agent  for  the  de- 
fendant. That  some  of  them  were 
taken  in  renewal  of  notes  given  when 
the  coal  was  sold,  does  not  change  the 
character  of  the  indebtedness,  nor  of 
the  evidence  of  it.  Moreover,  the 
[bank]  had  a  right  to  rely  on  the  rep- 
resentations of  the  agent,  not  of  the 
existence  of  his  authority  to  procure 
discounts,  but  that  the  notes  offered 
by  him  for  discount  were  within  the 
scope  of  that  authority,  and  the  [cor- 
poration] is  estopped  to  deny  th.-it 
those  representations  were  true.  Bank 
of  Batavia  t>.  New  York,  L.  E.  &  \V. 
Railroad  Co.,  106  N.  Y.  195;  8.  c., 
12  N.  E.  Rep.  433.  In  that  cast-  th.- 
court  says:  'It  is  a  set  tied  doctrine  of 
the  law  of  agency  in  this  state  that 
where  the  principal  has  clothed  his 
agent  with  power  to  do  an  act  upon 


the  existence  of  some  extrinsic  fact 
necessarily  and  peculiarly  within  the 
knowledge  of  the  agent,  and  of  the 
existence  of  which  the  act  of  execut- 
ing the  power  is  itself  a  representation, 
a  third  person,  dealing  with  such 
agent  in  entire  good  faith,  pursuant  to 
the  apparent  power,  may  rely  upon 
the  representation,  and  the  principal 
is  estopped  from  denying  its  truth  to 
his  prejudice.'  In  this  case  the  extrin- 
sic fact  that  the  notes  were  given  for 
coal,  upon  which  the  authority  of  the 
agent  depended,  and  which  were  solely 
within  his  knowledge,  was  represented 
not  only  by  the  presentation  of  the 
notes  for  discount,  but  by  the  repeated 
assurances  of  the  agent  that  he  never 
did  and  never  should  present  notes  of 
any  other  character.  The  fact  that  the 
indorsements  were  made  in  the  name 
of  E.  8.  Hubbell,  agent  of  the  Butler 
Colliery  Company,  and  not  in  the 
name  of  the  corporation  by  E.  8.  Hub- 
bell,  agent,  though  not  strictly  con- 
fined to  the  language  of  the  authority, 
was  within  its  spirit  and  intent,  and 
was  ratified  by  a  long  course  of  dealing 
on  the  part  of  the  [corporation],  with, 
full  knowledge  of  the  manner  in  which 
the  business  was  done,  and  with  full 
enjoyment  of  the  fruits  of  the  transac- 
tion." A  counterclaim  on  the  part  of 
the  corporation  for  moneys  received  by 
the  bank  from  the  corporation's  agent 
and  afterwards  drawn  out  and,  as  was 
alleged,  misappropriated  by  him,  was 
also  disallowed  by  the  referee  below. 
The  court  said:  "  The  same  principles 
[applied  to  support  this  disallowance]. 
The  authority  of  the  agent  to  open 
and  maintain  the  account  with  tho 
[bank]  and  to  draw  against  it  for  thn 
purposes  of  bis  agency,  being  estab- 


150  POWER  OF  AGENTS  AND  OFFICERS.  [§  118 

its  credit.1  But  such  a  general  agent,  though  clothed  with  the 
power  to  contract  debts  and  borrow  money  on  the  credit  of  the 
corporation,  has  no  power,  in  virtue  of  such  an  agency  merely,  to 
make  a  mortgage  on  the  property  of  the  corporation,  real  or  per- 
sonal.3 An  agent  appointed  by  the  directors  of  a  corporation  to 
superintend  and  carry  on  its  business,  has  no  power,  as  such 
agent,  to  pledge  or  mortgage  the  machinery  used  by  the  corpora- 
tion for  the  security  of  a  loan.8  A  director  may  act  as  the  agent 
of  a  corporation,  with  the  knowledge  of  the  board,  and  independ- 
ently of  his  duties  as  director,  and  his  acts  will  bind  the  corpora- 
tion.4 Corporations  may  be  bound  by  contracts  of  their  general 
agents  clearly  within  the  scope  of  their  employment,  but  no  fur- 
ther.5 The  general  agent  of  a  corporation  is  not  authorized  to 
give  its  note  for  a  debt  due  from  a  previous  unincorporated  com- 
pany to  which  the  corporation  succeeded.6  An  agent  of  a  cor- 
poration, performing  the  daily  routine  of  his  business,  under  the 
supervision  and  control  of  a  board  of  directors,  would  not  be 
authorized,  as  agent,  to  create  a  lien  upon  the  entire  property  of 
the  corporation  to  secure  advances  of  money  to  it.7  Managing 
officers  of  a  corporation  may,  without  an  express  delegation  of 
power,  or  a  formal  resolution  to  that  effect,  employ  attorneys  to 
represent  the  corporation  in  litigation,  or  for  counsel  in  its  busi- 
ness affairs.8  The  general  agent  of  a  corporation  organized  for 

lished  by  the  letter  of  authority  and  4  Holmes  v.  Board  of  Trade,  (1883)  81 

the  course  of    dealing    between    the  Mo.  137. 

parties,  the  [bank],  in  the  absence  of  5  Odiorne  v.  Maxcy,  (1816)  13  Mass. 

notice  to  the  contrary ,  or  of  facts  to  178. 

put  it  upon  inquiry,  had  the  right  to  6  White  v.  Westport  Cotton  Manu- 

assume  that  the  acts  of  the  agent  in  facturing  Co. ,  (1822)  1  Pick.  215. 

this  connection  were  what  they  pur-  7  Whitwell  v.  Warner,  20  Vt.  425.   As 

ported  to  be,  viz.,  in  the  execution  of  to  power  of  managing  agents,  see  Stow 

his  power  as  agent.     The  [bank]  was,  v.  Wyse,  7  Conn.  214,  219;  Hawtayne®. 

therefore,   entitled  to  credit    for    all  Bourne,  7  Mees.  &  W.  595;  Life  &  Fire 

moneys  drawn  by  the  agent  in  the  Ins.    Co.    v.   Mech.  Fire    Ins.   Co.,  7 

ordinary  course  of  the  business  and  Wend.  31;  Knight  v.   Lang,  4  E.  D. 

apparently  within    the    scope  of  his  Smith,   381;  Benedict  v.    Lansing,   5 

authority  as  agent."  Denio,  283;  Torrey  v.  Dustin  Monu- 

1  Stokes  v.  New  Jersey  Pottery  Co. ,  ment  Assn.,  5  Alien,   329;    Despatch 

(1884)  46  N.  J.  Law,  237.  Line  of  Packets  v.  Bellamy,  12  N.  H. 

*  Stow  v.  Wyse,  7  Conn.  214;  C.  &  N.  205,  228;  Luse  v.  Isthmus  Transit  Ry. 

R.  R.  Co.  v.  James,  24  Wis.  388.  Co.,  6Oreg.  122. 

8  Despatch  Line  of  Packets  v.   Bel-  8  Southgate  v.  Atlantic  &  Pacific  R. 

lamy  Manufacturing  Co.,  12  N.  H.  205.  R.  Co.,  (1875)  61  Mo.  89. 


§  119]  PRIVATE  CORPORATIONS.  151 

/ 

purchasing  timber  land,  converting  tin-  timlx-r  into  lumber  and 
selling  it,  and  for  carrying  on  a  trading  establishment,  has  an 
implied  power  from  the  nature  of  his  business  to  give  the  nego- 
tiable note  of  the  corporation  in  payment  for  labor  ia  getting  out 
such  lumber.1 

§  119.  When  the  authority  ot  a  general  agent  will  not  be 
implied. —  A  corporation  engaged  in  a  mining  business  in  Michi- 
gan had  its  financial  office  in  New  York.  Its  general  agent  in 
Michigan  was  accustomed  to  indorse  the  company's  paper  for 
collection  or  discount,  and  to  draw  on  the  treasurer  in  New  York 
for  the  current  needs  of  the  corporation,  and  his  drafts  were  duly 
paid.  He  executed  several  notes  in  the  name  of  the  corporation. 
In  an  action  upon  these  notes  it  was  held  by  the  Supreme  Court 
of  Michigan  that  a  general  agent,  without  being  specially 
empowered  so  to  do,  had  no  authority  to  make  notes  in  the  name 
of  his  principal.  Also  that  the  facts  stated  above  as  to  what  he 

1  Tappan  ».  Bailey.  (1842)  4  Met  529.  Jury,  44  La.  Ann.  803;  8.  c.,  11  So. 

As  to  power  of  officers  and  agents  to  Rep.  236;  Smith  v.  Car  Heater  Co.,  64 

niiikc;  contracts,   see  Blanding  r.  Da-  Hun,  639;  Glover  t>.  Lee,  (1891)140111. 

venport,  I.  &  D.  R.  Co.,  (1894)  Iowa",  102;  a  c.,  29  N.  E.  Rep.  680;  Matson 

55  N.  W.  Rep.  81;  Curnan  v.  Delaware  v.  Alley,  (1892)  141  111.  284;  a  c.,  81  N. 

&  O.  R.  Co.,  138  N.  Y.  480;  s.  c.,  34  E.  Rep.  419,  affirming  41  111.  App.  72; 

N.  E.  Rep.  201;  National  Cordage  Co.  Hamm  r.  Drew,  83  Tex.  77;  Johnson 

r.  Pearson  Cordage  Co.,  55  Fed.  Rep.  r.    Switch  Co.,   59  N.   Y.  Super.  Ct. 

812;  Huntsville  Belt  Line  &  M.  8.  Ry.  169;  Koch  t>.  Association,  137  111.  497; 

Co.  t>.  Corpening.  (1892)97  Ala.  681;  B.  a  c.,  27  N.  E.  Rep.  530;  Bank  of  At- 

c.,    12  So.    Rep.    295;   Moore*.    H.  ticac.  Manufg.  Co.,  49  Hun,  608;  Bank 

Oans  &  Sons'  Manufg.  Co.,  (1892)  113  of  Yolo  r.  Weaver,  (Cal.  1893)  31  Pac. 

Mo.  98;  s.  c.,  208.  W.  Rep.  975;  Nich-  Rep.  160;  Tradesmen's  Nat.  Bank  r. 

ols«.  Scranton  Steel  Co.,  137  N.  Y.  Lumber  Co.,  64  Hun,  635.     That  offl- 

471;  88  N.  E.  Rep.  561;  Teitig  r.  Boes-  cers  of  a  corporation  are  special  and 

man,  12  Mont.  404;  a  c.,  81  Puc.  Rep.  not  general  agents  of  the  corporation, 

871;    Thompson   P.    Stanley,   (N.    Y.  and  their  powers  being  limited  by  the 

Super.   Ct.   8p!    T.    1892)  20  N.  Y.  charter  and  by-laws,  see  Adriance  r. 

8upp.    317;    Chemical    Nat.    Bank   t».  Roomc,  52    Barb.    399.     As  to  their 

Wagner,  (Ky.  1894)  20  S.  W.  Rep.  535;  power  to  bind  it  within  the  scope  of 

Levey*.  New  York  Central  &  Hudson  their  authority,  see  Alexander*.  Brown. 

River   R.    Co.,   24  N.  Y.  Supp.  124;  9  Hun,  041.     As  to  power  of  an  agent 

Humes  r.  Decatur  Land  Improvement  of    a  joint-stock  corporation  formed 

&  Furnace  Co.,  (1898)  98  Ala.  461;  a  r.,  under  the  laws  of    Connecticut,  see 

18    So.    Rep.  868;    Tuller  r.  Arnold,  Wood    t>.    Wiley    Construction    Co., 

(Col.  1894)  88  Pac.  Rep.  445;  Reynolds  (1887)  56  Conn.  87;  &  c.,  18  All.  Rep. 

&  Henry   Construction  Co.  r.  Police  187. 


152 


POWER  OF  AGENTS  AND  OFFICERS. 


($120 


was  accustomed  to  do  in  the  business  could  not  imply  authority 
in  him  to  make  such  notes.1 

§  120.  Power  of  officers  generally. — Where  persons  are 
named  in  the  statute  of  incorporation  who  may  bind  the  corpora- 
tion, no  others  can  act  as  the  agents  of  the  corporation  in  the  par- 
ticulars designated  in  the  statute.2  While  the  records  of  a  cor- 
poration are  the  best  evidence  as  to  who  its  officers  are,  it  may  be 
shown  by  parol  that  one  was  an  agent  of  the  corporation  and 
what  his  duties  as  such  were.8  Powers  may  be  conferred  upon 

Mountain  Nat.  Bank,  1  Colo  531;  2 
Colo.  565,  570;  In  re  German  Mining 
Co.,  19  E.  L.  &E.  599;  Hawtayne  v. 
Bourne,  7  M.  &  W.  595;  Carpenter  v. 
Biggs,  46  Cal.  91;  Lawrence  v.  Geb- 
hard,  41  Barb.  575;  Sewanee  Mining 
Co.  r>.  McCall,  3  Head,  619;  Silliman 
n.  Fredericksburg,  O.  &  C.  R.  R,  27 
Gratt."l20;  Emerson  v.  Providence  Hat 
Co.,  12  Mass.  237;  Hammond  v.  Mich- 
igan State  Bank,  Walk.  Ch.  (Mich.) 
214;  Grover  &  Baker  Sewing  Ma- 
chine Co.  P.  Polhemus,  34  Mich. 
247,  249;  Reynolds  v.  Continental  Ins. 
Co.,  36  Mich.  131;  Lyell  «.  Sanbourn, 
2  Mich.  109;  Marquette  &  Ontonagon 
R.  R.  Co.  v.  Taft,  28  Mich.  289;  Kal. 
Nov.  Mfg.  Co.  n.  McAlister,  36  Mich. 
327.  As  to  corporations  authorizing 
agents  to  make  or  indorse  notes,  see 
Olcotte.  Tioga  R.  R.,  40  Barb.  179; 
Melledge  v.  Boston  Iron  Co.,  5  Gush: 
158;  Whiter  Westport  Cotton  Mfg. 
Co.,1  Pick.  215,  219;  Odiornea.  Maxcy, 
13  Mass.  178;  Kelly  v.  Fall  Brook  Coal 
Co.,  4  Hun,  261;  Sedgwick  «.  Lewis, 
70  Pa.  St.  217;  Pahlman  v.  Taylor,  75 
111.  629;  Bird  v.  Daggett,  97  Mass. 
494;  Bridgeport  City  Bank  v.  Empire 
Stone  Dressing  Co.,  30  Barb.  421; 
Central  Bank  T>.  Empire  Stone  Dressing 
Co.,  26  Barb.  23. 

*  Landers  v.  Frank  St.  Meth.  Epis. 
Ch.  of  Rochester,  97  N.  Y.  119. 

3  Leekins  n.  Nordyke  &  Marmon  Co. , 
(1885)  66  Iowa,  471;  a.  c.,  24  N.  W. 
Rep.  1. 


1  New  York  Iron  Mine  v.  First 
National  Bank  of  Negaunee,  (1878)  39 
Mich.  644.  COOLET,  J. ,  in  the  opinion, 
said  upon  the  subject:  "It  was  not 
disputed  by  the  defense  that  the  cor- 
poration had  power  to  make  the  notes 
in  suit.  The  question  was  whether  it 
had  in  any  manner  delegated  that 
power  to  [its  general  agent].  We 
cannot  agree  with  the  plaintiff  that 
the  mere  appointment  of  general  agent 
confers  any  such  power.  *  *  *  In 
McCullough  v.  Moss,  5  Denio,  567,  the 
subject  received  careful  attention,  and 
it  was  held  that  the  president  and  sec- 
retary of  a  mining  company,  without 
being  authorized  by  the  board  of 
directors  so  to  do,  could  not  bind  the 
corporation  by  a  note  made  in  its 
name.  Murray  v.  East  India  Co.,  5B. 
&  Aid.  204;  Benedict  v.  Lansing,  5 
Denio,  283,  and  The  Floyd  Accept- 
ances, 7  Wall.  666,  are  authorities  in 
support  of  the  same  view.  The  plain- 
tiff, then,  cannot  rest  its  case  on  the  im- 
plied authority  of  the  general  agent; 
the  issuing  of  promissory  notes  is  not 
a  power  necessarily  incident  to  the 
conduct  of  the  business  of  mining, 
and  it  is  so  susceptible  of  abuse,  to  the 
injury,  and  indeed,  to  the  utter  de- 
struction, of  a  corporation,  that  it  is 
wisely  left  by  the  law  to  be  conferred 
or  not  as  the  prudence  of  the  board  of 
directors  may  determine."  See,  also, 
Tripp  tJ.  Swanzey  Paper  Co.,  13  Pick. 
293;  Union  Gold  Mining  Co.  r.  Rocky 


§  120]  PRIVATE  CORPORATIONS.  153 

the  officers  of  a  corporation  by  a  course  of  conduct  of  the  corpo- 
ration with  its  officers  and  the  public  which  they  would  not  have 
as  such  officers  but  for  the  usages  of  the  corporation.1  A  corpo- 
ration will  be  bound  by  the  acts  of  one  of  its  officers  performed 
at  his  office,  and  where  they  have  been  numerous  and  long  con- 
tinued this  justifies  a  presumption  that  they  were  done  under 
instructions  of  the  managers  of  the  corporation.3  Courts  of  equity 
will  not  interfere  with  the  actions  of  officers  of  corporations  who 
may  be  vested  with  discretionary  powers  by  statute  to  correct 
mere  errors  of  judgment,  the  power  conferred  not  having  been 
illegally  nor  unconscientiously  executed.8  One  owning  a  majority 
of  the  stock  of  a  corporation  cannot  act  for  the  corporation  in 
selling  leases,  for  instance,  that  it  may  own,  unless  specially 
authorized,  as  a  corporation  can  only  act  through  its  officers  or 
by  expressly  delegating  power  to  others.4  One  openly  and 
notoriously  exercising  the  functions  of  a  particular  agency  of  a 
corporation  will  be  presumed  to  have  sufficient  authority  from 
the  corporation  to  so  act.5  The  authority  of  an  officer  of  a  cor- 
poration to  make  a  contract  in  its  behalf  may  be  inferred  from 
the  fact  of  the  corporation's  knowing  that  he  is  making  such 
contract,  and  that  it  availed  itself  of  whatever  benefit  arose  from 
the  contract.8  A  corporation  will  be  liable  upon  contracts  made 
by  its  officers  and  agents  with  other  persons  if  these  officers  or 
agents,  in  their  negotiations,  so  act  as  to  induce  the  persons  with 
whom  they  make  such  contracts  to  believe  that  they  are  acting 
for  the  corporation,  notwithstanding  the  fact  that  they  were  in 
reality  not  acting  for  it.7  Officers  of  a  corporation  have  no  power 
to  bind  the  corporation  as  surety  for  their  private  debts.8  A 
corporation  will  not  be  bound  by  the  release  of  a  debt  given  to  a 

1  Winsor  r.  La  Fayette  County  Bank,  t>.    Billups,   35  Miss.   618;    Parish  r. 

(1885)  18  Mo.  App.  665.  Wheeler,  22  N.  Y.  494;  Noyes  t.  R.  & 

•Beers    t>.    Phoenix    Glass    Co.,   14  B.  R.  R.  Co.,  27  Vt.  Ill;  Bissell  t>.  M. 

Barb.  358.  8.  &  N.  I.  R.  R.  Co.,  23  N.  Y.  258; 

»  Philips  v.  Wickhnra.  1  Paige,  590.  Perkins  r.   Portland,   Saco  &  Ports- 

4  Hopkins    r.   Roscclarc  Lead  Co.,  mouth  R.   R.,  47  Me.  590;  Barry  r. 

(1874)72111.373.  Merchants'  Exchange  Co.,   1    Sandf. 

1  Singer  Manufacturing  Co.  t>.  Hold-  Ch.  280.  289;  Goodwin  t>.  Union  Screw 

fodt,  (1877)  86  111.  455.  Co.,  84  N.  II.  878. 

•  Chicago  Building  Society  e.  Crow-       1  Wilson    Sewing    Machine    Co.    r. 

HI,  (1872)  65  111.  458.  citing  Bradley  P.  Boyington,  (1874)  78  111.  584. 
Ballard,  55111.  418,  417;  Bufflt*. Troy  &       •  Culver  t>.  Real  Estate  Co.,  91  Pa. 

Boston  R  R  Co.,  86  Barb.  420;  Abby  St.  867. 
20 


154  POWER  OF  AGENTS  AND  OFFICERS.  [§  121 

debtor  by  one  of  its  officers  without  authority.1  A  corporation 
cannot  be  bound  by  the  act  of  an  officer  in  a  case  where  he  pro- 
fesses to  represent  only  himself  and  to  deal  with  the  corporation 
as  if  he  had  no  official  relation  to  it.2  Under  a  resolution  of  the 
directors  of  a  corporation,  directing  its  officers  to  use  certain  notes 
in  liquidating  the  liabilities  of  the  corporation,  the  officers  may 
give  such  notes  as  collateral  security  with  the  note  of  the  corpo- 
ration itself  in  payment  of  its  debts.8  The  long  usage  of  officers 
in  issuing  stock  in  exchange  for  the  debt  of  a  corporation  for 
more  than  two  years  after  the  resolution  of  the  board  giving  them 
the  power  had  been  rescinded,  has  been  held  to  have  implied  an 
authority  to  make  the  exchange  as  effectually  as  an  express  reso- 
lution.4 A  corporation  will  not  be  bound  by  the  declarations  of 
its  secretary  as  to  the  amount  due  on  a  mortgege  held  by  it  unless 
it  be  shown  that  the  secretary  had  authority  to  bind  it.5 

§  121.  The  same  subject  continued. —  The  president  of  a 
corporation  will  be  authorized  to  purchase  the  materials  to  be 
used  in  the  business  of  the  corporation,  and  to  borrow  money  for 
it  and  give  its  note  for  the  money  borrowed,  by  a  vote  of  the 
directors  clothing  him  with  full  power  and  control  of  its  business.6 
Where  a  contract  is  one  which  the  board  of  a  corporation  has 
power  to  authorize  its  president  to  make  or  ratify  it  after  it  has 
been  made,  the  burden,  if  it  is  claimed  to  have  been  unauthor- 
ized, is  on  the  corporation  to  show  that  it  was  not  authorized  or 
ratified  by  its  board.7  A  manufacturing  corporation  cannot  be 

1  Land  Co.  v.  Sloan,  109  Pa.  St.  can  sanction  or  ratify.  Forbes «.  San 

532.  Rafael  T.  Co. ,  50  Cal.  340.  As  to  a  note 

*  Winchester  v.  Baltimore  &  Sus-  signed  by  president  and  secretary,  see 

quehanna  R.  R.  Co.,  4  Md.  231.  Duggan  v.  Pacific  Boom  Co.,  (Wash. 

3  Brookman     v.     Metcalf,    5  Bosw.  1893)  34  Pac.  Rep.  157.     As  to  a  presi- 
429.  dent's  authority,  see  Crowley  v.  Qene- 

4  Lohman  v.  New  York  &  Erie  R.  see  Mining  Co.,   55  Cal.    273;  Union 
R.  Co.,  2  Sandf.  39.  Mut.  Life  Ins.  Co.  v.  White,  106  111.  67. 

5  Johnston     ».     Building    Associa-  7  Patterson  v.  Robinson,   (1889)  116 
tion,  104  Pa.  St.  394.  N.  Y.  193;  8.  c.,  22  N.  E.   Rep.  372; 

6  Castle  v.  Belfast  Foundry  Co. ,  72  citing  Bank  of  Vergennes  «.  Warren, 
Me.  167.     What  is  within  the  scope  of  7  Hill,  91;  Gillett  v.  Campbell.  1  Den. 
the  business  intrusted  to  a  president  of  520;  Elwell  v.  Dodge,  33  Barb.    336; 
a  corporation.     Seeley  v.  San  Jose  In-  Chemical  National  Bank  v.  Kohner,  85 
dependent  Mill  &  Lumber  Co.,  (1881)  N.  Y.  189,  193;   Smith  v.  Hull  Glass 
59  Cal.  22.    What  kind  of  a  transaction  Co.,  11  C.  B.  897, 9?9:  Lee r. Pittsburgh 
a  board  of  directors  or  stockholders  Coal  &  Mining  Co.,  56  How.  Pr.  373; 


§121J 


PRIVATE  CORPORATIONS. 


155 


bound  by  a  contract  of  one  who  is  a  stockholder  and  director  and 
overseer  of  part  of  its  business,  to  aid  in  the  extension  of  a  rail- 
road.1 The  treasurer  of  a  savings  bank,  by  virtue  of  his  office 
merely,  has  no  implied  authority  to  transfer  to  a  purchaser  a 
promissory  note  belonging  to  the  bank.3  A  vote  of  a  newly- 


afflrmed  in  75  N.  Y.  601.  See,  also, 
Pattoson  t.  Ongley  Electric  Co.,  (1895) 
S7  I  Inn,  462;  8.  c.,  84  N.  Y.  Supp.  209; 
citing  Jourdan  v.  Railroad  Co.,  115  N. 
Y.  881;  8.  c.,  22 N.  E.  Rep.  153;  Oakes 
p.  Water  Co.,  148  N.  Y.  430;  8.  c.,  38 
N.  E.  Rep.  461. 

1  New  Ha  veil  &  Northampton  Co.  ». 
Hayden,  (1871)  107  Mass.  525.  As  to 
authority  of  officers  to  make  contracts, 
see  Baker  r.  Harpster,  42  Kans.  511;  8. 
c.,  22  Pac.  Rep.  415;  Western  Union 
Tel.  Co.  v.  Yopst,  118  Ind.  248;  8.  c., 
20  N.  E.  Rep.  222;  Read  v.  Buffum, 
79  Cal.  77;  8.  c.,  21  Pac.  Rep.  555: 
Eureka  Iron  Works  t.  Bresnahan,  60 
Mich.  332;  8.  c.,  27  N.  W.  Rep.  524; 
Merrill  p.  Consumers'  Coal  Co.,  114  N. 
Y.  210;  8.  c.,  21  N.  E.  Rep.  155. 

•  Holden  v.  Upton,  (1883)  134  Mass. 
177.  As  to  what  authority,  ex  ojftcio, 
an  officer  has,  see  Farmers'  Bank  v. 
McKee,  2  Barr,  (Pa.)  318;  Hallowell  & 
Augusta  Bank  r.  Hainlin,  14  Mass.  178, 
180;  Crump  v.  United  States  Mining 
Co..  7  Gratt.  352.  Where  it  would  not 
be  assumed  that  the  treasurer  of  a 
board  of  trustees  of  a  corporation  had 
no  authority  to  make  an  indorsement 
upon  a  note.  Bayers  r.  First  National 
Bank,  (1883)  89  Ind.  230.  In  Blake  r. 
Holloy,  14  Ind.  383,  it  was  held  that  a 
corporation  might  authorize  its  proper 
officer  to  assign  a  note  by  delivery, 
and  perhaps  it  would  be  within  the 
general  powers  of  officers  of  a  railway 
corporation  to  assign,  in  such  manner 
as  they  might  deem  expedient,  its 
choses  in  action.  In  Schallard  r.  Eel 
River  Steam  Navigation  Co.,  (1886)  70 
Cal.  144;  8.  c.,  11  Pac.  Rep.  591).  it  was 
held  that  a  mortgage  executed  in  the 
name  of  a  corporation  by  its  president 


and  secretary  and  having  the  corporate 
seal  attached,  must  be  presumed  to 
have  been  executed  in  pursuance  of  a 
due  authorization  to  such  officers,  and 
the  burden  of  proof  was  on  the  cor- 
poration to  show  the  contrary.  Also, 
that  when-  the  circumstances  sur- 
rounding the  execution  of  the  mort- 
gage showed  the  existence  of  proper 
resolutions  of  authorization  and  sup- 
ported the  presumption  of  its  authori- 
tative execution  as  shown  by  affixing 
the  corporate  seal,  and  the  signatures 
of  the  proper  officers,  the  mere  fact 
that  such  resolutions  did  not  appear 
in  the  proper  book  of  the  corporation 
was  not  sufficient  to  disprove  their 
existence  and  invalidate  the  mortgage. 
See,  also,  Southern  California  Colony 
Association  /•.  Bustamente,  52  Cal. 
192-196.  Where  acts  of  officers  and 
agents  in  making  contracts  have  been 
held  to  bind  the  company.  Powder 
River  Live  Stock  Co.  t.  Lamb,  (Neb. 
1894)  56  N.  W.  Rep.  1019;  Greig  r. 
Riordan,  99  Cal.  816;  8.  c.,  33  Pac. 
Rep.  913;  Carrigan  p.  Port  Crescent 
Imp.  Co.,  6  Wash.  590;  8.  c.,  34  Pac. 
Rep.  148;  Oro  Mining  &  Milling  Co. 
v.  Kaiser,  (1894)  4  Colo.  App.  219; 
8.  c.,  85  Pac.  Rep.  677.  Agreement 
of  officers  that  will  bind  a  corpora- 
tion. Outtcrson  r.  Fonda  Lake  Paper 
Co.,  66  Hun,  629;  ».  c.,  20  N.  Y. 
Supp.  980.  When  a  note  signed  by 
the  president,  secretary  and  two  direct- 
ors will  be  held  to  be  the  note  of  tin- 
corporation.  In  re  Pendleton  Hard 
ware  &  Imp.  Co.,  (1893)  24  Ore.  880; 
s.  (..  38  Pac.  Rep.  544.  See,  also, 
r.  Hank,  54  N.  J.  Law.  208; 
Davis  r.  Lee  Camp  No.  1,  C.  V.  (Vn. 
1894)  18  8.  E.  Rep.  889;  Cross  r. 


156  POWEK  OF  AGENTS  AND  OFFICERS.  [§  121 

formed  manufacturing  corporation  contemplated  the  payment  of 
royalties  to  and  the  purchase  from  an  existing  corporation  in 
addition  to  tools  and  material  of  "  all  the  other  personal  estate  of 
said  corporation,  giving  in  payment  therefor  "  a  certain  number 
of  shares  of  stock  in  the  new  corporation  to  be  issued  to  the 
president  of  the  old  corporation  as  trustee  for  the  parties  in 
interest,  any  balance  of  such  shares  remaining  "  after  paying  the 
liabilities  "  of  the  old  corporation  to  be  issued  to  the  treasurer  of 
the  new  corporation.  A  written  contract,  purporting  to  be  made 
between  the  two  corporations,  was  signed  by  their  presidents, 
who  were  the  principal  creditors  of  the  old  corporation,  by  which 
the  new  corporation,  in  consideration  of  the  transfer  of  all  the 
stock,  tools,  materials  and  machinery  of  the  old  one,  and  of  its 
agreement  to  license  the  new  one  under  all  its  patents,  agreed  to 
pay,  besides  royalties,  all  the  debts  of  the  old  corporation.  No 
director  or  stockholder  of  the  new  corporation  besides  the  presi- 
dent, knew  anything  of  the  particulars  in  which  the  contract 
departed  from  the  terms  of  the  vote.  The  Supreme  Court  of 
Massachusetts  held,  in  an  action  on  the  contract,  that  there  was 
no  evidence  for  a  jury  of  the  authority  of  the  president  of  the 
new  corporation  to  make  or  sign  the  contract  or  of  its  ratifica- 
tion.1 A  corporation  cannot  be  bound  by  a  contract  made  by  a 
promoter  of  the  corporation  in  obtaining  a  subscription  of  stock 
before  the  organization  of  the  corporation.  But  after  its  organi- 

Anglo- American  Banking    Co.  (1894)  mary  A.  U.  B.  v.   Martin,   39  Kans. 

79  Hun,  424;  s.  c.,  29  N.   Y.  Supp.  750;  s   c.,  18  Pac.  Rep.  941;  Griffith 

960;   Merchants  &  Farmers'  Bank  v.  v.  Chicago,  B.  &  P.  R.   Co.,  74  Iowa, 

Hervey  Plow  Co.,  45  La.   Ann.   1214;  85;  s.  c.,  36  N.    W.    Rep.  901;  Mer- 

s.   c.,   14  So.   Rep.   139;    Prindle    v.  chants'  Nat.  Bk.  of  Chicago  v.  Detroit 

Washington  Life  Ins.    Co.,  73  Hun,  Knitting  &  Corset  Works,  68  Mich. 

448;  s.  c.,  26  N.  Y.  Siipp.  474;  Pren-  620;  s.  c.,  36  N.  W.  Rep.  696;  New 

tice  v.  United  States  &  Central  Ameri-  York,  P.  &  N.  Ry.  Co.  t>.  Bates,  68 

can  Steamship  Co.,  58  Fed.  Rep.  702.  Md.  184;  s.  c.,  11  Atl.  Rep.  705;  Getty 

Whether  or  not  the  acts  of  officers  or  v.  C.  R.  Barnes  Milling  Co.,  40  Kans. 

agents  bind  the  corporation.     Stanley  281;   s.    c.,    19  Pac.    Rep.    617;    East 

v.  Sheffield,  L.  I.  &  C.  Co.,  83  Ala.  Rome  Town  Co.  v.   Brower,  80  Ga. 

260;  8.  c.,  4  So.  Rep.  34;  Whitaker  v.  258;  s.  c.,  7  S.  E.  Rep.   273;  Bank  of 

Kilroy,  70  Mich.  635;  s.  c.,  38  N.  W.  Attica  v.  Pottier  &  Stymus  Mfg.   Co.. 

Rep.    606;   Little  v.   Kerr,  (N.  J.)  14  49  Hun,  606;    s.  c.,  1  N.   Y.   Supp. 

Atl.  Rep.  613;  Templin  t>.  Chicago,  B.  483. 

&  P.  R.  Co.,  73  Iowa,  548;  s.  c.,  35  N.       »  Bi-spool  Sewing  Machine  Co.  v. 

W.  Rep.  634;  St.  Louis,  Fort    Scott  Acme  Manufacturing  Co.,  (1891)  153 

&  W.  R.  Co.  tJ.  Grove,  39  Kans.  731;  Mass.  404. 
s.  c.,  18  Pac.  Rep.  958;  Topeka  Pri- 


§  122]  PRIVATE  CORPORATIONS.  157 

zation  the  corporation  may  ratify  it  and  be  estopped  from  deny- 
ing its  liability  upon  such  a  contract.1 

§  122.  Power  of  directors  —  general  rules. —  The  directors 
have  control  of  the  ordinary  management  of  a  corporation.8  But 
a  corporation  cannot  be  bound  by  the  acts  of  individual  directors.8 
A  board  of  directors  may,  under  their  power  to  make  by-laws, 
delegate  their  authority  to  a  quorum  composed  of  less  than  H 
majority  of  their  number,  notwithstanding  a  declaration  in  the 
charter  of  the  corporation  that  its  powers  shall  be  exercised  by  a 
board  of  directors,  consisting  of  a  specified  numl>er.4  A  director 
who  is  permitted  to  act  as  such  after  he  has  sold  all  his  stock  in  a 
corporation  is  a  director  de  facto,  and  the  proceedings  of  the 
board,  in  which  he  takes  part,  are  valid  as  to  third  persons.* 
To  bind  a  corporation  by  an  express  promise,  the  individual  direct- 
ors must  be  authorized ;  otherwise  they  have  no  power  to  bind  it.' 
A  corporation  will  be  bound  by  the  action  of  its  directors,  though 
acting  separately,  if  in  the  usual  sphere  of  directors.7  The  acts 

1  Joy  v.  Manion,  28  Mo.  App.  55.  tracted  by  the  corporators  before  in- 

See  Fawcett  c.  New  Haven  Organ  Co. ,  corporation,  see  Hutchinson  t>.  Surrey 

47  Conn.  226,  as  to  the  circumstances  Consumers'  Gas  Light  &  Coke  Associ- 

under  which  a  contract  made  by  a  sec-  ation,   78  Eng.   C.  L.  689;  White  r. 

retary  and  treasurer  was  held  not  to  Westport  Cotton  Co..  1  Pick.   215:  In 

bind  the  corporation.     W  hen  contracts  re  The  Independent  Assur.  Co.,  30  L. 

made  by  officers  are  not  binding  on  J.  Rep.  (Eq.)  222. 

corporation.      Banks    v.    New    York  *Qenesee  County   Savings  Bank  t. 

Club,   68  Hun,   92;  s.   c.,   22  N.    Y.  Michigan  Barge  Co.,   52  Mich.    438; 

Supp.   727;  Bank    of   New    York   t>.  a  C.,  17  N.  W.  Rep.  790;  18  N.  W. 

American  Dock  &  Trust  Co.,  (1893)  Rep.  206. 

70  Hun,  152;  8.  c.,  24  N.  Y.  Supp.  'Lockwood  v.  Thunder  Bay  River 

406.     For  a  full  discussion  on  this  sub-  Boom  Co.,  42  Mich.  537;  4  N.  W.  Rep. 

Ject,  see  Edwards  p.  Carson  Water  Co.,  292. 

(Nev.  1893)  84  Pac.  Rep.  881.     When  «  Hoyt  P.  Thompson,  19  N.  Y.  207. 

authority  of  officers  to  indorse  a  note  •  Wile  &    Brickner   Co.   «.     Roch- 

of  the  corporation  is  shown.    National  ester    &    K.   F.   Land  Co.,  (1898)   4 

Bank  of  Battle  Creek  P.  Mallan,  (1887)  Misc.  Rep.  570;   25  N.  Y.  Sup-.,.  794. 

87  Minn.  404;  s.   c.,  84  N.  W.  Rep.  See,  also,  Despatch  Line  of  Packets  «. 

901;   First  National    Bank    of    Rock  Bellamy  Mimufg.  Co.,  12  N.  H.  205; 

Island,  Illinois,  t>.  Loyhed,  (1881)  28  In  re  Mohawk  &  H.  R.  Co.,  19  Wend. 

Minn.  896;  8.  c.,  10  N.  W.   Rep.  421;  185. 

Farmers'  Nat.   Bank    of   Valparaiso,  •  Workhouse  «.  Moore,  95  Pa.   St. 

Ind.,    v.    Sutton   Manufacturing  Co.,  408. 

(1892)  52  Fed.  Rep.  191;  s.  c.,  6  U.  S.  'Foot  c.  Rutland  &  Whitehall   R. 

App.  812;  8  C.  C.  A.  1.     As  to  corpo-  R.  Co.,  32  Vt.  633. 
rations  not  being  liable  for  debts  con- 


158  POWEB  OF  AGENTS  AND  OFFICERS.  [§  122 

of  a  board  of  directors  of  a  corporation,  evidenced  by  a  written 
vote,  as  completely  bind  the  corporation,  and  are  as  complete 
authority  to  its  agents,  as  the  most  solemn  acts  done  under  the 
corporation  seal.1  The  power  of  directors  to  bind  a  corporation 
by  their  contracts  may  be  exercised  by  a  majority  of  the  board. 
It  is  not  necessary  that  all  the  doings  of  a  board  of  directors 
should  be  entered  on  their  records.  The  corporation  will  be 
bound  by  any  verbal  order  or  direction,  in  which  a  majority  of 
the  board  concurs  in  relation  to  any  matter  of  business  intrusted 
to  them.2  An  act  purporting  to  be  the  act  of  a  board  of  directors 
at  a  meeting  of  such  board  may  be  presumed  to  be  the  act  of  a 
majority  of  the  board,  unless  shown  to  the  contrary.3  Other 
circumstances  proving  the  consent  of  directors  to  a  contract,  it  is 
not  necessary,  to  bind  the  corporation,  that  the  records  of  the 
board  should  disclose  a  formal  vote  of  the  directors.4  The  power 
placed  by  a  charter  in  the  directors  cannot  be  limited  by  a  by-law 
of  a  corporation.5  A  charter  of  a  corporation  providing  that  the 
president  is  entitled  to  all  the  powers  and  privileges  of  a  director, 
and  requiring  seven  directors  to  make  a  quorum,  the  president 
and  six  directors  would  constitute  such  a  quorum.6  In  the 
absence  of  a  special  provision  in  a  charter  of  a  corporation  upon 
the  subject,  less  than  a  majority  of  the  board  of  directors  have  no 
power  to  transact  business.  Their  acts  are  absolutely  void  and 
the  corporation  cannot  ratify  them.7  That  it  is  provided  in 
a  charter  of  a  corporation  that  a  majority  of  the  directors  pres- 
ent at  a  regular  meeting  would  be  competent  to  decide  on  all 
business,  is  not  a  declaration  that  a  minority  of  the  directors, 
however  email,  may  act  as  a  board.8  There  is  no  power  in  the 
directors  oi  a  corporation  to  bind  it  by  an  agreement  for  extra 

'Campbell  v.   Pope,  (1888)  96  Mo.  4 Nashua  &  Lowell  Railroad  Co.  v. 

468;  a  c.,  10  8.  W.  Rep.  187.  Boston  &  Lowell  R.  R.  Co.,  27  Fed. 

*  Cram  v.  Bangor  House  Proprietary,  Rep.  821. 

(1835)  12  Me  354     In  Trott  v.  Warren,  » Union  Insurance  Co.  v.  Keyser,  32 

(1834)  11  Me.  227    it  was  held  that  a  N.   H.   313;    Campbell   v.  Merchants 

contract,   made  by    a   minority  of  a  &  Farmers'  Insurance  Co.,  37  N.  H. 

committee  of  a  corporation,  and  not  35. 

assented  to  by  a  majority,  nor  by  the  •  Bank  of  Maryland  v.  Ruff,  7  Q.  & 

corporation,  was  not  valid.  J.  (Md.)  448. 

•Despatch  Line  of  Packets  v.  Bel-  'Price  v.  G.  R.  &  I.  R.  Co.,  (185J& 

lamy  Manufacturing  Co.,  12  N.  H.  13  Ind.  58. 

206.  "Ex  parte  Willcocks,  7  Cow.  402. 


§  123]  PRIVATE  CORPORATIONS.  159 

compensation,  not  made  at  a  meeting  of  the  board.1  Directors 
of  a  bunk,  in  case  a  deficit  in  the  funds  appears  by  the  accounts 
of  its  cashier,  have  authority  to  make  a  settlement  with  such 
officer.2  A  corporation  having  power  by  its  charter  "  to  make 
contracts  in  writing,  and  signed  by  the  president  and  secretary, 
or  by  such  other  officer  or  officers  as  the  directors  may  appoint 
for  that  purpose,"  the  directors  may  authorize  the  president 
alone  to  sign  for  the  company.  Proof  of  the  formal  vote  of  the 
directors  giving  him  such  authority  is  not  necessary.8  After 
seven  years'  acquiescence  by  a  corporation  in  the  lease  of  its 
property  by  its  directors,  something  more  must  be  shown  than 
that  it  was  executed  in  excess  of  the  powers  of  the  directors 
before  the  lessee  will  be  required  to  surrender  the  profits  he  may 
have  made  upon  it.4 

§  123.  Directors  for  the  first  year. —  The  New  York  Court 
of  Appeals  has  considered  the  objections  to  the  validity  of  a 
mortgage  executed  by  a  manufacturing  corporation  formed  under 
the  statute  of  1848  relating  to  such  corporations,  that  the  persons 
acting  as  a  board  of  directors  for  the  mortgagee  were  not,  at  the 
time  of  passing  the  resolution  authorizing  the  mortgage,  stock- 
holders of  the  company,  and  were,  therefore,  not  qualified  under 
the  statute  to  act  as  such  directors.  The  court  held  the  objec- 
tion not  tenable,  and  ROGER,  Ch.  J.,  for  the  court,  arguendo,  said  : 
"  The  provisions  of  the  statute  (§  3,  chap.  37,  Laws  of  1848) 
requiring  the  stock,  property  and  concerns  of  such  company  to 
be  managed  by  directors  who  shall  respectively  be  stockholders  of 
tin-  company,  and  who  shall,  except  the  first  year,  be  annually 

1  Stoystown    &   Qrecnsburg   Turn-  its  by-laws  to  the  directors  to  manage 

pike  Road  Co.  r.  Graver.  45  Pa.  St.  all  its  prudential  concerns. 
:M>  4  Pneumatic  Gas  Co.  v.  Berry,  (1884) 

*  Frankfort  Bank  «?.  Johnson,  (1844)  113  U.  8.  822;  s.  c.,  5  Sup.  Ct.  Rep.  525. 

24  Me.  490.  The  court  said:  "A  court  of  equity 

'Topping     v.    Bickford,     (1862)    4  does  not  listen  with  much  satisfaction 

Allen,  120.    In  Sampson  r.  Bowdoin-  to  the  complaints  of  a  company  that 

ham  Steam   Mill  Corporation,  36  Me.  transactions  were  illegal  which  had  its 

78,  it  was  held  that  an  action  could  be  approval  which  were  essential  to  its 

maintained    against    the    corporation  protection,  and  the  benefits  of  which 

upon  a  document  signed  by  its  direct-  it  has  fully  received.     Complaints  that 

ore  in  that  capacity  certifying  that  the  its    own     directors     exceeded    their 

holder  of  it  had  previously  advanced  authority  come   with  ill  grace  when 

a  specified  sum  of  money  for  the  cor-  the  acts  complained  of  alone  procured 

poration,  under  the  authority  given  in  its  existence." 


160  POWER  OF  AGENTS  AND  OFFICERS.  [§124 

elected  by  the  stockholders,  do  not  apply  to  the  original  organi- 
zation of  a  company  formed  under  said  act.  The  language  of 
section  1  of  the  act,  by  express  terms,  makes  the  persons  named 
in  the  certificate  of  incorporation  as  such,  directors  of  the  com- 
pany for  the  first  year  of  its  existence,  and  confers  upon  such 
persons  full  power  to  act  as  directors  in  the  performance  of  any 
corporate  duty  after  the  filing  of  such  certificate.  The  corporate 
authority  of  such  an  organization  must,  from  necessity,  be  coin- 
cident with  the  inception  of  its  corporate  existence,  and  antedate 
the  acquisition  by  it  of  property,  or  the  issue  of  stock  certificates 
representing  such  property,  it  is  conceded  that  the  persons 
passing  the  resolution  were  those  named  as  directors  in  the  origi- 
nal certificate  of  incorporation,  and  the  purchase  of  the  property 
in  question  was  one  of  the  first  official  acts  of  the  corporation  ; 
that  the  property  thus  purchased  of  the  plaintiff  furnished  the 
basis  of  capital  upon  which  their  corporate  stock  was  distributed, 
and  that  certificates  for  its  entire  amount  in  payment  of  such 
purpose  were  issued  and  delivered  to  the  plaintiff  simultaneously 
with  the  conveyance  of  the  property  to  the  corporation  by  him 
and  the  delivery  to  him  of  the  mortgage.  It  is  quite  obvious 
that  the  statute  cannot  be  made  effective  under  any  other  inter- 
pretation, and  it  is  a  primary  rule  of  construction  to  give  some 
effect  to  the  expressions  of  the  legislative  will,  if  consistent  with 
a  reasonable  interpretation  of  its  language.  If  its  provisions  be 
BO  construed  as  to  require  the  existence  of  stockholders  before 
there  is  a  legal  organization,  it  must  necessarily  defeat  the  cre- 
ation of  any  corporation  under  it,  as  it  is  quite  manifest  that 
stock  cannot  be  owned  in  a  corporation  which  has  itself  no  legal 
existence.  The  terms  of  the  act  providing  for  the  appointment 
of  directors  for  the  first  year  do  not  require  such  an  interpreta- 
tion, and  it  is  contrary  to  reason  and  settled  rules  of  construction 
to  ascribe  to  a  statute  such  a  meaning  as  will  nullify  its  operation 
if  it  is  capable  oi  any  other  interpretation."  1 

§  124.  Directors  de  facto. — One  who  had  been  adjudged 
entitled  to  a  premium  on  cattle  exhibited  at  the  fair  of  an  agri- 
cultural society  in  Pennsylvania  brought  his  action  for  irs  recovery. 
It  appeared  that  certain  directors  of  the  corporation  who  had,  in 
proceedings  quo  warranto,  been  adjudged  not  to  be  the  legal 

1  Davidson  v.  Westchester  Gas  Light  Co.,  (1885)  99  N.  Y.  558,  565,  566. 


§125]  PRIVATE  CORPORATIONS. 

officers,  had  offered  these  premiums,  and  the  corporation  defen.lt.  1 
on  the  ground  that  the  acts  of  this  board  were  nut  binding  upon 
tin-in,  they  not  beinir  directors  dejure.  The  findings  of  the  trial 
judge  were  that  this  board  of  directors  u  held  the  possession  of 
the  books  of  the  corporation  and  the  custody  and  control  of  its 
property,  both  personal  and  real.  It  was  under  their  direction 
and  management  that  the  fair  was  held,  and  all  purchases  made 
for  the  purpose  of  holding  the  fair.  They  had  custody  also  of 
all  moneys  paid  as  entrance  fees,  as  well  as  all  moneys  received 
for  admission.  The  premiums,  for  the  recovery  of  which  those 
suits  were  brought,  were  premiums  offered  by  this  board  of 
directors."  The  judge  held  that  the  acts  of  the  de  facto  directors 
were  binding  upon  the  corporation,  which  was  affirmed  by  the 
Supreme  Court.1 

§  125.  Illustrations  of  the  power  of  directors. —  It  is  within 
the  power  of  a  board  of  directors  of  a  manufacturing  corpora- 
tion, clothed  with  authority  to  manage  its  concerns,  to  authorize 
the  agent  of  the  corporation  to  raise  money  for  his  own  use  by 

1  Zearfoss  F.  Farmers  &  Mechanics'  officer  de  facto  as  fully  and  effectually 
Institute  of  Northampton  County,  as  regards  the  public  and  third  por- 
(1893)  154  Pa.  St.  449;  8.  c.,  26  Atl.  sons  as  by  an  officer  de  jure,'  in  all 
Rep  211.  In  the  opinion  per  curiam  matters  within  the  scope  of  the  corpo- 
it  was  said:  "Contracts  entered  into  ration's  ordinary  business."  To  the 
by  a  corporation  de  facto  are  binding  contention  that  there  is  a  distinction 
after  having  been  executed  by  either  between  de  facto  officers  of  public  cor- 
party.  2  Morawetz  on  Corp.  gg  750,  porations  and  <fe/a<tf«  officers  of  private 
?.YJ.  The  act  of  an  officer  de  facto  is  corporations  it  was  said:  "  While  such 
good  whenever  it  concerns  a  third  per-  a  distinction  appears  to  be  recognized 
son  who  had  a  previous  right  or  had  in  some  of  the  cases  cited  and  relied 
paid  a  valuable  consideration  for  it.  on  by  [counsel],  we  are  not  convinced 
Angell  &  Ames  on  Corp.  (llth  ed.)  that  it  is  sound.  The  weight  of  au- 
§§  287,  286,  299.  An  officer  de  facto  thority,  in  this  country  especially,  is 
ia  one  whose  acts,  though  not  those  of  decidedly  against  it.  In  the  case  of 
a  lawful  officer,  the  law,  upon  prin-  public  corporations,  the  reasons  for 
dples  of  policy  and  justice,  will  hold  holding  the  acts  of  de  faeto  officers 
valid,  so  far  as  they  involve  the  inter-  binding  on  the  corporations  they  rep- 
eats of  the  public  and  third  persons,  resent  are  doubtless  stronger  than  in 
State  r.  Carroll,  88  Conn.  449.  Our  the  case  of  private  corporations;  but. 
own  cases  are  to  the  same  effect,  to  some  extent  at  least,  they  are  the 
Riddle  v.  County  of  Bedford.  7  S.  same  in  both,  differing  only  in  degree." 
&  R.  886,  892;  McGargell  p.  Hazle-  As  to  a  corporation  being  bound  by  the 
ton  Coal  Co.,  4  W.  &  8.  424-425.  acts  of  its  officers  de  facto,  see  Cahill  r. 
In  the  latter  it  was  held  that  'a  Kal.  Mut.  Ins.  Co.,  2  Douglass,  (Mich.) 
corporation  may  act  by  means  of  an  124. 
21 


162  POWER  OF  AGENTS  AND  OFFICERS.  [§  125 

giving  therefor  a  "  company  note,"  where  this  is  intended  as  an 
advance  or  payment  of  the  agent's  wages.1  Where  full  power  to 
conduct  the  affairs  of  a  corporation  are  by  its  charter  vested  iu 
its  president  and  directors,  they  have  the  right  to  authorize  the 
president  to  indorse  its  notes.2  The  power  to  modify  the  terms 
of  a  guaranty  of  one  corporation  to  another  of  a  certain  annual  divi- 
dend on  its  capital  stock,  under  an  agreement  between  the  two 
corporations,  is  in  the  directors  and  not  in  the  stockholders  of 
the  corporation,  and  a  court  will  not  interfere  in  case  the  board 
exercise  the  power  fairly  and  in  good  faith.3  The  custody  of  the 
assets  of  a  corporation  may  properly  be  placed  with  a  managing 
director,  and  if  he  is  allowed  by  the  corporation  to  hold  himself 
out  to  the  public  as  competent  to  dispose  of  its  assets,  the  public 
are  entitled  to  presume  that  he  has  authority  to  dispose  of  them.4 
There  being  power  in  corporate  authorities,  and  generally  the 
directors,  to  compromise  corporate  debts,  they  can  release  a  part 
of  a  subscriber's  liability  in  case  there  is  doubt  about  it,  for  the 
purpose  of  securing  the  rest ;  and  a  compromise  of  that  kind 
will  bind  the  stockholders  of  any  new  corporation  to  which  the 
property  and  rights  of  the  existing  corporation  may  be  trans- 
ferred, notwithstanding  the  fact  that  it  cannot  extinguish  rights 
that  have  already  been  acquired  by  creditors.5  In  case  there  is 
no  restraint  by  law  or  contract  upon  the  power  of  the  directors 
of  a  corporation,  they  may  make  any  disposition  of  the  profits  of 
its  business  deemed  by  themselves  to  be  judicious.6  A  completed 
contract  between  a  corporation  and  an  individual  for  the  sale  of 
stock  by  the  individual  to  the  corporation  could  not  be  proven  by 
statements  of  individual  directors  out  of  a  session  of  the  board, 
and  not  accompanying  any  official  act,  and  statements  made  by 
them  in  debate  while  in  session.7  The  by-laws  of  a  business  cor- 
poration giving  the  directors  authority  to  appoint  a  treasurer,  they 
may  do  so  without  any  formal  meeting ;  and,  there  being  no  pro- 
hibition in  the  charter  or  by-laws,  may  agree  with  the  treasurer 
as  to  his  compensation.8  All  business  of  a  corporation  relating  to 

•Tripp  v.  Swanzey  Paper  Co.  ,(1832)  'Whitaker  v.  Grummond,  68  Mich. 

13  Pick.  291.  249;  s.  c.,  36  N.  W.  Rep.  62. 

1  Merrick  v.  Trustees  of  the  Bank  of  *  Park  r.  Grant  Locomotive  Works. 

Metropolis,  8  Gill.  (Md.)  64.  13  Stew.  (N.  J.  Eq.)  114. 

'Flagg  v.  Manhattan  Ry.  Co.,  10  '  Peek  r.  Detroit  Novelty  Works,  29 

Fed.  Rep.  413.  Mich.  313. 

4  Walker  r.  Detroit  Transit  R.  Co.,  8Waite  v.  Mining  Co.,  37  Vt.  608; 

47  Mich.  338;  s.  c.,  11  N.  W.  Rep.  187.  Waite  ».  Mining  Co.,  36  Vt.  18.  As  to 


§  126]  PRIVATE  CORPORATIONS.  163 

the  legitimate  objects  of  its  creation  may  be  transacted  by  the 
directors  without  the  sanction  of  the  stockholders.  Where  it  has 
under  its  charter  the  power  to  borrow  money  and  secure  the  same 
by  deed  or  lien  on  its  real  or  personal  property,  or  both,  or  bor- 
rowing money  for  the  purpose  of  forwarding  the  objects  of  the 
corporation  is  among  the  ordinary  duties  of  the  board  of  direct- 
ors, it  follows  that  the  board  may  secure  the  loan  by  deed  or 
other  lien.  This  is  a  part  of  the  business  transactions  of  a  corpo- 
ration which  has  always  been  regarded  as  within  the  province  of 
the  directors  to  perform.1  The  stockholders  of  a  corporation 
would  be  estopped  to  deny  the  authority  of  its  directors  to  bor- 
row money  and  make  a  mortgage  of  the  corporation's  property  to 
secure  the  loan,  even  if  they  were  not  authorized  to  do  so,  if 
they  ratify  the  action  of  the  directors  in  effecting  the  loan  and 
mortgaging  the  property  by  approving  the  minutes  of  their  pro- 
ceedings before  the  loan  is  effected,  and  afterward  receive  the 
benefit  of  the  loan  and  pay  interest  on  it.3  A  railroad  corpora- 
tion may  be  bound  by  its  directors  under  the  powers  usually  con- 
ferred upon  them  to  pay  interest  on  stock  subscribed  until  the 
completion  of  a  portion  of  its  road.3 

§  126.  More  illustrations  on  the  same  subject. —  The 
Supreme  Court  of  Colorado  has  held  that  a  proposition  by  the 
officers  of  a  private  corporation  to  pay  a  party  $5,000  in  the 
stock  of  the  company  for  his  services,  if  he  would  procure  a  loan 
of  $15,000  for  the  use  of  such  corporation,  or  a  proportionate 
amount  of  stock  for  a  smaller  loan,  duly  accepted  and  acted  on, 
warranted  the  finding  in  this  case  of  an  agreement  to  pay  such 
party,  in  the  capital  stock  of  the  corporation,  thirty-three  and 
one-third  per  cent  of  any  sum  he  could  procure  to  be  loaned  it ; 
also,  that  the  officers  acted  in  behalf  of  the  corporation,  although 
the  president  testified  that  the  stock  was  to  be  furnished  by  the 
officers  individually.4  Directors  authorized  to  receive  subscrip- 

contracts  made  by  directors,  see  Fisher  4  Arapahoe  Cattle    &  Land  Co.   t>. 

t>.  Gas  Company,  1  Pears.  (Pa.)  118;  Stevens,  (1889)  18  Colo.  684;  8.  c.,  22 

Martin  r.  Railway  Co.,  87  Leg.  Int.  182.  Pac.  Rep.  828.  The  court,  In  the 

1  Wood  r.  Whelcn,  (1879)  98  111.  158.  opinion,  discussed  the  question 

'Aurora  Agr.  &  Hort.  Society  of  whether  the  contract  was  within  the 

Aurora  t>.  Paddock,  (1875)  80  111.  268.  scope  and  authority  of  the  officers 

•'•  Milwaukee  &  Northern  Illinois  R.  making  it  and  binding  upon  the  cor- 

K.  Co.  v.  Field,  12  Wis.  840.  poration  as   follows:    "As   we   have 


164 


POWER  OF  AGENTS  AND  OFFICERS. 


[§126 


tions  for  stock,  payable  "  in  such  manner  as  the  board  of  direct- 
ore  should  direct,"  may  receive  payment  in  promissory  notes.1 
Under  the  authority  of  the  president  and  directors  of  a  corpora- 
tion to  manage  the  affairs  of  the  corporation  they  may  make  an 


already  seen,  the  corporation  was 
organized  for  the  purpose  of  buying 
and  selling  lands,  horses,  cattle,  etc., 
also  all  other  business  incidental  to 
stock  raising.  [The  president  and 
secretary]  were  general  officers  of  the 
company,  and  must  be  presumed  to 
have  the  powers  usually  conferred 
upon  such  officers.  In  addition  to 
this,  they  were  duly  empowered  to 
purchase  the  Gebhardt  stock,  etc., 
[for  which  purpose  the  money  loaned 
was  to  be  used],  and  this  authority 
must  be  held  to  be  as  broad  as  the 
transaction.  The  power  to  purchase 
necessarily  carried  with  it  the  power 
to  obligate  the  company  to  pay,  not- 
withstanding the  fact  that  a  by-law  of 
the  company  forbade  the  contracting 
of  any  debt  for  the  company  except 
by  order  of  the  board  of  directors. 
Plaintiff  was  not  a  member  of  the 
company,  and  his  rights  cannot  be 
affected  by  a  by-law  restricting  the 
general  powers  of  the  officers  of  the 
company,  of  the  existence  of  which 
by-law  he  is  not  shown  to  have  had 
notice.  Moraw.Priv.Corp.  §500;  Ang. 
&  A.  Corp.  370,  note  a;  Flint  v.  Pierce, 
99  Mass.  68-70;  Royal  Bank  of  India's 
Case,  L.  R.  (4  Ch.)  252;  Maher  v.  City 
of  Chicago,  38  111.  266."  The  question 
of  the  payment  for  services  of  the 
agent  negotiating  the  loan  in  stock  of 
the  company  also  received  the  atten- 
tion of  the  court  in  this  case.  They 
said,  upon  that  question:  "It  is  not 
necessary  that  shares  in  a  corporation 
be  paid  for  in  cash.  It  has  been  held 
that  the  managing  officers  for  a  cor- 
poration may,  in  their  discretion,  issue 
full  paid-up  shares  for  real  estate, 


labor  and  materials  useful  in  carrying 
on  the  corporate  business.  In  fact, 
such  payment  may  usually  be  made 
in  money  or  its  equivalent,  and,  if  in 
the  latter,  the  transaction  cannot  be 
impeached  for  error  of  judgment  on 
the  part  of  the  officers  of  the  company 
as  to  the  value  of  the  services  or 
property.  GjOod  faith  and  the  exer- 
cise of  an  honest  judgment  meet  the 
requirements  of  the  law.  Moraw.  Priv. 
Corp.  §§426,429;  Schenck  v.  Andrews, 
57  N.  Y.  133;  Douglass  v.  Ireland,  73  N. 
Y.  100;  Iron  Co.  v.  Drexel,  90  N.  Y. 
87;  Lorillard  e.  Clyde,  86  N.  Y.  384. 
The  [cases  just  cited]  were  all  de- 
cided under  the  provisions  of  the  act 
of  1853  of  the  state  of  New  York,  which 
act  was  amendatory  to  the  provisions 
of  a  previous  law  of  the  state  requir- 
ing that  nothing  but  money  should  be 
received  as  payment  for  the  stock  of 
incorporated  companies.  By  the 
amendment  the  trustees  of  such  com- 
panies were  authorized  to  purchase 
any  property  necessary  for  the  cor- 
porate business,  and  in  payment 
therefor  to  issue  stock  '  to  the  amount 
and  value  thereof.'  Under  this  act  it 
may  now  be  considered  as  the  settled 
doctrine  in  that  state  that  the  trustees, 
in  taking  property,  must  exercise 
their  discretion,  and  that  their  judg- 
ment as  to  the  value  of  the  property, 
and  the  necessity  for  it  will  not  be  in- 
terfered with,  in  the  absence  of  fraud. 
Thus  it  is  said  in  Schenck  v.  Andrews, 
supra :  '  They  were  the  agents  in  be- 
half of  the  company,  for  that  purpose, 
and  the  discharge  of  their  duty  called 
for  the  exercise  of  their  discretion  and 
judgment  (having  reference  and  due 


1  Magee  v.  Badger,  34  N.  Y.  247. 


_'7 1  I'KIVATE  CORPORATIONS.  165 

order  requiring  payment  of  an  installment  on  tho  stock.1  A  cor- 
poivtion  cannot  he  held  to  liave  contracted  unless  by  such  agents 
<T  officers  as  have  express  or  implied  authority.  Individual 
directors  have  no  power  whatever  to  hind  a  corporation.1  A 
hoard  of  directors,  when  no  express  restraint  appears  to  have 
been  imposed  upon  it,  may,  in  a  case  where  a  contract  has  been 
made  between  two  corporations  and  circumstances  indicate  an 
inability  on  the  part  of  one  party  to  the  contract  to  fulfill  the 
terms  of  the  agreement,  compromise  or  ad  just  the  matter  between 
the  two  corporations  on  a  basis  dispensing  with  full  and  complete 
performance.' 

§  127.  Illustrations  of  a  lack  of  power  in  directors.— 
Directors  of  a  corporation  cannot  delegate  their  authority  or  any 
portion  of  it  requiring  the  exercise  of  judgment  and  discretion, 
unless,  as  conferred  upon  them,  the  authority  includes  the  power 
of  substitution  in  express  terms,  or  by  necessary  implication.4 
Directors  of  a  corporation  have  no  authority  to  sell  the  stock  of 
the  coqjoration  at  a  less  sum  than  the  price  fixed  in  the  charter.5 

regard  to  the  interests  of  those  repre-  appropriate  his  property,  and  he, 
si-nti'd  by  them)  in  determining  what  nevertheless,  be  held  liable  to  a  con- 
should  be  bought,  and  the  price  to  be  tribution  in  favor  of  creditors,  to  the 
paid  therefor.  It  cannot  be  properly  extent  of  the  stock  issued  for  such 
claimed,  in  giving  a  construction  to  property,  if  a  jury  should  subse- 
the  power  conferred  on  them  by  the  quently,  and  at  an  indefinite  and  un- 
amendntory  act,  that  the  property  limited  period  thereafter,  find  that  the 
purchased,  and  every  part  thereof,  trustees  had,  under  a  mistake,  but  in 
should  be  indispensable  for  the  prose-  an  honest  exercise  of  their  judgment, 
cutiouof  the  business  of  the  company,  concluded  erroneously  either  that  the 
or  that  the  sura  allowed  therefor  property  was  in  fact,  as  disclosed  by 
should  be  its  precise,  actual,  intrinsic  subsequent  events,  not  absolutely  in- 
value  (and  that  to  be  determined  by  a  dispensable,  or  actually  worth  the 
jury),  for  the  exemption  of  a  stock-  full  sum  allowed  for  it.'" 
holder  from  the  liability  which  the  '  Union  Turnpike  Co.  c.  Jenkins,  1 
original  act  imposed,  in  case  the  whole  Caines,  381. 

capital  was  not  actually  paid  in  cash.  »  Lockwood   t>.  Thunder  Bay  River 

Such  a  construction  would  defeat  the  Boom  Co.,  (1880)  42  Mich.  536,  689; 

evident    object    of    the   law.    which  adhered  to  in  Hartford  Iron  Mining 

rlcarly  was  to  encourage  the  forma-  Co.  e.  Cambria  Mining  Co.,  (1890)  80 

tion  of  companies  by  the  appropriation  Mich.  491. 

of  manufactories,    mines    and     other  *  People  ex  rel.  Content  r.  Metropol- 

proporty,   proper  for   their   business,  itan  Elevated  Hy.  Co.,  28  Hun.  82. 

and    at  a  fair    valuation,    instead    of  4Gillis  r.  Bailey,  21  N.  II.  150. 

money  as  a  capital  therefor.     No  per-  *  Oliphant  r.  Woodburn  Coal  &  Min- 

»on  could  be  expected  to  become  a  ing  Co..  (1884)  68  Iowa.  832;  e.  c..  19 

stockholder  and    pay    his    money  or  N.  W.  Kep.  212.     On  this  point,  seo 


166  POWER  OF  AGENTS  AND  OFFICERS.  [§  127 

Neither  can  they  accept  property  for  a  (Stock  subscription  at  a 
price  largely  in  excess  of  its  value.1  And  a  subscriber  who 
received  the  shares  for  such  property  originally,  or  a  transferee 
of  such  shares  with  notice-,  at  the  suit  of  any  one  injured  thereby, 
may  be.  compelled  to  make  up  the  difference  in  value.:  Directors 
of  a  corporation  alone  cannot  increase  the  capital  stock  of  a  cor- 
poration unless  expressly  authorized.  The  general  power  to  per- 
form all  corporate  acts  which  they  may  have  refers  to  the  ordi- 
nary business  transactions  of  the  corporation,  and  does  not  extend 
to  a  reconstruction  of  the  body  itself,  or  to  an  enlargement  of  its 
capital  stock.3  The  subscriber  to  the  stock  ot  a  railroad  corpora- 
tion cannot  be  released  from  his  liability  for  his  subscription  by 
its  directors.4  It  is  not  within  the  power  of  officers  of  a  corpo- 
ration to  ratify  an  unauthorized  act  of  their  own.5  No  express 
promise  of  an  individual  director  of  a  corporation,  unless  author- 
ized, will  bind  the  corporation."  A  parol  contract  made  by  the 
directors  of  a  bank  is  not  binding  on  the  corporation.7  The  stock 
of  a  member  cannot  be  relieved  by  the  president  and  directors  of 
a  corporation  from  forfeiture  of  its  dividends  by  their  advancing 
the  money  of  the  corporation  to  satisfy  the  conditions  on  which 
a  forfeiture  of  dividends  depends,  as  it  is  not  in  their  power  to 
do  so.8  The  act  of  a  president  of  a  corporation,  which  the 
directors  themselves  have  no  authority  to  perform,  cannot  be 
ratified  by  the  directors.9  Where  a  charter,  while  giving  the 
directors  of  a  corporation  the  power  to  manage  its  stock,  prop- 
erty and  affairs,  provides  that  the  corporation  should  have  the 
power  to  assess  the  stockholders  in  order  to  pay  the  corporation 
debts,  its  directors  cannot  exercise  the  power  of  assessment  with- 
out authority  from  the  corporation.10  There  is  no  power  in  a 

Sturges  v.  Stetson,  1  Biss.  246;  Fos-  8  Railway  Co.  v.  Allerton,  (1873)  18 

dick  v.  Sturges.  1  Biss.  255;  Mann  v.  Wall.  233. 

Cooke,  20  Conn.  188;  Fisk  v.  C.,  11.  I.  4  Bedford  Railroad  Co.  v.  Bowser,  48 

&  P.  R.  Co.,  53 Barb.  472.  513;  O'Brien  Pa.  St.  29. 

0.  C.,  R.  I.  &  P.  R.  Co.,  53  Barb.  568;  BHotchin  v.  Kent,  8  Mich.  526. 

Neuse  River  Navigation  Co.  «.  Com-  •  Workhouse  v.  Moore,  95  Pa.   St. 

missioncrs,  7  Jones  Law  (N.  C.),  275.  408. 

1  Osgood  r.  King,  42  Iowa,  478.  '  Hughes  v.  Bank  of  Somerset,  (1824) 

'Jackson  v.  Traer,  (1884)  64  Iowa,  5  Litt.  (Ky.)  45. 

469;  s.  c.,  20  N.  W.  Rep.  764.     Sec  'Marine  Bank  r.  Biays.  4  H.  &  J. 

Bailey  r.   Pittsburg   &    Connellsville  (Md.)  338. 

Gas,  Coal  &  Coke  Co.,  69  Pa.  St.  334;  'Cram's  Appeal,  66  Pa.  St.  474. 

Boynton  v.  Hatch,  47  N.  Y.  225:  Tall-  ln  Marlborough  Manufacturing  Co.  v. 

madge  r.  Fishkill  Iron  Co.,  4  Barb.  882.  Smith,  2  Conn.  584. 


}'KI\  All     <  oKl'.  .I:.\IJ<  107 

Dimple  director  or  vice-president  of  a  railroad  company,  by  virtue 
of  bis  office,  to  appoinT  aireiit-  t«.  sell  the  lands  or  the  tim1>er  on 
them.1  Without  special  authority.  ;i  director,  as  such,  cannot 
make  notes  binding  the  corporation.3  The  directors  of  a  rail 
way  corporation  cannot  give  away  it>  >tock.'  A  committee  of 
its  directi'ix  autlion/eM  l>\  a  railroad  corporation  to  enter  into  a 
contract  for  the  construction  of  its  road,  after  the  contract  is  exe- 
cuted, would  have  no  power  to  modify  the  contract  as  originally 
made.4  Directors,  though  they  may  compromise  an  existing 
claim,  have  no  implied  power  to  make  new  agreements  radically 
modifying  previous  agreements  which  they  did  HOT  make  and 
had  no  power  to  make.5  The  directors  of  a  corporation  have  no 
power  to  make  a  donation  from,  or  misappropriate  the  funds  of 
the  corporation  in  viojation  of  the  laws  and  rules  regulating  its 
mode  of  action.6 

$  128.  When  notes  will  be  held  to  have  been  authorized 
by  a  board  of  directors. —  In  a  case  in  the  federal  court  for  the 
district  of  Kansas  it  was  urged  that  certain  notes  issued  by  a  rail- 
road company  were  in  violation  of  a  by-law  of  the  company, 
which  prohibited  the  giving  of  notes,  bonds,  bills,  acceptances, 
etc.,  by  the  company  unless  ordered  by  the  board  of  directors. 
FOSTER,  J.,  said  upon  this  that  "  [one]  note  was  made  by  positive 
order  of  the  board  of  directors,  and  by  the  president  and  secre- 
tary, as  therein  directed.  Some  by-law  of  the  company  required 
notes  to  l)e  made  to  the  order  of  the  president  and  secretary. 
This  is  a  mere  matter  of  form,  and  not  material.  The  other  notes 
were  made  [before  the  adoption  of  the  by-law],  and  besides,  the 
board  of  directors  at  their  meeting  [held  nine  months  before  their 
execution],  directed  that  orders  be  drawn  on  the  company  for 
[their  amount].  Orders  are  not  notes,  but  that  order  of  the  board 
would,  doubtless,  have  been  good  for  acceptances,  which  stand  on 
the  same  footing  as  notes  under  the  by-laws."7 

1  Chicago  &  Northwestern   R.  Co.  t.  'Metropolitan   Klrvntrd  Uv.   » 

James,  22  Wis.  194.  .Manhattan  Ky.  Co.,  (Spl.  Term  Sup. 

'Lawrence   r.    Ocbhanl,    41     Barb.  Ct.  1W4)  14  Abb.  N.  C.  108:  s.  r.,  11 

575.  Daly.  ITS 

•Thornton   t.  St.  Paul,  etc.,  R.  R.  'Frankfort   Hank  r.  Johnson,  (1844) 

Co.,  6  N.  Y.  Wkly.  Dig.  309.  '24  Me.  490. 

'Western    R.  R.  Co.  r.  Bayne,   11  '  Stewart  r.  St.  I/ouis.  Ft.  S.  A:  W.  R 

Hun,  166.  Co.,  (1887)  41  Fed.  Rep.  786.    In  Wile 


168 


POWER  OF  AGENTS  AND  OFFICERS. 


[§§  129,  130 


§  12$.  Waiver  by  directors  of  their  power  to  repudiate  a 
contract. —  The  officers  of  a  corporation  being  made  subject  by 
the  by-laws  of  a  corporation  to  its  board  of  directors,  provided 
the  board  elect  to  exercise  such  control,  should  the  board  for 
some  length  of  time  tail  to  repudiate  a  contract  made  by  the 
superintendent  and  treasurer  of  the  corporation,  their  failure  PO 
to  act  will  be  presumed  to  operate  as  a  waiver  of  their  power/ 

§  130.  Power  of  trustees  of  a  corporation. —  The  trustees 
of  a  corporation  have  authority  to  enter  into  contracts  for  the 
payment  of  money,  under  the  corporate  seal,  in  furtherance  of 


&  Brickner  Co.  r.  Rochester  &  K.  F. 
Land  Co.,  (1893)  4  Misc.  Rep.  570;  s. 
t1.,  25  N.  Y.  Supp.  794.  where  notes 
were  given  by  the  corporation  to  two 
of  its  directors  in  payment  for  prop- 
erty purchased  from  them,  the  resolu- 
tion to  purchase  and  to  give  the  notes 
having  been  adopted  at  a  directors' 
meeting  when  the  vendors  were  pres- 
ent and  were  necessary  to  constitute  a 
quorum,  but  they  did  not  vote  on  the 
resolution,  it  was  held  that  though  the 
transaction  was  voidable  as  between 
the  corporation  and  its  directors,  the 
notes  so  given  were  valid  in  the  hands 
of  a  bona  fide  purchaser,  who,  before 
taking  them,  asked  the  corporation's 
secretary  about  them,  and  was  in- 
formed that  they  had  been  authorized 
by  the  board  of  directors.  The  court 
distinguished  People's  Bank  r.  St. 
Anthony's  Roman  Catholic  Church, 
109  N.  Y.  513;  8.  c.,  17  N.  E.  Rep. 
408,  in  that  in  that  case  it  appeared 
affirmatively  that  the  officers  who 
signed  the  note  acted  separately  and 
not  at  a  meeting  of  the  board,  and  that 
1  here  was  no  corporate  act  as  a  basis 
of  their  authority  so  to  do. 

1  Indianapolis  Rolling  Mill  Co.  t. 
St.  Louis,  F.  S.  &  W.  R.  Co.,  26  Fed 
Rep.  140.  Affirmed  in  Indianapolis 
Rolling  Mill  r.  St.  Louis,  Fort  Scott 
&  Wichita  Railroad,  (1887)  120  U.  S 
256;  8.  c.,  7  Sup.  Ct.  Rep.  542,  in  which 
case  the  Supreme.  Court  of  the  United 


States  said:  "The  rule  of  law  upon 
the  subject  of  the  disaffirmance  or 
ratification  of  the  acts  of  an  agent  re- 
quired that  if  they  had  the  right  to 
disaffirm  it  they  should  do  it  promptly, 
and  if  after  a  reasonable  time  they  did 
not  so  disaffirm  it,  a  ratification  would 
be  presumed.  In  regard  to  this  it 
appears  that  the  board,  when  notified 
of  what  had  been  done  by  their  agents, 
did  not  disaffirm  their  action  at  that 
time,  but  that  the  act  or  resolution  of 
disaffirmance  was  'passed  about  two 
years  after  notice  of  the  transaction, 
and  that  if  the  suit  brought  in  this 
case,  can  "be  considered  as  an  act  of  dis- 
affirmance. it  came  too  late,  as  it  was 
commenced  some  six  months  after  they 
had  knowledge  of  the  release.  It  was 
stated  in  the  somewhat  analogous 
case  of  The  Twin-Lick  Oil  Co.  *.  Mar- 
bury,  91  U.  S.  592,  'the  authorities 
to  the  point  of  the  necessity  of  the 
exercise  of  the  right  of  rescinding  or 
avoiding  a  contract  or  transaction  as 
soon  as  it  may  be  reasonably  done 
after  the  party,  with  whom  that  right 
is  option;;.!,  is  aware  of  tne  facts  which 
gave  him  that  option  are  numerous. 
*  *  *  The  more  important  arc  as 
follows  :  Badger  r.  Badger.  2  Wall. 
87  ;  Harwood  •».  Railroad  Cc..  17  Wall. 
78  ;  Marsh  r.  Whitmore.  21  Wai..  178  - 
Tigers  «.  Pike.  8  Cl.  &  Fin.  65C : 
Wentworth  c.  Lloyd.  32  Beav.  467; 
Follansbe  ?.  Kilbreth,  17  III  522 :  s. 


l.'il]  PRlv.vn   OOBPORA  riOl 


the  hiiHiiess  of  the  corporation.1  A  corporation  may  be  bound 
l>v  tlie  contract  of  a  Ooard  of  tru>tee>  holding  their  office  under  a 
judicial  deci.-ion  .It-daring  their  title  to  the  office.  And  the  cor 
poration  will  not  he  relieved  from  its  liability  by  a  subsequent 
;  -al  of  this  decision  on  appeal.2  Under  the  law  of  California 
empowering  the  trustees  of  a  corporation  formed  under  the 
general  laws  of  that  state,  to  levy  and  collect,  for  the  purpose  of 
paying  expenses  incurred  in  the  management  of  the  corporation's 
husine-.-,  a»e»ments  HJHMJ  the  capital  stock  of  the  corporation 
not  to  exceed  five  per  cent  of  such  capital  stock,  provided  no 
previous  assessment  then  remained  unpaid  or  uucollected,8  such 
trustees,  where  the  expenses  incurred  in  the  management  have 
largely  exceeded  ten  thousand  dollars,  may  levy  and  collect  Mich 
assessments  upon  the  stock  as  will  pay  those  expenses,  notwith- 
standing a  by-law  of  the  corporation  limiting  the  amount  of  the 
indebtedness  they  may  incur  to  ten  thousand  dollars.4  It  is  not 
beyond  the  power  of  the  trustees  of  a  secret  society  vested  with 
general  power  to  manage  its  property,  to  lease  the  lodge  room  to 
another  society  for  use  one  night  in  each  week.5 

§  131.  Power  of  officers  of  a  corporation  to  employ  attor- 
neys. —  Attorneys  and  counsellors  may  be  employed  by  the  man- 
aging officers  of  a  corporation  without  any  specific  authorization 
to  that  effect  by  formal  resolution  of  the  board  of  directors.6 

o.,  65  Am.   Dec.  691.'    See,  also,  Gold  corporation  may  make  a  contract,  ami 

Mining  Co.  r.  National  Bank,  96  U.  S.  their  power   to  draw   the  money  on 

<;•<>  ,  Law  r.  Cross,  1  Black,  533."  checks  issued  in  payment  under  such 

1  Clark  r.    Farmers'  Woolen  Manu-  contract,  sec  Sheridan  Electric  Light 

lecturing  Co.,  15  Wend.  256.  Co.  v.  Chatham  National  Bank,  (1891) 

*  Ebaugh     r.     German      Reformed  127  N.  Y.  517;  R.  c..  28  N.  E.  Hep.  467. 
<  liur.h,  8  E.  I).  Smith,  60.  •  Western  Bank  of  Missouri  r.  Gils- 

*  Pub.  Laws  Cal.  1864,  402.  trap,  (1870)  45  Mo.  419.     The  Appel- 
4  Sullivan    r.  Triunfo  Gold  &  Silver   hie  Court  of  Missouri,  in  a  ease  when- 

Mining  Company,   (1866)  29  Cal.  585.  one  of  the  contentions  was  that  no  legal 

'Phillip  r.  Aurora  Lodge,  No.  104,  authority  to  prosecute  the  suit  on  \»- 

I.  O.  G.  T.,  (1882)  87  Ind.  505.     See  half  of  the  corporation  was  shown. 

Miller  /•.    Ch.-mre,  8  Edw.  899,  where  said:     "  The  law  in  this  state  is  sett  led 

it  was  In-Ill  that  a  mortgage  executed  by  a  course  of  uniform  adjudications 

by  five  of  nine  chosen  trustees  might  that  no  formal  resolution  of  the  board 

tie   ]  (resumed  to  have  been  executed  of  directors  is  prerequisite  for  the  em- 

with  the  concurrence  of  a  majority  of  ployment  of  counsel    for   u  corpora- 

the  board.    I'mler  what  circumstances  tiuii      Western    Bank    r.    (Jilstrap,   4"> 

an  executive  committee  appointed  by  Mo.    411):    Southgatc    r.    Kailroad,    61 

a  board  of  trustees  of  a  manufacturing  Mo.  W);  Thompson*-.  School  District, 

22 


170  POWER  OF  AGENTS  AND  OFFICERS.  [§  132 

§  132.  When  officers  may  use  bonds  as  collateral. — A 
manufacturing  corporation  having  been  placed  in  the  hands  of  a 
receiver  in  Soutli  Carolina,  the  master  having  found  certain  bonds 
in  the  hands  of  creditors  to  have  a  priority  of  lien,  and  his  report 
having  been  confirmed,  application  was  made  upon  the  ground  of 
newly-discovered  evidence  which  it  was  claimed  would  show  that 
the  resolutions  of  the  board  of  directors  authorizing  the  issue  of 
these  bonds  did  not  authorize  such  use  of  them  as  had  been  made 
with  these  particular  creditors  for  an  opening  and  recommitting 
of  the  report  of  the  master.  Upon  the  merits  of  the  application 
the  trial  judge  said  it  must  fail,  and  gave  these  reasons  :  "  The 
purpose  with  which  the  bonds  in  question  were  issued  is  declared 
in  the  preamble  of  the  resolutions  authorizing  them  to  be  '  to  pro- 
vide commercial  capital  for  the  proper  management  of  the  busi- 
ness of  the  company.'  This  was  to  be  accomplished  by  the  sale 
of  the  bonds  or  by  their  use  as  collaterals.  In  the  course  of  busi- 
ness it  became  necessary  to  raise  money  to  buy  cotton  and  to  pay 
the  employees  of  the  mill  or  to  stop.  An  application  was  then 
made  to  the  bank  *  and  the  resident  directors  to  advance 

71  Mo.  495;  Holmes  «.  Board  of  Trade,  ployed  attorneys  by  the  year  and  paid 

81  Mo.  137.     In  the  last    case    cited  them  in  its  stock;    that   the  contract 

Judge  HOUGH  says:     'A  contract  for  had  been  made  by  the  president,  with 

legal  services  may  be  made  by  the  the  approval  of  the  board  of  directors, 

tacit  or  implied  contract  of  the  board  and  that  plaintiff  rendered  the  services 

of   directors,'    and    in  Thompson    v.  called  for  by  his  contract  with  the 

School  District,  supra,  Judge  SHEK-  knowledge  of  the  directors.     The  New 

WOOD  says:     'Of  course,  if  we  con-  York  Court  of  Appeals  held  that  the 

cede  the  power,  without  formal  reso-  evidence  was  sufficient  to  warrant  a 

lution,    to    employ  an    attorney,  the  finding  that  the  contract  was  approved 

usual  results  of  such  employment  will  of  or  acquiesced  in  by  the  directors, 

follow    as  a  necessary  consequence.'  As  to  a  president's  authority  or  that  of 

The  question  in  that  case  was  whether  other  officers  to  employ  counsel,  etc., 

the  entry  of  the  appearance  of  the  cor-  see  Potter  p.  New  York  Infant  Asylum, 

poration  as  a  party  defendant  by  at-  44  Hun,  367;  Insurance  Co.  r.  Oakley, 

torney  was  duly  authorized."    Presi-  9  Paige,  496;  Bank  r.  Bank,  10  Wall, 

dent  Mining  &  Milling  Co.  v.  Coquard,  604;    Root    ?;.    Olcott,   42    Hun,    536; 

(1890)  40  Mo.  App.  40,  43.     Merrill  v.  Rider  Life  Raft  Co.  r.  Roach,  97  N.  Y. 

Consumers'  Coal  Company,  (1889)  114  378;  Bridenbecker  v.  Lowell,  32  Barb. 

N.  Y.  216,  was  an  action  of  an  attor-  9;  Chemical  Bank  v.  Kohner,  8  Daly, 

ney  against  a  corporation  to  recover  530;  Bank  v.  Butchers',  etc. ,  Bank,  26 

shares  of  its  stock  to  which  he  alleged  How.  Pr.  5;  Hooker  r.  Eagle  Bank,  30 

he  was  entitled  for  services  for  one  N.  Y.  86;  Peterson  F.  Mayor,  etc.,  17 

year  under  a  contract  made  with  its  N.   Y.  449;  Mumford   r.   Hawkins,  5 

president.     It  appeared  that  the  corpo-  Denio,  355. 
ration  had  from  its  organization  em- 


§  133]  PRIVATE  CORPORATIONS.  1  7  I 

tin-  money  needed,  and  to  hold  the  bonds  as  collateral  security 
until  they  could  be  sold  outright.  This  arrangement  was  made 
and  the  money  advanced,  and  the  bonds  deposited  as  collateral 
security  with  the  bank  and  the  resident  directors.  This  * 
was  done  with  the  full  knowledge  and  consent  of  the  board  <>!' 
directors,  and  the  money  used  to  carry  on  the  mill,  and  all  this 
was  done  before  the  bonds  were  taken  by  *  *  *  tin-  princi- 
pal moving  creditor."  He  then  refers  to  certain  affidavits  made 
in  the  case  and  said  :  "  If  true,  then  there  has  been  no  improper 
or  unauthorized  use  of  said  bonds,  and  if  they  were  not  pledged 
by  resolution  of  the  directors  duly  assembled,  the  company,  with 
their  knowledge  and  approval  or  gratification  [ratification  ?],  have 
received  the  benefit  of  the  money  advanced  on  the  said  bonds, 
and  the  transaction,  in  law  or  equity,  must  stand  as  against  the 
said  company  and  all  creditors." l  The  Supreme  Court  affirmed 
this  judgment,  referring  to  the  action  of  the  judge  in  these 
words:  "There  can  be  no  doubt  whatever  that  one  of  the  pur- 
poses for  which  the  bonds  were  issued  was  to  raise  money  to  con- 
tinue the  running  of  the  mills,  and  there  is  quite  as  little  that 
upon  application  [the  creditors  whose  claims  were  preferred  by 
the  master]  did  advance  largely  for  that  very  purpose.  Debts 
were  pressing,  two  of  the  directors  were  absent  from  the  state, 
non-residents,  and  a  majority,  the  other  six,  authorized,  infor- 
mally, it  may  be,  these  bonds  to  be  held  by  [them]  as  collateral 
security  for  advances  made  by  them,  as  was  done  in  the  case  of 
other  advances,  and  upon  the  faith  of  this  transaction  the  advan- 
ces were  actually  made  and  used  to  the  relief  of  the  company. 
Under  these  circumstances  it  seems  to  us  that  the  circuit  judge 
did  not  abuse  his  judicial  discretion  in  holding  [as  he  did]." ; 

§  133.  When  the  execution  of  a  note  is  not  authorized.— 
In  a  Nevada  case,  where  the  execution  of  a  note  by  a  president 
and  secretary  of  a  corporation  was  held  to  have  been  unauthor- 
ized, the  Supreme  Court  further  held  that  where  information  <>f 
such  act  was  not  communicated  to  the  trustees  as  a  board,  the 
trustees  could  not  be  held  to  have  ratified  the  act  by  reason  <>f 
the  knowledge  of  a  majority  thereof  acquired  while  acting  as 

1  Hubburd  r.  Campordown  Mills,  *  Citing  Kctrhmn  r.  Duncan.  !M;  t. 
(1887)  26  8.  C.  581,  584;  8.  c.,  2  8.  E.  8.  659;  Claflin  r.  South  Carolina  K.  K. 
Hep.  576.  Co.,  8  Fed.  Rep.  118. 


1 72  POWER  OF  AGENTS  AND  OFFICERS.  [§  134 

president  and  secretary  ;  also  that  the  fact  that  the  secretary  made 
out  a  statement  of  the  debts  of  the  corporation  in  gross  was  not 
sufficient  to  give  the  stockholders  notice  that  an  unauthorized 
note  was  included  therein,  so  that  by  their  inaction  they  should 
be  held  to  have  ratified  it,  or  to  be  estopped  to  deny  its  validity.1 

§  134.  Execution .  of  promissory  notes  and  transfer  of 
choses  in  action. —  Authority  to  execute  and  issue  promissory 
notes  of  a  corporation  need  not  be  expressly  given  to  its  officers 
by  the  by-laws  of  the  corporation  or  by  formal  resolution  of  its 
board  of  directors.2  Such  authority  may  be  inferred  from  the 
acquiescence  of  the  corporation  in  or  its  recognition  of  the  acts 
of  its  accredited  officers  in  the  regular  course  of  the  authorized 
business  of  the  corporation.8  A  note  executed  by  an  agent  of  a 
manufacturing  corporation  will  not  be  presumed  to  have  been 
authorized  by  the  corporation.  To  render  such  a  note  valid 
against  the  corporation  the  powers  of  the  agent  must  be  shown.4 
The  officers  of  a  corporation  have  no  power  to  authorize  the  exe- 
cution of  a  note  as  surety  for  another  in  respect  to  a  matter  having 

1  Edwards    v.    Carson    Water    Co.,  the  unauthorized  acts  of  his  or   its 

(Nev.   1893)  34  Pac.    Rep.  381.    See,  agents,   every  detail  of  the  transac- 

also,  Hotchin  v.    Kent,   8  Mich.  527;  tioii  must  have  been  made  known  to 

Dabney  v.  Stevens,  40  How.  Pr.  344;  the  principal.     If,  after  obtaining  such 

Story  Ag.  §  243;  Howell  v.  McCrie,  knowledge,  the  principal  fails  to  act, 

36  Kans.  652;  s.  c.,  14  Pac.  Rep.  257;  long  and   continued  silence    will   be 

Combs  t>.  Scott,  12  Allen,  496;  Mallory  deemed  an  approval  of  the  act,  and 

v.  Mallory  Wheeler  Co.,  61  Conn.  141;  such  ratification  relates  back  and  is 

s.  c.,  23  Atl.  Rep.  708;  Despatch  Line  equivalent    to    a    prior    authority  to 

of  Packets  v.  Bellamy  Mfg.  Co.,  12  N.  make  the  contract."     Citing  1   Dan. 

H.  205,  232;  Lyndon  Mill  Co.v.  Lyndon  Neg.  Inst.  §§  316-319;  Stark  Bank  v. 

Literary  &  Biblical  Inst.,  63  Vt.  581;  United  States  Pottery  Co.,  34  Vt.  144, 

s.    c.,   22  Atl.    Rep.    577;   Owings  v.  146;  Story  on  Agency.  §  239;  Bank  v. 

Hull,   9  Pet.  629;  Bohm   r.  Brewery  Jones,  18  Tex.  816;  Smith  r.   Tracy, 

Co.,  (1S90)  16  Daly,  80;  s.  c.,  9  N.   Y.  36  N.  Y.  79,  82;  French  v.  O'Brien,  52 

Supp.  515;    Murray  *.   Lumber  Co.,  How.  Pr.  394,  398;  Combs®.  Scott,  12 

143  Mass.    250;  s.  c.,   9  N.  E.   Rep.  Allen,   493,   497.     See,    also,    Yellow 

634;  Fitzhugh  v.  Land  Co.,  81  Tex.  Jacket  Silver  Mining  Co.  v.  Stevenson, 

310;  s.  c.,  16  S.  W.  Rep.  1078;  Dedham  5  Nev.  224,  228;  Hillyer  «.   Overman 

Institution    for  Savings    v.    Slack,   6  Silver  Mining  Co.,  6  Nev.  51,  55. 

Cush.   408,   411.     The  Nevada  court  *  First  National  Bank  of  Hannibal 

in    Edwards    t>.    Carson    Water  Co.,  v.  North  Missouri  Coal  Co.,  (1885)  86 

supra,  give  this  as  their  understand-  Mo.  125. 

ing  of    the  law  upon    this    subject:  3  Ibid. 

"That  before   an  individual  or  cor-  *  Benedict  v.  Lansing,  5  Denio,  283; 

poration  can  be  held  to  have  ratified  Lawrence  v.  Gebhard,  41  Barb.  575. 


§  135]  PRIVATE  CORPORATIONS.  173 

no  relation  to  the  corporate  business,  and  in  which  the  corpora- 
tion has  no  interest.1  Such  a  transaction  is  not  within  the  scope 
of  its  business,  and  a  party  receiving  such  note  with  notice  of  the 
circumstances  under  which  it  i.s  given  cannot  recover  oil  it.8  A 
corporation  may  authorize  its  proper  officer  to  assign  a  note  by 
delivery."  The  authority  of  an  agent  of  a  corporation  to  indorse 
a  note  may  be  shown  by  other  evidence  than  the  by-laws,  as  for 
instance,  that  a  president  and  treasurer  of  the  corporation  was  in 
the  habit  of  negotiating  notes  of  the  corporation  with  the  sanction 
of  its  finance  committee.4  An  agent  of  a  corporation  may  have 
authority  to  transfer  a  note  by  indorsement  but  has  no  authority  to 
bind  the  corporation  as  indorser.5  Express  authority  from  a  board 
of  directors  of  a  corporation  is  not  necessary  to  enable  its  managing 
agent,  to  whom  has  been  intrusted  the  management  of  the  affairs 
of  the  corporation,  to  assign  the  choses  in  action  belonging  to  it 
to  its  creditors,  either  in  payment  of,  or  as  security  for,  the 
payment  of  a  precedent  debt.6  Officers  of  a  corporation,  within 
their  general  powers,  may  assign  its  choses  in  action  in  such  man- 
ner as  they  may  deem  expedient.7  A  corporation,  it  seems,  would 
be  bound  by  an  assignment  of  its  dues  without  recourse  by  one 
of  its  officers  intrusted  with  the  collection  of  its  debts  upon 
receiving  the  amount.8 

§  135.  Notes  signed  by  officers  of  a  corporation. —  GIL- 
BERT, United  States  Circuit  Judge,  in  sustaining  a  demurrer  to 
the  defense  in  an  action  upon  the  promissory  note  of  a  corpora- 
tion, that  the  president  and  secretary  of  the  corporation  had  no 
authority  from  the  corporation,  either  by  by-law  or  resolution,  to 
execute  the  note,  and  that  the  corporation  received  no  benefit 
therefrom  and  did  not  ratify  the  same,  declared  these  rules  of 
law  upon  the  questions  involved,  to  wit :  "  The  payee  or  indorsee 
of  a  negotiable  promissory  note,  signed  by  the  officers  of  a  cor- 
poration as  the  note  of  the  corporation,  is  not  required  to  ascer- 

1  Hall  ».  Auburn  Turnpike  Com-  •  McKiernan  <?.  Lenzen,  (1880)  59 

pany,  (1865)  27  Cal.  255.  Cal.  61;  Gillctt  r.  Campbell,  1  Denio, 

•Ibid.;  Bank  of  Genesee  t.  Patchin  522;  Carey  r.  Giles,  10  Ga.  10;  Phil- 
Bank,  18  N.  Y.  809.  lips  «.  Campbell.  48  N.  Y.  271. 

•  Blate  v.  Holley,  (1860)  14  Ind.  883.  '  Blake    r.    Holley,    (1860)  14  Ind. 
4  Brown  c.  Donnell,  (1860)  49  Me.  888. 

421.  •  ^Etna  Insurance  Co.  r.  Wires,  28 

•  Ibid.  Vt.  98. 


174  POWER  OF  AGENTS  AND  OFFICEES.  [§  136 

tain  whether  the  officers  have  authority  to  make  the  note.  .V 
corporation  formed  under  the  General  Incorporation  Laws  for 
the  purpose  of  conducting  business  has,  so  far  as  the  law  is  con- 
cerned, the  same  power  that  an  individual  has  to  contract  debts 
whenever  necessary  or  convenient  in  furtherance  of  its  legitimate 
objects.  It  may  borrow  money  to  pay  its  debts.  It  may  execute 
notes,  bonds  and  bills  of  exchange.  The  power  to  sign  such 
paper  may  be  conferred  upon  any  officer.  If  the  president  and 
secretary  sign,  their  authority  is  inferred  from  their  official  rela- 
tion. All  persons  dealing  with  them  have  the  right  to  assume 
that  there  is  no  restriction  of  that  authority.  They  also  have 
the  right  to  assume,  unless  they  have  actual  notice  to  the  contrary, 
that  a  note  so  signed  is  made  in  the  regiilar  course  of  the  business 
of  the  corporation.  To  hold  otherwise  would  destroy  the  nego- 
tiability of  all  notes  made  by  corporations."1 

§  136.  Power  of  bank  officers. —  It  is  not  sufficient  to  estab- 
lish the  official  character  of  a  person  to  designate  him  as  an  offi- 
cer. There  must  be  competent  and  official  proof  of  his  authority 
to  act  in  an  official  capacity.  Therefore,  the  assignment  and 
acknowledgment  of  a  judgment,  purporting  to  have  been  made 
by  a  bank,  in  the  absence  of  proof  of  the  authority  of  the  persons 
executing  the  assignment  in  the  name  of  the  bank,  were  held  not 
sufficient  to  establish  the  fact  of  the  assignment.2  An  assignment 
of  the  assets  of  a  banking  corporation  under  a  resolution  of  its 
directory,  for  a  purpose  within  the  scope  of  their  powers,  \$>prima> 
facie  valid.3  The  settlement  of  a  defalcation  to  a  bank,  and  the 
acceptance  of  a  deed  of  real  estate  in  satisfaction  and  release,  are 
not  transactions  which  fall  within  the  ordinary  powers  of  a  corpo- 
ration which  may  be  exercised  by  its  agents  or  persons  who  are 
held  out  to  the  public  as  such.  Power  to  do  such  acts  must  be 
conferred  by  the  board  of  directors.4  The  president  of  the 
directory  of  a  banking  corporation  cannot  use  its  cash  or  credits, 

1  American  Exchange  National  Bank  3  Gibson  v.  Goldtliwaite,  (1845)  7  Ala. 

v.  Oregon  Pottery  Co.,  (1892)  55  Fed.  381. 

Rep.  265;   citing  Merchants'  Bank  v.  4Bank  of  Healdsburg  r.  Bailhache, 

State  Bank,  10  Wall.  644;  Crowley  v.  (1884)  65  Cal.  327;  Gashwiler  v.  Willis, 

Mining  Co.,  55  Cal.  273;  1  Dan.  Neg.  33  Cal.  11;  Blen  v.  Bear  River  Co.,  30 

lost.  %  381.  Cal.  603. 

»  Klemmc  «.  McLay,  (1885)  68  Iowa, 
158;  s.  c.,  36  N.  W.  Rep.  53. 


•J]  PRIVATE  CORPORATIONS.  175 


etc.,  tor  tin-  purpose  of  settling  the  demands  of  ite  creditors,  in 
the  ab-ciice  of  authority  conferred  l>y  IN  charter,  by-laws  or  reso- 
lution of  the  directory  within  their  power  to  adopt.1  And  the 
affixing  of  tlie  seal  of  tin-  corporation  to  an  unauthorized  tran.-fer 
by  its  president  of  its  assets  cannot  impart  validity  to  the  transfer.2 
The  officers  of  a  national  hank,  without  express  authority  from  its 
shareholder-,  after  tin;  hank  goes  into  liquidation,  can  only  bind 
them  I  >y  acts  implied  hy  the  duty  <if  liquidation.3  General 
authority,  unrestricted  hy  rules  or  hy-laws,  given  to  the  president 
and  cashier  of  a  hank  to  manage  and  control  all  of  its  financial 
affairs,  does  not  authorize  them  to  use  the  property  of  the  bank 
for  private  purposes  of  their  own,  or  for  the  benefit  of  them- 
selves; therefore,  they  cannot  bind  the  hank  by  a  contract  to 
which  they,  or  either  of  them,  are  partie>.4 

jj  137.  Power  of  a  bank  cashier.  —  A  cashier  of  a  hank  has 
no  authority,  by  virtue  of  his  office,  to  represent  the  bank  at  a 
meeting  of  the  creditors  of  an  insolvent,  and  to  vote  for  syndic. 
A  resolution  of  the  board  of  directors  can  alone  empower  him  to 
do  so.5  The  cashier  of  a  bank  is  held  out  to  the  world  as  its 

1  Gibson    r.    Goltlthwaite,   (1845)    7  of  a  president  of  a  national   banking 

Al:i.  :*NI.     Sec  Haliowt'H  &  Augusta  association  to  bind  the  association  by 

Hank  f.  Humlin.  14  Mass.  180.  an  agreement  to  hold,  without  collect  - 

•  Gibson  r.    Goldthwaite,    (1845)    7  ing,  n  note  which  had  been  indorsed  to 

Ala.  2S1.    In  Cross  r.  Anglo-  American  it  at  the  president's  request,  for  the  pur- 

Banking  Co.,  (1894)  79  Hun,  424;  B.C..  pose  of  increasing  the  bank's  assets 

29  N.  Y.  Supp.  960;  61  N.  Y.  St.  Repr.  and  enabling  it  to  pass  an  expected  ex- 

->?(>,  the  president  and  chief  executive  animation  of  the  inspector. 

of  :i  foreign  banking  corporation  hav-  3  Richmond  r.   Irons,  (1887)  121  U. 

ing  its  principal  place  of  business  in  S.  27;  s.  e.,  7  Sup.  Ct.  Rep.  788.      In 

tin-  city  of  New  York,  being  author-  Schroder   r.   Manufacturers'  National 

i/.cil   by  its  articles  of  incorporation  Bank  of  Chicago,  (1890)  133  U.   S.  67; 

and  by  the  action  of  its  directors  to  s.  c.,  10  Sup.  Ct.  Rep.  238,  it  was  held 

open  its  office  in  that  city,  was  held  that  the  rights  of  the  shareholders  could 

presumptively  to   have    authority   to  not  be  affected  by  the  acts  of  the  presi- 

purchase    the  furniture  necessary   to  dent,  done  after  the  bank   had  gone 

equip  the  office  of   the  corporation,  into  liquidation. 

there  being  no  by-law  of  the  corpora-  *  Rhodes  e.  Webb,  24  Minn.  292. 

tion  or  resolution  of  the  directors  lim-  s  Reed    r.    Powell.    (1845)    11   Rob. 

iting  his  power,  or  requiring  that  no  (La.)  98.     The  court  said:  "The  di- 

cxpenditureH  should  be  made  except  rectors  are  the    general    agents    and 

under  a   resolution  of  the   board  of  administrators  of  the  corporation,  and 

directors.     In  First  National  Bank  of  by   the    charter    are    empowered    to 

Whitehall  r.  Tisdale,  (1881)  84  N.  Y.  appoint  such  officers  and  sub-agents 

665,  it  was  held  to  be  beyond  the  power  as  may  be  necessary  for  the  tranaac- 


176 


POWER  OF  AGENTS  AND  OFFICERS. 


executive  officer  intrusted  with  its  notes  and  bills,  and  the  collec- 
tion and  transfer  of  them  in  the  ordinary  course  of  its  business. 
And  in  case  of  promissory  notes  held  by  banks  an  indorsement 
by  the  cashier  of  the  bank,  in  his  official  character,  is  sufficient, 
at  least  prima facie  to  pass  the  title  of  the  bank  thereto.1  The 
cashier  of  a  bank,  in  the  course  of  his  ordinary  duties  and  by 
virtue  of  the  general  power  appertaining  to  his  office,  has  a  right 
to  transfer  the  paper  securities  of  the  bank,  in  payment  of  its 
debts.9 


tion  of  its  business.  The  powers  and 
duties  of  these  officers  are  defined  by 
the  charter  and  by-laws  of  the  bank. 
Within  the  sphere  of  their  respective 
duties  they  represent  the  corporation, 
and  bind  it  by  their  acts;  but  in  all 
matters  and  things  not  properly  be- 
longing to  their  office  they  cannot  rep- 
resent or  act  for  the  corporation 
unless  specially  or  generally  author- 
ized so  to  do  by  a  resolution  of  the 
board.  Thus,  the  cashier,  who  is 
intrusted  with  the  transaction  of  the 
banking  business  of  the  corporation, 
needs  no  special  authority  to  do  and 
perform  any  act  required  for  the 
proper  management  and  dispatch  of 
the  same;  but  when  it  becomes  neces- 
sary for  the  corporation  to  appoint  an 
agent  for  any  particular  purpose,  or 
to  do  any  other  thing  not  properly  be- 
longing to  the  duties  of  his  office,  he 
has  no  better  right  to  act  than  any 
other  person.  To  say  that  he  can 
make  such  an  appointment,  or  do  any 
other  act  on  behalf  of  the  corporation, 
because  it  is  a  mere  act  of  administra- 
tion, would  be  to  make  the  cashier  its 
general  agent  and  administrator,  in- 
stead of  the  board  of  directors. "  See, 
also,  Union  Bank  v.  Bagley,  10  Rob. 
(La.)  43;  Clinton  Company  T.  Kernan, 
10  Rob.  (La.)  176;  Union  Bank  t>. 
Jones,  4  La.  Ann.  236. 

1  Haynes,  Liquidator,  r.  Succession 
of  Beckman,  (1851)  6  La.  Ann.  224; 
Fleckner  ».  United  States  Bank,  8 
Wheat.  360;  Wild  r.  Bank  of  Passa- 


maquoddy,  3  Mason,  505,  507;  Mer- 
chants' Insurance  Co.  v.  Chauvin,  8 
Rob.  (La.)  49. 

s  Everett  v.  United  States,  (1837)  6 
Port.  (Ala.)  166.  The  court  quoted 
the  language  of  Mr.  Justice  STORY  in 
Fleckner  v.  United  States  Bank,  8 
Wheat.  358,  as  clearly  recognizing  the 
right  of  the  cashier  as  stated  in  the 
text.  That  language  was  as  follows: 
' '  The  cashier  is  usually  intrusted  with 
all  the  funds  of  the  bank,  in  cash, 
notes,  bills,  etc.,  to  be  used  from  time 
to  time,  for  the  ordinary  and  extra- 
ordinary exigencies  of  the  bank.  He 
receives  directly  or  through  the  sub- 
ordinate officers,  all  moneys  and  notes. 
He  delivers  up  all  discounted  notes 
and  other  property,  when  payments 
have  been  duly  made.  He  draws 
checks  from  time  to  time,  for  moneys, 
whenever  the  bank  has  deposits.  In 
short,  he  is  considered  the  executive 
officer,  through  whom,  and  by  whom, 
the  whole  moneyed  operations  of  the 
bank,  in  paying  or  receiving  debts,  or 
discharging  or  transferring  securities, 
are  to  bo  conducted.  It  does  not 
seem  too  much,  then,  to  infer,  in  the 
absence  ol  all  positive  restrictions, 
that  it  is  his  duty  as  well  to  apply  the 
negotiable  funds,  as  the  moneyed 
capital  of  the  bank,  to  discharge  its 
debts  and  obligations."  The  cashier 
of  a  bank  has  no  authority  to  pay  a  de- 
positor in  notes  belonging  tc  the  bank 
by  transferring  them  to  him.  Schneit- 
man  *.  Noble,  (1888)  75  Iowa,  120. 


§138]  PRIVATE  CORPORATIONS.  177 

§  138.  When  the  authority  of  its  cashier  cannot  be  ques- 
tioned by  a  bank. —  Under  the  facts  disclosed  in  a  case  before 
tin-  I'nited  States  Supreme  Court,  it  was  held  by  the  court  tluit 
the  binding  force  of  an  agreement  made  by  the  cashier  of  the 
liunk,  in  reference  to  the  indebtedness  of  one  of  the  debtors  of 
the  bunk,  including  the  cancellation  of  the  debtor's  old  notes  and 
trust  deeds  made  by  him  to  secure  them  and  the  acceptance  of 
new  ones  could  not  be  disputed  by  the  bank.1 

•Martin  c.  Webb,  (1884)  110  U.  8.  thority  to  do  so  being  in  writing  or 
7.  The  ruling  was  based  upon  the  appearing  upon  the  record  of  the  pro- 
principles  stated  by  Mr.  Justice  ceedings  of  the  directors.  His  au- 
HAKLAN,  speaking  for  the  court,  in  thority  may  be  by  parol  and  collected 
these  words:  "It  is  quite  true  from  circumstances.  It  may  be 
*  *  *  that  a  cashier  of  a  bunk  has  inferred  from  the  general  manner  in 
no  power  by  virtue  of  his  office,  to  which,  for  a  period  sufficiently  long 
bind  the  corporation  except  in  the  dis-  to  establish  a  settled  course  of  busi- 
charge  of  his  ordinary  duties,  and  that  ness,  he  lias  been  allowed,  without 
the  ordinary  business  of  a  bank  does  interference,  to  conduct  the  affairs  of 
not  comprehend  a  contract  made  by  a  the  bank.  It  may  be  implied  from  the; 
cashier  —  without  delegation  of  power  conduct  or  acquiescence  of  the  cor- 
by  the  board  of  directors  —  involving  poration,  as  represented  by  the  board 
the  payment  of  money  not  loaned  by  of  directors.  When,  during  a  series 
the  bank  in  the  customary  way.  of  years  or  in  numerous  business 
United  States  Bank  v.  Dunn,  6  Pet.  transactions,  he  has  been  permitted, 
51 ;  United  States  v.  City  Bank  of  without  objection  and  in  his  official 
Columbus,  21  How.  356;  Merchants'  capacity,  to  pursue  a  particular  course 
Bank  t>.  State1  Bank,  10  Wall.  604.  of  conduct,  it  may  IK-  presumed,  as 
Ordinarily,  he  has  no  power  to  dis-  between  the  bank  and  those  who  in 
charge  a  debtor  without  payment,  nor  good  faith  deal  with  it 'upon  the  basis 
to  surrender  the  assets  and  securities  of  his  authority  to  represent  the  cor  - 
of  the  bank.  And,  strictly  speaking,  poration,  that  he  has  acted  in  <-<>n- 
he  may  not,  in  the  absence  of  authority  formity  with  instructions  received 
conferred  by  the  directors,  cancel  its  from  those  who  have  the  right  to  con- 
deeds  of  trust  given  as  security  for  trol  its  operations.  Directors  cannot, 
money  loaned — certainly  not,  unless  injustice  to  those  who  deal  with  the 
the  debt  secured  is  paid.  As  the  bank,  shut  their  eyes  to  what  is  going 
executive  officer  of  the  bank,  he  trans-  on  around  them.  It  is  their  duty  to 
acts  its  business  under  the  order  and  use  ordinary  diligence  in  ascertaining 
supervision  of  the  board  of  directors,  the  condition  of  its  business,  and  to 
He  is  their  arm  in  the  management  exercise  reasonable  control  and  super- 
of  its  financial  operations.  While  vision  of  its  officers.  They  havesome- 
thesc  propositions  are  recognized  in  thing  more  to  do  than,  from  time  to 
the  adjudged  cases  as  sound,  it  is  clear  time,  to  elect  the  officers  of  the  bank, 
that  a  banking  corporation  may  be  and  to  make  declarations  of  dividends. 
represented  by  its  cashier  —  at  least  That  which  they  ought,  by  proper 
where  its  charter  does  not  otherwise  diligence,  to  have  known  as  to  the 
provide  —  in  transactions  outside  of  general  course  of  business  in  the  bank, 
his  ordinary  duties,  without  his  au-  they  may  be  presumed  to  have  known 
23 


178  POWER  OF  AGENTS  AND  OFFICEBS.  [§  139 

§  139.  Indorsement  of  a  draft  by  cashier  and  president.— 
An  English  corporation,  a  mortgage  company,  by  its  managers  in 
an  American  city,  drew  drafts  upon  its  home  office  in  London 
and  applied  to  a  local  bank  to  have  them  discounted.  The  latter 
signified  that  they  would  discount  the  drafts  if  they  were  indorsed 
by  another  local  bank.  This  was  done  by  the  cashier  and  the 
president  of  the  latter.  Finally,  one  of  these  drafts  was  not  paid 
at  the  home  office  of  the  corporation,  and  the  discounting  bank 
brought  its  action  against  the  receiver  of  the  other  local  bank 
upon  the  indorsement  of  the  officers  of  that  bank.  The  United 
States  Circuit  Court  held  that  there  could  be  no  recovery.1 

in  any  contest  between  the  corpora-  tion  to  that  effect,  by  subsequent  rati- 
tion  and  those  who  are  justified  by  the  fication,  or  by  acquiescence  in  trans- 
circumstances  in  dealing  with  its  actions  of  a  similar  nature,  and  of 
officers  upon  the  basis  of  that  course  which  the  directors  have  knowledge, 
of  business.''  In  other  words,  I  think  it  must  be  held 
•National  Bank  of  Commerce  of  that  banks  are  liable  for  the  acts  of 
Kansas  City  r.  Atkinson,  (1893)  55  their  officers,  especially  executive  offi- 
Fed.  Rep.  465.  The  court  thus  states  cers  and  general  agents,  within  the 
the  contentions:  "  The  defendant  con-  general  scope  and  apparent  sphere  of 
tends:  First.  That  [the  cashier]  had  no  their  duties;  but  that  they  are  not 
authority  to  place  the  indorsement  of  liable  for  the  acts  of  their  officers  done 
the  [bank]  upon  those  drafts,  or  either  without  special  authority,  in  cases 
of  them,  and  that  *  *  *  the  presi-  which  are  not  within  the  general  scope 
dent  had  no  authority  whatever  to  and  sphere  of  their  duties  as  such  offi- 
placc  the  indorsement  of  the  [bank]  cers.  The  responsibility  of  a  bank  (in 
upon  the  first  note,  which  was  given  the  absence  of  express  authority  to  do 
after  the  drafts  were  protested,  or  any  a  particular  act)  is  limited  to  the  acts 
note  representing  these  drafts.  Sec-  of  its  officers  and  agents,  performed  in 
ond.  That  the  indorsement,  at  most,  the  discharge  of  their  ordinary  duties 
was  a  loaning  of  the  bank's  credit,  or,  in  the  usual  course  of  business  and 
in  other  words,  an  accommodation  in-  within  the  sphere  and  scope  of  such 
dorsement,  which  the  bank  had  no  duties.  Acts  within  the  ordinary 
power  to  make."  Then  the  question  sphere  and  scope  of  their  business  are 
was  discussed  and  the  law  stated  as  presumed  to  be  by  authority  and 
follows:  "  There  is  no  doubt  but  what  within  the  knowledge  of  the  directors, 
the  law  is  that  a  national  bank  cannot  That  there  was  no  express  authority 
loan  its  credit  or  become  an  accommo-  given  by  the  board  of  directors,  by 
dation  indorser.  On  that  question  the  resolution  or  otherwise,  either  to  *  *  * 
decisions  are  xmiform.  It  is  also  true  the  cashier  or  to  *  *  *  the  presi- 
that  the  president  of  a  bank  has  no  dent,  to  indorse  the  drafts  and  notes, 
power  inherent  in  his  office  to  bind  the  is  conceded.  Neither  was  there  any 
bank  by  the  execution  of  a  note  in  its  formal  ratification  of  their  action  by 
name,  yet  the  power  to  do  so  may  be  the  directors  or  officers  of  the  bank, 
conferred  upon  him  by  the  board  of  Indeed,  none  of  them  had  any  knowl- 
directors,  either  expressly,  by  resolu-  edge  whatever  of  the  transactions  ex- 


§  140]  PRIVATE  CORPORATIONS.  179 

§  140.  Power  of  a  treasurer  of  a  savings  bank. — The  treaa- 
urrr  of  ;i  >a\  ings  bank  is  not  virtute  ojficii  clothed  with  power  to 
borrow  money  for  the  institution  and  to  pledge  its  securities  as 
collateral.1  The  treasurer  of  a  savings  bank  has  no  authority,  ex 
ojfti'io,  to  release  a  debt  due  the  bank,  upon  payment  of  a  divi- 
dend by  the  debtor.8  A  vote  of  a  savings  bank  corporation  to 
sell  notes  held  by  it  would  not  confer  authority  upon  its  treasurer 
to  bind  the  bank  by  indorsing  its  name  on  a  promissory  note  held 
by  it,  and  he  has  no  such  authority  ex  officio?  A  provision  in 
the  by-laws  of  such  an  institution  that  the  treasurer  "  shall  draw 
all  necessary  papers  and  discharge  all  obligations  of  the  corpora- 
tion, and  his  signature  shall  be  binding  on  the  corporation,"  has 
been  held  to  mean  the  signature  of  the  treasurer  to  necessary 
papers  and  in  discharge  of  obligations  to  the  corporation,  and  not 
to  authorize  him  to  bind  the  corporation  by  such  an  indorsement 
on  a  promissory  note.4  The  title  passes  by  an  assignment  of  a 

cept  [these  two  officers]."  The  court  of  the  bank  did  not  know  of  their  ex- 
then  considered  the  facts  upon  the  istence,  and  could  not  have  ascertained 
question  of  whether  the  bank  retained  their  existence  from  an  examination  of 
and  enjoyed  the  proceeds  of  these  the  books  or  accounts  of  the  bank, 
transactions,  and  thereby  became  liable  Such  a  transaction,  it  seems  to  me, 
by  reason  of  its  indorsement  appear-  cannot  be  said  to  be  in  the  usual  course 
ing  upon  those  papers.  In  the  course  of  business,  or  within  the  implied 
of  the  opinion  it  is  said:  "It  is  shown  powers  of  the  president  of  a  bank. 
by  the  record  beyond  all  question  that  My  attention  is  especially  called  to  the 
the  [bank]  never  received  any  benefit  case  of  People's  Bank  v.  National 
•whatever,  by  way  of  discount  or  other-  Bank,  101  U.  S.  181.  That  was  a  case 
wise,  out  of  the  transactions  in  relation  upon  a  guaranty.  The  papers  passed 
to  these  drafts,  or  either  of  them."  through  the  bank  in  the  regular  course 
And  further  on:  "The  [bank]  never  of  business.  The  bank  received  the 
re< -("'veil  niiy  benefit  from  discounts  or  benefit  of  the  transaction,  and  the  offl- 
othenvNe  on  these  drafts.  The  re-  cer  of  the  bank  was  acting  strictly 
newal  drafts  and  the  notes  were  not  within  the  scope  of  his  authority  as 
placed  upon  the  books  of  the  [bank],  an  officer  of  the  bank.  The  facts  in 
When  the  drafts  were  protested,  the  that  case  are  different  from  the  facts  in 
[bank]  was  not  notified  of  the  protest,  the  case  at  bar,  and  the  decision,  in  my 
but,  on  the  contrary,  the  mortgage  judgment,  does  not  aid  the  plaintiff." 
company  only  received  notice  of  their  '  Fifth  Wan!  Savings  Bank  r.  First 
dishonor.  The  notes  were  all  indorsed  National  Bank,  19  Vr.  (N.  J.)  513. 
in  the  office  of  the  [plaintiff  bank]  by  *  Drdham  Savings  Institution  «. 
*  *  *  the  president  [of  the  bank  of  Slack,  (1850)  6  Cush.  408. 
which  defendant  is  receiver],  and  a  way  *  Brad  Ice  r.  Warren  Savings  Bank, 
from  the  place  of  business  of  [this  (1879)  127  Mass.  107. 
b:mk],  and  no  mention  of  them  was  4  Ibid, 
made  upon  its  books.  The  directors 


180  POWER  OF  AGENTS  AND  OFFICERS.  [§  141 

mortgage  in  the  name  of  a  savings  bank,  executed  by  its  treas- 
urer who  has  authority  to  execute  it,  and  his  indorsement  of  the 
note  to  a  lonafide  holder,  though  he  may  in  his  action  perpetrate 
a  fraud  upon  the  bank  and  convert  the  purchase  money  to  his 
own  use.1 

§  141.  Power  of  officers  of  mining  corporations. — It  may 
be  assumed  by  persons  dealing  with  mining  superintendents  or 
general  agents  in  charge  of  mines,  in  the  absence  of  notice  to  the 
contrary,  that  their  authority  covers  all  the  ordinary  local  busi- 
ness of  a  mining  corporation.2  The  purchase  of  timber  for  a 
mining  corporation  is  within  the  power  of  its  general  agent.8 
But  such  a  general  agent  of  a  mining  corporation,  unless  speci- 
ally empowered  so  to  do,  has  no  authority  to  make  promissory 
notes  in  the  corporation's  name.4  The  secretary  of  a  mining  cor- 
poration has  no  authority,  by  virtue  of  his  office,  to  make  assign- 
ment of  the  promissory  notes  belonging  to  the  corporation.  Such 
an  assignment  of  notes  by  a  secretary  is  not  a  corporate  act  unless 
it  is  shown  that  the  secretary  was  not  only  authorized  to  make 
the  transfer,  but  to  make  it  in  his  official  capacity.5  The  super- 
intendent of  a  mining  corporation,  instructed  by  letters  and  other- 
wise from  the  officers  of  the  corporation  not  to  contract  any  debts, 
but  merely  to  expend  such  money  as  might  be  furnished  him, 
cannot  bind  the  corporation  by  a  promissory  note.6  There  is, 

1  Whiting  v>.  Wellington,  10  Fed.  Hallowell  &  Augusta  Bank  v.  Hamlin, 
Rep.  810.  14  Mass.  180;  Hoyt  v.  Thompson,  1 

*  Adams  Mining  Co.  v.  Senter,  (1872)  Seld.  320;  Whitwellv.  Warner,  20  Vt. 
26  Mich.  73.  425. 

3  Ibid.  •  Carpenter  t>.  Biggs,  (1873)  46  Cal. 

4  New  York  Iron  Mine  v.  Negaunee   91.     In  New  York  Iron  Mine  v.  Citi- 
Bank,  39  Mich.  644.  zens'  Bank,  44  Mich.  344;  s.  c.,  6  N. 

5  Blood  v.  Marcuse,  (1869)  38  Cal.    W.  Rep.  823,  it  was  held  that   there 
590.     For  the  same  principles  upon    was  no  presumption  of  authority  of 
which  this  assignment  was  held  to  be   an  agent  of  the  mining  corporation  to 
void  as  not  being  a  corporate  act,  see   draw  post-dated  bills  of  exchange  on 
Gashwiler  ®.  Willis,  33  Cal.  11;  Marine    his  principal  from  his  having  done  so 
Bank  v.  Clements,  3  Bosw.  600;  John-   before  without  objection,  there  being 
son  v.  Bush,  3  Barb.  Ch.  207;  Brown  v.   nothing  to  show  that  the  party  relying 
Weymouth,  36  Me.  415;  Barcusr.  Han-   on  his  authority  knew  the  fact,  and  a 
nibal,  Rails  County  &  P.  P.  R.  Co.,  26  long  interval  having  passed  since  it 
Mo.  102;  Mt.  Sterling  &  Jeffersonville  occurred,  and  the  corporation  having 
T.  R.  Co.  «.  Looney,  1  Mete.  (Ky.)  550;  meanwhile  become  prosperous  and  be- 
Walworth  County  Bank  v.   Farmers'  ing  better  supplied  with  ready  money; 
Loan    &    Trust    Co.,    14    Wis.    325;  and  it  also  appearing  that  the  post- 


§  142]  PRIVATE  CORPORATIONS.  181 

presumably,  power  in  such  an  agent  and  manager  of  a  mining 
corporation  power  to  sell  its  personal  property.1 

§  142.  General  rules  as  to  the  power  of  a  president— 
The  powers  of  a  proiilcnt  of  a  corporation  over  it-  business  and 
property  are  strictly  the  powers  of  an  agent.2  A  corporation 
will  not  l>e  bound  by  the  contract  of  its  president,  without  proof 
of  his  agency.3  The  same  evidence  from  which  authority  to  bind 
would  l>e  inferred  in  other  cases,  must  determine  the  authority  of 
the  president  of  the  corporation  to  bind  it  by  a  contract  entered 
into  on  its  behalf.4  It  is  necessary  to  show  that  an  agreement  of 
the  president  of  a  corporation  is  within  the  scope  of  his  authority 
to  make  it  evidence.5  A  corporation  which,  by  its  charter,  can 
only  act  through  its  board  of  directors,  cannot  be  bound  by  con- 
tracts entered  into  by  its  president,  without  the  authorization  of 
the  board,  except  in  acts  of  simple  administration,  which,  of 
necessity,  should  be  done  without  authorization.6  A  corporation 
cannot  be  bound  by  a  contract  made  by  its  president,  except  it 
be  shown  that  power  to  make  it  was  given  him  by  the  act  of  incor- 
poration, or  that  he  was  authorized  by  the  corporation  to  make  it, 
or  that  there  was  a  subsequent  ratification  of  the  contract.7  The 
power  to  sell  and  assign  the  securities  of  a  corporation  without 
authority  from  the  trustees,  is  not  included  in  the  authority  of  its 
treasurer  to  collect  and  pay  debts.8  Acts  of  the  corporation,  or 

dated    bills  he  had   formerly   drawn  •  Bright  r.  Metairie  Cemetery  Asso- 

were  drawn  on  time  and   post-dated  ciation,  33  La.  Ann.  58. 

only  long  enough  to  give  the  drawer  *  Mount    Sterling    &   Jefferson ville 

the  benefit  of  the  full  period  of  dis-  Turnpike  Road  Co.  r.  Looney,  (1858) 

count  after  receiving  them,  while  in  1  Mete.  (Ky.)  550. 

this  case  they  were  made  payable  at  *  Jackson  v.  Campbell,  5  Wend.  572. 

sight  and  post-dated  several  weeks  for  In  Williams  r.Uncompahgre  Canal  Co., 

the  agent's  private  advantage.  (1889)  13  Colo.  469;  s.  c..  22  Pac.  Rep. 

1  Scudder  p.  Anderson,  54  Mich.  122;  806,  it  was  held  that  where  a  contract 

8.  c.,  19  N.  W.  Rep.  775.  under  seal  had  been  executed  by  the 

*  State  Bank  r.  Holcomb,  2  Hals.  (N.  officers  of  a  corporation  in  their  indi- 

J.)  196.  vidual  names  it  was  competent  to  aver 

•Fisher  r.  Gas  Co.,  1   Pears.  (Pa.)  and  prove  by  parol  that  the  corpora- 

118;  Jackson  c.  Market  Co.,  12  W.  N.  tion,    as   the  real   party   in    interest, 

C.  (Pa.)  190.  adopted,    ratified    and    undertook    to 

4  Lee  v.  Pittsburgh  Coal  &  Mining  carry  out  the  terms  of  the  contract  in 

Co.,  56  How.  Pr.  873;   s.  c.,  75  N.  Y.  such  a  manner  as  to  become  bound 

601.  thereby.     Cases  as  to   the  lack  of  a 

1  Farmers'  Bank  r.  McKee,  2  Pa.  St.  president's  power,  unless  it  be  speci- 

818.  ally  conferred  by  the  managing  board: 


182  POWER  OF  AGENTS  AND  OFFICERS.  [§  142 

acts  of  an  authorized  agent  within  the  scope  of  his  authority, 
from  which  the  promise  may  be  implied,  must  be  shown  to  bind  a 
corporation  by  an  implied  promise.1  It  is  not  in  the  power  of  the 
president  of  a  corporation  to  borrow  money  in  the  name  of  the 
corporation  and  pledge  its  responsibility,  without  authority  con- 
ferred by  the  charter  or  by-law  of  the  corporation,  or  a  resolution 
of  the  directors.2  Under  a  by-law  of  a  corporation  giving  the 
president  "  the  general  charge  and  direction  of  the  business  of 
the  company,  as  well  as  all  matters  connected  with  the  interests 
of  the  corporation,"  he  has  no  authority  to  do  an  act  which,  by 
another  by-law  of  the  corporation,  is  expressly  given  to  a  separate 
committee.3  A  president  cannot  borrow  money  on  his  own  note 
and  bind  the  corporation  for  the  loan  by  falsely  representing  that 
he  wishes  the  money  for  his  corporation.4  The  president  of  a 
corporation,  having  full  personal  charge  of  the  business  which 
the  corporation  was  organized  to  transact,  represents  the  corpora- 
tion, and,  prima  facie,  has  power  to  do  any  act  which  the  direct- 
ors can  authorize  or  ratify.5  Unless  authorized  by  the  charter  or 
by-laws  of  a  corporation,  its  president  has  no  authority  to  indorse 
and  negotiate  notes  which  are  its  property.  But  his  authority  to 
do  so  may  be  presumed  from  his  uniform  practice  in  such  mat- 

Holbrook    v.    Fauquier,    etc.,    Turn-  Brooklyn  Gravel  Road  Co.  ».  Slaugh- 

pike    Company,    3    Cranch    C.     Ct.,  ter,  33  Ind.  185;    First  National  Bank 

425;  Wait  v.  Nashua  Armory  Assn.,  i\  Kimberlands,  16  "W.  Va.  555.     That 

(N.  II.)  23  Atl.  Rep.  77;  s.  c.,  34  Cent,  the  power  of  a  president  in  making 

L.  J.   119;  14  Law  Rep.   Anno.  356;  contracts  on  behalf  of  a  corporation  is 

Mt.  Sterling,  etc.,  Turnpike  Road  Co.  «.  restricted  to  the  authority  being  con- 

Looney,  1  Mete.  (Ky.)  550;  s.  c.,  71  Am.  f erred  on  him  by  the  corporation,  see 

Dec.  491;    Bacon  r.  Mississippi  Insur-  Bacon  v.  Mississippi  Ins.  Co.,  31  Miss. 

ance  Co.,    31    Miss.    116;     Walworth  116. 

County    Bank    v.   Farmers'    Loan    &  '  Mount    Sterling    &    Jeffersonville 

Trust  Co.,  14  Wis.  325;  Titus  v.  Cairo,  Turnpike  Road  Co.  t.  Looney,  (1858) 

etc.,   R.  R.  Co.,   37  N.    J.  Law,  98;  1  Mete.  (Ky.)  550. 

Dawes  v.  North  River  Insurance  Co.,  *  Life  &  Fire  Insurance  Co.  v.  Me- 

7  Cowen,  462;  Mahone  v.  Manchester,  chanics'  Fire  Ins.  Co.,  7  Wend.  31. 

etc.,  R.  R.  Corp.,  Ill  Mass.  72;   s.  c.,  3 Market  Co.  r.  Jackson,  102  Pa.  St. 

15    Am.    Rep.    9;     Marine     Bank    x.  269. 

Clements,  3  Bosw.  600;    Lyndon  Mil-  4  Wright's  Appeal,  (1882)  99  Pa.  St. 

Co.   v.   Lyndon  Literary    &    Biblical  425;    citing  Angell  &  Ames  on  Corp. 

Inst.,  63  Vt.  581;   s.  c.,  22  Atl.  Rep.  §§  220-297;    Martin   v.    Great   Falls 

575;  25  Am.  St.  Rep.  783;  Westerfield  Manufacturing  Co.,  9  N.  H.  51. 

v.  Radde,  7  Daly,  326;   Western  R.  R.  5  Oakes  v.  Cattaraugus  Water  Co., 

Co.  v.  Bayne,  11  Hun,  166;   Hodge  v.  (1894)  143  N.  Y.  430;   s.  c.,  38  N.  E. 

First  National  Bank,   22    Gratt.   51;  Rep.  461;    62  N.  Y.   St.   Repr.   445; 


£142]  l'KI\  All.  i  "KI'oKAIIoNS. 

Under  authority  given  him  by  the  director.-  of  u  hanking 
corporation  to  sell  certain  stock  l>elonging  to  it,  the  president  of 
the  hunk,  where  uninstrueted  to  the  eoiitrary,  would  have  author- 
ity to  employ  a  broker  to  sell  it.3  The  act-  ••!'  <-lerk-  of  :t  eorp<>- 
ration  in  making  unauthori/ed  purchases  for  the  corporation  on 
credit  may  he  ratified  by  its  president.3  l>y  virtue  of  his  office, 
a  president  of  a  corporation  may  collect  .-nb-criptions  to  tin- 
capital  stock.4  In  a  Missouri  case  a  corporation,  a  transfer  com- 
pany, was  held  liable  upon  promi»ory  note.-,  given  for  the  pur- 
chase of  mules  for  its  use,  and  signed  in  its  name  by  its  presi- 
dent.5 

Hastings  r.  Brooklyn  Life  lus.  Co.,  138  corporation,  and  did  not  require  a  pre- 

N.  Y.  473;  s.  c.,  84  N.  E.  Rep.  289;  vious    resolution     of    the    board    of 

Conover  r.  Insurance  Co.,  1  N.  Y.  290;  directors. 

Booth  c.  F.  &  M.  N.  Bank,  50  N.  Y.  4East  New  York,  etc.,  H.  H.  Co.  r. 
396;  Leslie  r.  Lorillard,  110  N.  Y.  519;  Lighthall,  5  Abb.  Pr.  (N.  S.)  458;  a.  c.. 
a.  c.,  18  N.  E.  Rep.  363;  Holmes,  36  How.  Pr.  4«1;  li  Hobt.  407.  In 
Booth  &  Haydens  r.Willard,  125  N.  Y.  Georgia  Company  r.  Castlcberry.  (1871) 
75;  s.  c.,  25  N.  E.  Rep.  1088;  Patter-  43  Ga.  187,  where  the  corporation  was 
son  v.  Robinson,  116  N.  Y.  193;  s.  c.,  of  the  same  name-  with  a  partnership 
22  N.  E.  Rep.  372;  Rathbuu  r.  Snow,  doing  business  by  the  same  agent  be- 
123  N.  Y.  343;  s.  c.,  25  N.  E.  Rep.  fore  the  date  of  the  charter,  it  was 
879;  New  York  P.  &  B.  R.  R.  Co.  held  that  the  assumption  of  a  debt  due 
r.  Dixon,  114  N.  Y.  80;  H.  c.,  21  N.  E.  by  the  old  partnership  with  no  new 
Hep.  110.  consideration  was  outside  of  the  scope 
1  Marine  Bank  r.  Clements,  6  Bosw.  of  the  charter,  and,  therefore,  outside 
166.  of  the  scope  of  the  president's  duties, 
*  Sistare  r.  Best,  16  Hun,  611.  as  they  were  derived  from  the  nature 
8 Silva  v.  Metropolitan  Drug  Co.,  42  of  his  office,  and  even  a  written  con- 
N.  Y.  Super.  Ct.  307.  In  Brouwer  t.  tract  promising  to  pay  this  debt  would 
Harbeck,  1  Duer,  114,  an  insurance  be  of  doubtful  validity  unless  there 
company  was  authorized  by  its  charter  was  special  authority  from  the  corn- 
to  receive  premium  notes  in  advance  pany. 

and  negotiate  them  to  raise  money  for  5  Sparks    r.  Dispatch  Transfer  Co., 

the  payment  of  losses  or  otherwise  in  (1891)  104  Mo.  531;  s.  c.,  15  S.  W.  It.  p. 

the  course  of  its  business.     The  presi-  417;  24  Am.  St.  Rep.  851;  12  Law  Hi  p. 

dent  of  the  corporation  was  empowered  Anno.  714;  33  Am.  &  Eng.  Corp.  Cns. 

by  its  by-laws  to  sign  policies  ami  trans  :{73.     "The  power  of  |  the  president  | 

act  the  ordinary  business  of  the  corpo-  to  bind    [the  corporation  |."   said  the 

ration.    It  was  held  that  the  borrowing  Supreme  Court  of  that  state,  "isgov- 

of  money  and  hypothecation  of  these  erned    by    the   law   of  agency.      The 

premium  notes  for  the  purpose  of  pay-  principle     underlying     is    the    same. 

ing  losses,  and  afterwards  ha\  ing  these  whether  the  principal  be  a  corporation 

notes  discounted  by  tin-  lender  in  pay-  or  an   individual.     It  is  now  well  s<t- 

ment  of  the  loss,  was  in  the  transac-  tied  that  when,  in  the  usual  course  of 

tion  of  the  ordinary  business  of  the  the  business  of  a  rorpor.it  ion.  an  officer 


184 


POWER  OF  AGENTS  AND  OFFICERS. 


[§143 


§  143.  Rule  as  to  evidence  in  such  cases. —  In  the  Missouri 
case  just  referred  to,  some  of  the  promissory  notes,  with  which  it 
was  sought  to  charge  the  corporation,  were  signed  by  its  presi- 
dent as  an  individual.  The  Supreme  Court  of  Missouri  held  that 
where  such  negotiable  notes  are  signed  by  the  president  of  a  cor- 
poration in  his  own  name,  and  nothing  appears  in  the  instrument 
to  indicate  he  was  acting  as  agent  of  the  corporation,  extrinsic 
evidence  was  inadmissible  to  show  such  agency.1  In  a  late  New 


has  been  allowed  to  manage  its  affairs, 
his  authority  to  represent  the  corpora- 
tion may  be  implied  from  the  manner 
in  which  he  has  been  permitted  by  the 
directors  to  transact  its  business.    This 
is  only  the  application  of  the  principle 
that  usual  employment  is  evidence  of 
the  powers  of  an  agent,  and  the  prin- 
cipal is  held  responsible  for  the  acts  of 
his  agent  within    the    apparent    au- 
thority conferred  on  the  agent.     First 
National  Bank  v.  North  Missouri,  etc., 
Co.,  86  Mo.    125;    Washington  Mut. 
Fire  Ins.  Co.  v.  Seminary,  52  Mo.  480; 
Kiley  *.  Forsee,  57  Mo.  390;  Martin  r. 
Webb,   110   U.   S.   7;    Mining  Co.   r. 
Anglo-Californiau  Bank,  104  U.  S.  192. 
The  president  of  a  business  corporation 
is  its  chief  executive  officer.    He  may, 
without  any  special  authority  from  the 
board  of  directors,  perform  all  acts  of 
an  ordinary  nature  which,  by  usage 
or  necessity,  are  incident  to  his  office, 
and  may  bind  the  corporation  by  con- 
tracts in  matters  arising  in  the  usual 
course  of  business.     Boone  on  Corp. 
§  144;    Stokes  v.  Pottery  Co.,  46  N.  J. 
Law,  237."  Applying  the  principles  to 
the  case  at  bar,  it  was  said:    "[The 
president  of  the  company]  purchased 
every    mule    that    [the    corporation] 
owned    from    its    organization    until 
after  the  execution  of  the  notes  sued 
on  in  this  case.     He  had  repeatedly 
signed  notes  in  the  name  of  the  corpo- 
ration, and  the  corporation  had  honored 
his  orders  and  paid  his  notes  so  drawn. 
Plaintiffs  had  thirteen  different  trans- 
actions with  him  as  the  president  and 


purchasing  agent  of  the  [corporation] 
prior  to  the  giving  of  the  notes  herein, 
and  his  acts  had  always  been  ratified. 
The  [corporation]  was  engaged  in  a 
transfer  business,  in  which  the  motive 
power  was  mules,  and  it  was  its  writ- 
ten charter  privilege  to  buy  mules  and 
execute  its  notes  therefor.  [The  presi- 
dent] had  purchased  mules  for  the 
[corporation]  of  the  plaintiffs,  and  on 
this  occasion  he  informed  them  he  was 
purchasing  the  mules  for  which  these 
two  notes  were  given  for  the  [corpora- 
tion]. His  transaction,  under  the  evi- 
dence, was  within  both  his  actual  and 
apparent  authority  to  bind  the 
[corporation]." 

'Sparks  r.  Dispatch  Transfer  Co., 
(1891)  104  Mo.  551  ;  s.  c.,  15  S.  W. 
Rep.  417.  The  court  reviewed  a 
number  of  cases  from  other  states  sus- 
taining this  view,  and  then,  as  it  was 
claimed  that  this  doctrine  had  been 
repudiated  by  the  courts  of  Missouri 
in  certain  cases,  these  latter  were 
reviewed  and  distinguished  as  follows  : 
"  The  leading  case  relied  upon  by 
respondents  is  Washington,  etc.,  Ins. 
Co.  v.  Seminary,  52  Mo.  480.  The 
note  which  was  the  basis  of  the  action 
in  that  case  was  as  follows  : 
'  §750. 

'  For  value  received  in  policy  num- 
ber 2,969,  dated  the  fourteenth  day  of 
March,  1866,  issued  by  the  Washing- 
ton Mutual  Fire  Insurance  Company 
of  St.  Louis,  I  promise  to  pay  said 
company  (or  their%  secretary  for  the 
time  being)  the  sura  of  §750,  in  such 


§143] 


PRIVATE  CORPORATIONS. 


185 


York  case  there  was  a  contention  that  although  the  corporation 
mi-rht  in-  Uglily  liable  for  the  debt,  still  the  notes  in  the  first 
ice  having  liren  made  and  discounted  for  the  accommoda- 
tion ..f  WoodnitV  (its  president),  the  debt  was  not  contracted  in 
tlu-  huMiu-.-s  iW  which  the  corporation  was  created,  and  the  mort- 

quotes  from  the  decision  in  Mechanics' 
Bank  of  Alexandria  r.  Bank,  5 
Wheaton,  827,  in  which  the  Supreme 
Court  of  the  United  States  says  :  '  It 
is  by  no  means  true,  as  was  contended 
in  argument,  that  the  acts  of  agents 
derive  their  validity  from  professing 
on  the  face  of  them  to  have  been  done 
in  the  exercise  of  their  agency.'  If 
this  were  all,  it  must  be  conceded  that 
respondents  are  justified  in  claiming 
that  this  decision  is  broad  enough  to 
permit  parol  evidence  in  any  case  to 
explain  who  was  the  principal,  not- 
withstanding there  is  no  intimation  on 
the  face  of  the  paper  that  any  one 
but  the  agent  is  a  party  to  it.  But  the 
Supreme  Court  of  the  United  States 
did  not  put  their  decision  on  that 
ground;  but,  on  the  contrary,  Justice 
JOHNSON,  who  delivered  the  opinion, 
expressly  says:  'But  the  fact  that 
this  appeared  on  its  face  to  be  a 
private  check  is  by  no  means  to  be 
conceded ;  on  the  contrary,  the 
appearance  of  the  corporate  name  of  the 
institution  on  the  face  of  the  paper  at 
once  leads  to  the  belief  that  it  is  a  cor- 
porate, and  not  an  individual,  trans- 
action ;  to  which  must  be  added  that 
the  cashier  is  the  drawer,  and  the  teller 
the  payee,  and  the  form  of  ordinary 
••//, /•/.•*  deviated  from  by  the  substitu- 
tion of  '  to  order '  for  '  to  bearer.'  The 
evidence,  therefore,  on  the  face  of  the 
bill  predominates  in  favor  of  its  being 
a  bank  transaction.  But  it  is  enough 
for  the  purposes  of  a  defendant  to 
establish  that  there  existed  on  the  face 
of  the  paper  circumstances  from  which 
it  might  reasonably  be  inferred  that  it 
wa^  either  one  or  the  other,  and  in 
such  a  case  to  resort  to  extrinsic  evi- 


portions  and  at  such  time  or  times  as 
tin-  direct. »rs  of  said  company  may, 
agreeably  to  their  acts  of  incorpora- 
tion, require. 

'[Signed]  DANIEL  MCCARTHY. 

'  Prendent. 
'  IVr  TIIOMAH  BUKKK.' 

"This  court  held  that  it  was  com- 
petent to  explain  the  ambiguity  on 
the  face  of  the  note  itself.  Speaking 
for  the  court,  Judge  SHERWOOD  said 
in  that  case  :  '  In  the  present  case, 
the  note  sued  on  is  signed  '  Daniel 
McCarthy,  President.'  But  president 
of  what  ?  Just  here,  under  the  rules 
laid  down  in  the  above  cases,  parol 
evidence  steps  in  and  affords  a  ready 
and  satisfactory  explanation.  The 
word  '  president,'  attached  to  the  name 
of  Daniel  McCarthy,  is  an  earmark  of 
the  official  capacity  in  which  the  note 
was  signed  —  not  evidence,  it  is  true, 
that  the  note  was  signed  in  that 
capacity,  but  a  sufficient  basis  for  the 
introduction  of  testimony  tending  to 
establish  that  fact.'  The  court  re- 
sumed :  '  Moreover,  in  that  case  the 
note  on  its  face  referred  to  policy 
number  2,909,  which  insured  the 
seminary  building  and  church  build- 
ing belonging  to  St.  Mary's  Seminary. 
It  will  be  observed,  first,  that  the 
above  note  is  not  negotiable,  and, 
secondly,  that  the  ambiguity  appears 
on  its  face,  growing  out  of  the  word 

'president,'  affixed  to  McCarthy's 
name.  In  the  case  at  bar  the  notes 
are,  by  their  terms,  nfg<>ti,il>l, ,  .-mil 
contain  nothing  but  Jackson's  name 
as  maker .  so  that  this  case  is  not 
authority,  because  the  facts  are 

entirely  different.'    It  is  t  rue,  however, 

that,  in  this  case,  Judge  SBEHWOOD 
•J! 


186 


POWEK  OF  AGENTS  AND  OFFICERS. 


[§143 


gage  could  not,  therefore,  be  enforced  for  its  payment.  The  court 
held  that  the  refusal  to  find  that  these  notes  were  made  and  dis- 
counted for  the  accommodation  of  the  president  individually,  and 
that  the  debt  was  not  contracted  in  the  business  for  which  the 
company  was  created,  was  justified  by  the  evidence.1 


dence  to  remove  the  doubt.'  So  that 
it  seems  clear  that  the  Supreme  Court 
placed  its  decision  upon  the  fact  that, 
upon  the  face  of  the  paper  the 
ambiguity  appeared.  That  court 
would  never  have  held  that  there  was 
any  ambiguity  on  the  face  of  the  notes 
sued  on  [there].  Falk  v.  Moebs,  127 
U.  S.  597.  In  31  Mo.  193  (Smith  «. 
Alexander),  the  action  was  on  the  fol- 
lowing note : 
'  $500.  ST.  Louis,  Mo.,  July  22, 1855. 

'  Ninety  days  after  date  I  promise 
to  pay  to  the  order  of  Messrs.  Smith 
&  Co.,  $500,  for  value  received, 
negotiable  and  payable  without  de- 
falcation or  discount. 

'  [Signed]    J.  H.  ALEXANDER, 
'  Treasurer,  Ohio  &  Miss.  It.  R.  Co.' 

"  In  that  case  Alexander.having  been 
sued  on  this  note,  was  allowed  to  show 
that  he  was  treasurer  of  the  Ohio  rail- 
road, and  that  he  gave  the  note  simply 
as  agent  of  said  company,  Judge 
EWENG  saying  :  '  A  mere  addition  to 
the  name  of  the  party  signing  the  .con- 
tract cannot  be  regarded  as  a  certain 
indicium  that  it  was  made  on  behalf 
of  another.  When,  however,  it  is 
doubtful  from  the  face  of  the  contract 
whether  it  was  intended  to  operate  as 
a  personal  engagement  of  the  party 
signing  it,  or  to  impose  an  obligation 
on  some  third  person  as  principal, 
evidence  is  admissible  to  show  the 
character  of  the  transaction.'  So  we 
see  that  Judge  EWING  placed  his  rul- 
ing on  the  doubt  appearing  on  the  face 
of  the  note  whether  it  was  the  obliga- 
tion of  Alexander  or  the  railroad 
company." 

'Martin  r.  Niagara  Falls  Paper 
Manufg.  Co.,  (1890)  122  N.  Y.  165; 


s.  c.,  25  N.  E.  Rep.  303,  affirming  44 
Hun,  130.  The  court  said:  "The 
burden  of  proving  that  the  notes  were 
not  given  in  the  business  of  the  cor- 
poration rested  upon  the  defendant. 
[The  plaintiff],  the  president  of  the 
bank,  testified  that  he  had  no  knowl- 
edge of  the  proceeds  being  used  for 
Woodruff's  benefit,  and  the  facts  of 
the  case  do  not  bring  it  within  the  rule 
which  puts  upon  a  holder  of  a  prom- 
issory note  or  other  corporate  obliga- 
tion the  burden  of  proving  by  direct 
evidence  that  it  was  issued  pursuant 
to  a  vote  of  the  trustees,  or  for  a  cor- 
porate debt,  or  that  the  corporation 
received  the  consideration,  in  order  to 
establish  a  corporate  liability.  The 
cases  where  this  rule  has  been  held 
are  those  of  special  agency.  The 
general  rule,  of  course,  is  that  the 
agent's  authority  in  all  cases  must  be 
shown  to  charge  the  principal  with  an 
act  performed  by  the  agent,  but  in 
many  instances  this  fact  may  be  estab- 
lished by  presumptive  evidence.  And 
this  is  so  where  the  corporation,  whose 
obligation  is  in  question,  is  engaged 
in  a  business,  the  nature  of  which  and 
the  duties  in  relation  to  which  de- 
volved upon  its  officers,  require  or 
justify  the  giving  of  negotiable- 
instruments  without  being  authorized 
thereto  by  a  special  vote  to  that  effect. 
If  the  scope  of  the  agent's  authority 
be  proven  and  it  appears  that  acts  like 
the  one  in  question  would,  under 
ordinary  circumstances,  be  within  the 
authority,  a  presumption  arises  that 
the  necessary  circumstances  did  exist 
and  that  the  act  in  question  was  au- 
thorized. Morawetz  on  Corp.  §  616 ; 
Lincoln  r.  Iron  Co.,  103  U.  S.  412; 


§144] 


PRIVATK  COKPOKATION8. 


1ST 


§  144.  Power  of  president   as  to   transfer  of  assets. 
There  is  no  power  in  a  president  and  general   manager  of  a  cor- 
poration, as  such,  to  borrow  money  for  the  corporation  and   to 
assign  the  assets  of  the  corporation  as  a  security  for  the  loan,1  but 
in  accordance  with  the  uniform   practice  of  a  corporation,  its 
president  may  transfer  the  title    to  a    promissory   notr    I- 
indorsement  signed  by  him  as  president.2     The  presumption  that 
the  president  of  a  corporation  had  power  to  execute  it,  is  curried 
with  an  assignment  of  a  claim   owned    by   the  corporation 


Patterson  v.  Robinson,  116  N.  Y.  193  ; 
F.  &  31.  Bank  r.  B.  &  D.  Bank,  16  N. 
Y.  125;  N.  R.  Bunk  r.  Ayinur,  3  Hill, 
262.  It  was  said  in  Farmers'  Hunk  r. 
Butchers  &  Drovers'  Bank  that  the 
sound  rule  is  that  'when  a  party 
dealing  with  an  agent  has  ascertained 
that  the  act  of  the  agent  corresponds 
in  every  particular,  in  regard  to  which 
such  party  has  or  is  presumed  to  have 
any  knowledge,  with  the  terms  of  the 
power,  he  may  take  the  representa- 
tions of  the  agent  as  to  any  extrinsic 
fact  which  rests  particularly  within 
the  knowledge  of  the  agent,  and 
which  cannot  be  ascertained  by  a 
comparison  of  the  power  with  the  act 
done.'  The  court  then  said :  '  The 
case  is  analogous  to  the  giving  of  a 
firm  note  by  one  partner  for  his  own 
benefit.  When  such  a  note  is  given 
in  a  transaction  unconnected  with  the 
partnership  business  and  known  to  be 
so  by  the  person  taking  it,  the  other 
partners  are  not  bound  without  their 
consent,  but,  primn  fade,  the  firm  note 
binds  all  the  partners,  and  the  burden 
of  proving  a  want  of  authority  lies 
upon  the  firm.  Doty  r.  Bates,  11 
Johns.  544 ;  Gansevoort  P.  William*, 
14  \Vcnd.  133-188.'  The  nature  of  the 
business  of  the  paper  company  justi- 
I'u-d  the  giving  of  negotiable  paper, 
and  the  making  of  such  instruments 
was  an  incident  to  the  IHIMI: 
carried  on.  It  was  a  frequent  occur- 
rence in  the  management  of  its  affairs. 
The  by-laws  which  required  the  secre- 


tary to  sign  all  obligations  of  the  com- 
pany had  never  had  any  force  and 
were  unknown  to  the  bank.  What 
the  bank  did  know  was  that  Wood- 
ruff [who  made  the  notes]  was  presi- 
dent, general  manager  and  financial 
agent  of  the  company.  He  was  such 
by  the  general  acquiescence  of  the 
stockholders.  He  and  *  *  *  daugh- 
ter owned  the  stock  of  the  company. 
For  twenty-five  years  there  had  been 
no  meeting  of  the  stockholders  for  tho 
election  of  officers  and  very  few  meet- 
ings of  the  trustees,  and  Woodruff 
had  managed  the  business  as  if  it  was 
his  own.  He  bought  its  supplies,  sold 
its  products  and  paid  its  debts.  No 
other  person  was  shown  to  have  had  a 
voice  in  the  management  of  its  affairs. 
Under  such  circumstances,  the  giving 
of  a  promissory  note  in  the  name  of 
the  company  for  money  borrowed  was 
not  only  within  the  apparent  scope  of 
Woodruff's  authority,  but  the  long 
period  during  which,  without  inter- 
ference, he  was  permitted  to  manage 
the  company's  affairs,  justified  the 
inference  that  it  was  within  his  actual 
authority.  Martin  r.  Webb,  110  U. 
S.  7.  The  bank  was,  therefore,  justi- 
fied in  relying  upon  the  presumption 
that  the  notes,  being  made  in  the  name 
nf  tin-  company,  were  given  in  its 
business  and  for  its  benefit." 

1  Hyde  r.  Larkin,  (1889)  8T>  Mo.  App. 
305. 

*  Scott   r.    Johnson,   5   Bosw.    -Ji:?: 
Merchants'  Bank  r.McColl,  6  Bosw.473. 


188  POWER  OF  OFFICERS  AND  AGENTS.  [§  145 

cuted  by  its  president  under  its  corporate  seal,  reciting  an  authority 
from  the  board  of  directors  to  execute  it.1  When  the  transfer  of 
a  note  belonging  to  a  corporation  has  been  authorized  by  a  reso- 
lution of  its  board  of  directors,  its  president  has  power  to  indorse 
it  over.2  As  against  the  parties  to  a  note,  the  presumption  is 
that  the  president  of  a  corporation  indorsing  it  over  was  author- 
ized to  do  so.8  The  president  of  a  corporation  may  be  author- 
ized to  indorse  its  notes  by  the  directors,  who  with  the  president 
by  the  charter  have  full  power  to  conduct  its  aifairs.4 

§  145.  When  a  president's  act  is  binding. —  A  manufactur- 
ing corporation  of  Connecticut,  for  the  purpose  of  manufacturing 
a  certain  class  of  goods  and  to  prepare  for  the  same,  arranged 
with  a  New  York  firm  of  commission  merchants  that  the  latter 
advance  to  the  corporation,  as  called  for,  money  to  the  amount  of 
$100,000,  to  be  secured  by  a  mortgage  upon  its  real  property  and 
its  personal  property  to  this  extent,  that  the  goods  manufactured 
of  this  kind  would  be  shipped  to  the  firm  to  be  sold  on  commis- 
sion and  the  avails  of  the  sales  applied  to  the  settlement  of  the 
bond  and  mortgage.  Advances  were  made  to  an  amount  slightly 
exceeding  the  amount  of  the  limit ;  goods  were  shipped  and  sold 
on  commission,  etc.  The  president  of  the  corporation,  its  prin- 
cipal business  and  financial  manager,  requested  this  firm  to  make 
advancements  to  the  corporation  in  addition  to  those  contemplated 
and  secured  by  mortgages,  and  verbally  agreed  that  these  should 
be  secured  by  the  mortgages,  by  the  products  of  the  mill  previ- 
ously and  subsequently  consigned  to  them,  and  certain  shares  of 
stock  which  the  corporation  held  in  pledge.  There  was  advanced 
upon  the  agreement  a  large  sum  of  money  in  addition  to  that 
already  advanced.  There  was  no  vote  either  of  stockholders  or 
directors  authorizing  such  borrowing  or  agreement.  In  an  action 
for  foreclosure  of  the  mortgage  the  Supreme  Court  of  Connecti- 
cut held  that  the  firm  was  entitled  to  a  decree  of  foreclosure  and 
sustained  the  right  of  the  firm  to  apply,  as  it  had  done,  the  pro- 
ceeds of  the  sale  of  products  of  the  corporation  to  the  later 

1  Corbit  f.  Nicoll,  12  N.  Y.  Civ.  Pro.  the  Metropolis,  8  Gill.  (Md.)  64.     As 

235.  to  president's  power  to  draw,  accept, 

1  Clark  r.  Titcomb,  42  Barb.  122  and  indorse   bills   of   exchange,    see 

3  Elwell  c.  Dodge,  33  Barb.  336.  Jones  v.  Hawkins,  17  Ind.  550;  Alli- 

4  Merrick  r.  Trustees  of  the  Bank  of  son  v.  Hubbell,  17  Ind.  559. 


§146] 


PRIVATE  CORPORATIONS. 


L89 


advances  made  under  this  arrangement  with  the  president  instead 
of  upon  the  bond  which  the  mortgage  was  executed  to  secure.1 

§  146.  Illustrations  of  the  power  of  a  president. —  The 
tracts   binding  a  corporation   which  the  president  thereof  lias 
authority  to  make,  by  virtue  merely  of  his  official  position,  are 
confined  to  those  relating  to  matters  arising  in  the  ordinary  com •-«• 


1  Lewis  r.  Hartford  Silk  Manufac- 
turing Co.,  (1887)  66  Conn.  25.  In  its 
opinion  as  to  the  binding  effect  upon 
the  corporation  of  the  transactions  of 
its  president  the  court  said:  "  No  vote 
[of  stockholders  or  directors]  was  nec- 
essary to  make  the  acts  of  [the  presi- 
dent] binding  upon  the  corporation. 
Having  made  him  its  principal  and 
general  financial  manager  and  agent, 
with  no  limitation  upon  his  power,  and 
having  notified  all  persons  concerned 
of  such  appointment,  the  company  is 
bound  by  his  act  of  borrowing  for  its 
benefit  and  of  pledging  [the  products 
of  the  mill]  or  any  other  personal 
property  for  repayment.  He  was 
clothed  with  power  to  borrow  money 
for  its  necessary  and  proper  uses  from 
any  person  who  would  lend;  to  sell 
[their  products]  and  repay;  or  consign 
[them]  with  leave  to  retain  the  pro- 
ceeds; or  use  any  other  property  for 
that  purpose.  And  as  in  these  matters, 
in  legal  contemplation,  he  was  the  cor- 
poration, he  could  bind  it  as  effectu- 
ally as  it  could  bind  itself  by  corpo- 
rate vote  when  taking  up  money  by 
an  agreement  that  payment  should  be 
secured  by  the  previous  mortgage,  pro- 
vided (in  the  interest  of  other  credit 
ors)  the  aggregate  should  not  > 
the  extreme  limit  of  one  hundred 
tlmu^md  dollars.  Of  course  a  cor- 
porate vote  was  necessary  to  a  valid 
mortgage  by  its  financial  agent  of  the 
re.il  estate  of  the  [corporation)  to  the 
plaintiffs.  But  all  money  or  other 
personal  property  or  rights  therein 
coming  into  its  possession  because  of 
the  mortgage  security  thus  given  were 


at  the  disposal  of  its  general  un- 
limited financial  agent,  equally  with 
any  other  personal  projMJrty  belonging 
to  it.  A  corporate  vote  is  not  made 
necessary  to  the  valid  disposition  of 
this  right  in  personal  property  because 
of  the  mention  of  it  in  a  sealed  in- 
strument. Therefore,  if  we  should 
concede  that,  as  against  the  plaintiffs, 
the  agreement  between  them  and  the 
[corporation]  constituted  a  valuable 
right  in  the  possession  of  the  latter, 
nevertheless  [its  president]  had  abso- 
lute power  of  disposal  of  this  right 
for  its  benefit.  He  could  exchange, 
sell,  pledge  or  annul  it  by  his  indi- 
vidual action  at  his  discretion.  Pre- 
sumably the  agreement  by  the  mort- 
gagor to  deliver,  and  by  the  mortgagee 
to  receive  [the  products  of  the  mill], 
in  payment  was  for  the  benefit  of  the 
latter,  and  although  it  has  a  place  in 
the  condition  of  the  mortgage,  they 
were  under  no  obligation  to  see  in  it 
any  limitation  upon  the  power  of  the 
mortgagor's  general  financial  agent 
thereafter  to  borrow,  if  they  should  be 
willing  to  lend,  other  and  additional 
sums  for  its  benefit,  and  make  pay- 
ment therefor  in  money,  [products  of 
the  mill],  or  any  other  personal  prop- 
erty. The  purpose  of  the  mortgagee 
was  to  give  satisfactory  security  for 
the  loan  of  one  hundred  thousand 
dollars,  not  at  all  to  bar  itself  from 
borrowing  other  money  if  a  willing 
lender  could  be  found.  As  it  is  the 
company's  duty  always  to  pay  ii-s 
debts,  the  application  of  any  of  its 
personal  property  or  rights  in  stock  at 
any  time  to  that  use  by  its  accredited 


190  POWEE  OF  AGENTS  AND  OFFICERS.  [§  146 

of  the  business  of  the  corporation.1  And  a  corporation,  for 
instance,  engaged  in  the  business  of  conveying  water  through 
ditches  for  sale  to  miners,  would  not  be  bound  by  a  contract  of 
its  president  for  a  purchase  of  additional  ditch  property  with  a 
view  of  extending  the  operations  of  the  corporation,  as  this  would 
not  be  a  matter  within  the  ordinary  course  of  the  business  of  the 
corporation.2  The  managing  board  of  a  private  corporation  hav- 
ing conferred,  by  a  resolution  of  such  board,  upon  the  president 
of  the  corporation  the  full  power  of  the  corporation  in  reference 
to  municipal  street  work,  the  president  of  the  corporation  may 
contract  with  a  city  on  behalf  of  the  corporation  to  improve  a 
street.3  If  made  the  duty  of  a  president  of  a  corporation  to  gen- 
erally supervise  its  entire  business,  and  it  be  provided  that  all  of 
the  property  of  the  corporation  shall  be  under  his  control,  by  a 
by-law  of  the  corporation,  and  it  appears  that  for  many  years  its 
president  has  acted  as  its  attorney,  and  looked  after  its  litigation, 
such  facts  will  be  evidence  of  his  authority  to  employ  counsel  to 
look  after  the  interests  of  the  corporation  in  any  pending  litiga- 
tion.4 A  corporation  may  be  bound  by  its  president's  entering 
satisfaction  of  a  judgment  in  its  favor,  after  an  assignment  to  a 
third  person,  though  the  satisfaction  piece  be  not  under  the  seal 
of  the  corporation.5  The  president  of  a  manufacturing  corpora- 
tion, who  is  also  its  superintendent,  clothed  with  general  author- 
ity to  contract  by  parol,  without  the  seal  of  the  corporation,  for 

financial  agent  without  limitation  is  thority  to  bind  the  corporation  for  the 
binding  upon  it.  And  whatever  valu-  purchase  of  a  house  to  be  used  as  an 
able  property  right  as  against  [the  office  for  the  corporation  and  as  a 
pledger],  the  [corporation]  had  in  the  boarding  house  for  the  laborers  it  em- 
use  and  application  of  his  shares,  ployed  under  a  resolution  of  the  cor- 
[stock  of  another  corporation  pledged  poration  vesting  him  with  discretionary 
to  it],  that  right  was  at  the  disposal  of  power  as  to  "all matters  pertaining  to 
[its  president]  for  the  benefit  of  the  the  prosecution  of  the  projects  of  the 
company  by  sale  or  pledge,  [the  company,"  and  if  his  authority  were 
pledger's]  rights  of  course  not  to  be  doubtful,  the  acts  of  the  corporation 
affected  by  any  act  of  [the  president]  amounted  to  a  ratification  of  the 
not  authorized  or  ratified  by  himself."  contract. 

1  Blen  v.  Bear  River  &  Auburn  Water  3  Oakland  Paving  Company  u.  Rier, 

&  Mining  Company,    (1862)  20  Cal.  (1877)  52  Cal.  270. 

602.  *  Wetherbee  v.  Fitch,  (1886)  117  111. 

9 Ibid.     In  Shaver  r>.  Bear  River  &  67;  s.  c..  7  N.  E.  Rep.  513. 

Auburn  Water  &  Mining  Co.,  (1858)  6  Booth  v.   Farmers  &    Mechanics' 

10  Cal.  396,  the  court  held  that  the  Bank,  50  N.  Y.  396. 
president  of  this  corporation  had  au- 


;  146] 


I'i:i\  A  I  I    <-.,|; i -ORATIONS. 


191 


making  and  delivering  its  manufactured  -roods,  has  like  authority, 
unless  the  pou-rr  i-  withdrawn,  t..  aiithori/r  the  termination  and 
rel.-a.-e  of  Mich  a  contract.1  A  railway  corporation  will  IK?  bound 
I iy  a  contract  made  l>y  it<  piv>idcnt,  in  its  behalf,  and  within  the 
scope  of  its  chartered  powers,  to  pay  fixed  .-uin>  of  money  to  the 
proprietor-  of  a  railway  bridge  for  the  use  of  the  same,  where  it 
i.-  made  known  to  the  directors  and  stockholders  and  not  disap- 
proved l»v  them  within  a  reasonable  time.2  No  proof  of  the 
authority  of  the  president  of  a  corporation  will  be  required  to 
establish  ari  assignment  made  by  the  corporation,  through  its 
president,  of  a  special  tax  bill.3  The  lease  of  an  office  is  within 
the  usual  powers  of  the  president  of  a  corporation,  and  his  decla- 
rations, when  making  such  a  con  tract,  are  evidence  of  the  intended 
purpose  for  which  it  may  lie  leased.4  A  corporation  will  be 
bound  by  the  act  of  its  pre.-ident.  after  its  organization,  in  receiv- 
ing a  conditional  subscription.6  A  corporation  will  be  bound  by 
its  president's  receiving  a  promissory  note,  on  settlement  against 
the  maker,  though  made  payable  to  the  president  or  his  order  by 
his  individual  name,  if  he  has  been  in  the  habit  of  acting  as  its 
business  agent,  with  the  knowledge  of  the  corporation  and  with- 
out objection  on  its  part.6  It  is  within  the  scope  of  a  president's 
authority,  as  president,  to  undertake  to  bring  before  the  l>oard  of 
directors  of  a  corporation,  at  a  time  specified,  a  demand  against 
the  corporation  for  money  borrowed  by  an  agent  of  the  corpora- 
tion, and  the  corporation  will  be  bound  to  consider  the  demand 
at  the  time  specified.7 


1  Indianapolis  Rolling  Mills  r.  St. 
Louis.  Fort  Scott  &  Wichita  Railroad, 
(1887)  1'jo  r.  S.  256;  8.  c.,  7  Sup.  Ct. 
Hep  548 

'•  Pittsburgh,  Cincinnati  &  St.  Louis 
Ry.  Co.  r .  Kcokuk  &  Hamilton  Bridge 
Co.,  (1889)  181  U.  S.  871;  s.  c.,  9  Sup. 
Ct  Kep.  770. 

'Bambrick  r.  Campbell,  (1889)  37 
Mo.  App.  460. 

4  Baltimore  &  Philadelphia  Steam- 
boat Co.  r.  McCutolieon.  18  Pa.  St.  i:?. 

"Pittsburgh  &  Connellsville  R.  R. 
Co.  r  Stewart,  41  Pa.  St.  64. 

'Dougherty  e.  Hunter,  54  Pa.  St. 
880.  As  to  power  of  president  to  ap- 
point attorneys  for  looking  after  liti 


gation  of  corporation,  see  Reno  Water 
Company  r.  Leete,  17  Nev.  208;  8.  c., 
30  Pac.  Rep.  702;  American  Insur- 
ance Co.  r.  Oakley,  9  Paige,  496;  a.  c., 
38  Am.  Dec.  561;  Wctherl>ee  r.  Fitch. 
117111.  67;  s.  c.,  7  X.  E.  Rep.  513. 
As  to  president's  indorsing  commercial 
paper  for  tmnsfer.sce  Irwin  r.  Bailey,  8 
Mis*.  .V33;  Howland  r.  Myer,  8  N.  Y. 
290;  Caryl  r.  McElrath,  8  Sandf.  176; 
Palmer  r.  Nassau  Bank,  78  111.  880. 
As  to  power  of  tin-  president  of  a 
bank  to  contract  for  the  bank,  see 

Hawkins.  58  Miss.  702. 
1  Union  Gold  Mining  Co.  r.   Rocky 
Mountain  Bank,  1   Colo.   581.     As  to 
making  sales  of  commodities  of  cor- 


192  POWER  OF  AGENTS  AND  OFFICERS. 

§  147.  Illustrations  of  his  lack  of  power. — The  president  of 
a  corporation  has  no  legal  power  or  authority  to  deplete  the 
coffers  of  the  corporation  by  instructing  the  treasurer  to  refuse 
to  accept  subscription  money  when  tendered.1  An  authority 
given  by  a  resolution  of  the  board  of  directors  to  a  president  of  a 
corporation  "  to  make  all  contracts  and  draw  on  the  treasurer  for 
all  disbursements  (countersigned  by  the  secretary)  under  the 
direction  of  the  board,"  does  not  confer  upon  the  president  power 
to  make  contracts  for,  or  otherwise  bind,  the  corporation  without 
the  "  direction  of  the  board  "  of  directors,  and  his  acceptance  of 
a  bill  drawn  upon  him  as  president,  without  the  direction  of  the 
board  of  directors,  would  not  bind  the  corporation.2  There  is  no 
power  in  the  president  of  a  corporation,  by  virtue  of  his  office,  to 
purchase  or  sell  real  property  for  the  corporation  at  his  discre- 
tion. Such  power  can  be  conferred  only  by  the  board  of  trus- 
tees.3 A  resolution  being  upon  the  minutes  of  a  corporation  for- 
bidding its  president  purchasing  such  goods,  the  president  cannot 
bind  it  for  goods  purchased.4  Where  a  contract  has  been  entered 
into  by  authority  of  its  board  of  directors,  the  president  of  a  cor- 
poration in  the  usual  course  of  the  except  in  the  discharge  of  their  ordi- 
business  of  the  corporation,  see  Horton  nary  duties.  The  court,  in  Potts  v. 
Ice  Cream  Company  T.  Merritt,  63  Wallace,  supra,  further  said:  "  It  is 
Hun,  638;  s.  c.,  17  N.  Y.  Supp.  718;  true  that  if  the  acts  of  the  president 
43  N.  Y.  St.  Repr.  416.  As  to  the  ef-  are  ratified  by  the  corporation,  or  the 
feet  of  a  president's  acknowledgment  corporation  permits  a  general  course 
of  a  debt,  taking  it  out  of  the  Statute  of  conduct  or  accepts  the  benefit  of  his 
of  Limitations,  see  Morgan  v.  Her-  act,  they  will  be  bound  by  it.  But  the 
chants'  Bank,  13  Lea,  (Tenn.)  234.  general  rule  is  that  the  president  can- 

1  Potts  v.  Wallace,  (1892)  146  U.  S.  not  act  or  contract  for  the  corporation 
689,  705;  s.  c.,  13  Sup.  Ct.  Rep.  196,  except  in  the  course  of  his  usual  du- 
in  which  the  question  whether  or  not  ties.  And  the  rule  is  still  stronger 
a  subscriber  to  the  stock  had  been  re-  against  the  power  of  the  president  to 
leased  from  his  obligation  to  pay  it  for  bind  the  corporation  by  giving  up  its 
the  benefit  of  the  creditors  by  the  ac-  securities  or  releasing  claims  in  its 
tion  of  the  president  or  otherwise,  favor." 

The  court  followed  Bank  of  the  United       *  Lazarus,  Use  of,  v.  Shearer,  (1841) 
States  v.  Dunn,  6  Pet.  51,  where  it  was   2  Ala.  718. 

held  that  an  agreement  by  the  presi-  8  Bliss  v.  Kaweah  Canal  &  Irriga- 
dent  and  cashier  that  the  indorser  on  a  tion  Co.,  (1884)  65  Cal.  502. 
note  shall  not  be  liable  on  his  indorse-  4  Westerfield  ».  Radde,  7  Daly,  326. 
ment  does  not  bind  the  bank;  that  it  In  Smith  v.  Smith,  (1875)  117  Mass.  72, 
is  not  the  duty  of  the  cashier  and  it  appeared  that  a  corporation  held  a 
president  to  make  such  contracts,  nor  mortgage  of  land  assigned  to  it  by  the 
have  they  the  power  to  bind  the  bank  mortgagee  as  collateral  security  for  the 


§147] 


PRIVATK  CORPo RATIONS. 


193 


poration,  without  the  assent  of  the  directors,  has  no  power  to 
modify  it.1  The  president  of  a  corporation,  as  such,  has  no  power 
to  bind  the  corporation  by  any  act  outside  his  official  duty.2  The 
mperintendent  of  a  mining  corporation  ha*  n<>  authority,  eirtute 
ojficii  merely,  to  borrow  money  on  the  credit  of  the  corporation.3 
And  the  president  of  such  a  corporation  has  no  power,  as  presi- 


payment  of  a  note  which  was  also  se- 
cured by  a  mortgage  of  other  land 
owned  by  him.  By  vote  afterwards 
the  corporation  authorized  its  presi- 
dent and  secretary  to  cancel  the  prin- 
cipal mortgage,  but,  by  mistake,  the 
president  discharged  both  mortgages 
upon  the  record.  There  was  a  provis- 
ion in  the  charter  of  the  corporation 
that  the  president  should  keep  the  cor- 
porate seal,  but  the  only  provision  in 
its  charter  or  its  by-laws  relating  to 
the  execution  of  contracts  in  its  behalf 
was,  that  the  corporation  should  be 
bound  by  all  instruments  which  it 
should  lawfully  make,  when  executed 
in  its  name  and  pursuant  to  its  rules, 
signed  and  delivered  by  the  presi- 
dent, secretary,  treasurer  or  other 
officers  or  persons  it  should  appoint, 
and  sealed  by  its  common  seal.  The 
Supreme  Court  of  Judicature  held  that 
the  discharge  of  the  collateral  mort- 
gage was  without  authority  from  the 
corporation  and  void. 

1  Western  Railroad  Co.  r.  Bayne,  11 
Hun,  166;  8.  c.,  75  N.  Y.  1.  For 
classes  of  contracts  or  agreements  in 
which  a  president  cannot  bind  the  cor- 
poration, see  Spyker  F.  Spence.  8  Ala. 
388;  First  National  Bank  /-.  Reed,  86 
Mich.  263;  St.  Nicholas  Insurance  Co. 
v.  Howe,  7  Bosw.  450;  First  National 
Bank  /-.  Bennett,  33  Mich.  520;  Leavitt 
9.  Connecticut  Peat  Co.,  6Blatchf.  189; 
Leggett  v.  New  Jersey  Manuf.  Co.,  1 
N.  J.  Eq.  541;  s.  c.,  23  Am.  Dec.  728; 
Fitzhugh  v.  Franco-Texas  Land  Co., 
81  Tex.  806;  8.  c.,  16  8.  W.  Rep.  1078; 
McKeag  r.  Collins,  87  Mo.  164;  Olney 
«.  Chadsey.  7  R.  I.  224;  Hodge*.  First 
National  Bank.  22  Gratt.  51;  Brouwer 
25 


r.  Appleby,  1  Sandf.  158;  Hone  r. 
Allen,  1  Saudf.  171.  note;  Thompson 
«.  McKee,  5  Dak.  1T',>;  8.  c.,  87  N.  W. 
Rep.  367;  Ellsworth  Woolen  Manufg. 
Co.  v.  Faunce,  79  Me.  440;  8.  c.,  10  All. 
Rep.  250;  Ashuclot  Manufg.  Co.  v. 
Marsh,  1  Cash.  507;  Globe  Works  v. 
Wright,  106  Mass.  207;  White  v.  West- 
port  Cotton  Manufg.  Co.,  1  Pick.  215; 
8.  c.,  11  Am.  Dec.  168;  E.  Carver  Com- 
pany P.  Manufacturers'  Ins.  Co.,  6 
Gray,  214;  Markey  r.  Mutual  Benefit 
Ins.  Co.,  103  Mass.  78;  Merchants' 
National  Bank  /•.  Kawls,  7  Ga.  191;  s. 
c.,  50  Am.  Dec.  394;  Asher  r.  Sutton, 
31  Kans.  286;  Reynolds,etc.,Constr.  Co. 
v.  Police  Jury,  44  La.  Ann.  863;  8.  c., 
11  So.  Rep.  236;  Potts  v.  Wallace,  146 
U.  S.  689;  s.  c.,  13  Sup.  Ct.  Rep.  196; 
Bank  of  United  -States  v.  Dunn,  6  Pet. 
51;  Weeks  t>.  Silver  Islet  Consolidated 
Mining  Co.,  55  N.  Y.  Super.  1;  B.C., 
8  N.  Y.  St.  Repr.  110;  First  National 
Bank  0.  Lucas.  21  Neb.  280;  s.  c.,  :51 
N.  W.  Rep.  805;  Foster  r.  Essex  Bank. 
17  Mass.  479;  8.  c.,  9  Am.  Dec.  168; 
Dowd  t>.  Stephenson,  105  N.  C.  467; 
s.  c.,  10  8.  E.  Rep.  1101. 

*  Perry  P.  Simpson  Waterproof  Man- 
ufacturing Co.,  37  Conn.  531.  In 
Stallcup  v.  National  Bank  of  the  Re- 
public, (1888)  15  N.  Y.  St.  Repr.  89,  in 
the  absence  of  proof  of  the  authority 
of  its  president  to  accept  drafts  of  a 
corporation  upon  the  bank,  and  in  the 
face  of  evidence  that  the  obligee  of  the 
drafts  knew  that  similar  transactions 
of  the  president  had  failed  to  meet  tin 
sanction  of  the  directors,  the  bank  was 
held  not  to  !><•  liable. 

1  Union  Gold  Mining  Co.  r.  Rocky 
Mt.  Bank,  2  Colo.  565. 


194  POWER  OF  AGENTS  AND  OFFICERS.  [§  148 

dent,  to  undertake,  in  the  corporate  name,  for  the  repayment  of 
such  an  unauthorized  loan.1  The  Illinois  Appellate  Court  sus- 
tained a  decree  dismissing  a  bill  to  compel  a  corporation  to  renew 
a  lease  of  a  building  belonging  to  it,  because  of  a  lack  of  power 
or  authority  in  the  president  of  the  association  to  bind  it  by  an 
agreement  to  make  or  renew  a  lease  of  its  estate.2 

§  148.  What  would  show  the  authority  of  a  president.— 

A  corporation  admitting,  at  the  trial  of  a  case,  that  the  one  mak- 
ing the  contract  which  the  corporation  claimed  to  be  unauthor- 

1  Ibid.  cuting  leases  defined,  and  while  it  is 

2  Koch  r.  National  Union  Building    true  that  it  has  been  said  by  the  Su- 
Association,   (1890)  35  111.  App.  465;    preme  Court  of  this  state  that  an  act 
affirmed  in  137  111.  497;  s.  c.,  27  N.  E.    done  by  the  president  will  be  presumed 
Rep.    530.     The    court    said:     "The   to  be  legally  done  and  be  binding  on 
president  of  a  corporation  has  not,  as    the  body,  that  rule  applies  'in  the  ab- 
matter  of  law,  and  merely  by  reason    sence  of  legislative  enactment  or  pro- 
of his  holding  said  office,  power  or  au-    vision  made  in  the  by-laws.'     Smith 
thority  to  execute  deeds,  mortgages  or   v.    Smith,    62  111.  493.     The  business 
leases  of  the  real  estate  of  the  corpora-    affairs  of  corporations  are  controlled 
tion.     Hoyt  T.  Thompson,  19  N.   Y.    exclusively  by  their  boards  of  direct- 
207.     The  implied  powers  of  the  presi-    ors,  and  such  board  may  undoubtedly 
dent  of  a  corporation  depend  upon  the   invest  the  president  with  authority  to 
nature  of  the  company's  business,  and    bind  the  corporation  by  deed  or  lease, 
the  measure  of  authority  delegated  to    either  by  express  resolution  or  by  an 
him    by  the    board  of  directors.     It   acquiescence  in  his  assumption  of  au- 
seems  that  the  president  has  no  greater    thority  in  that  respect,  which  would 
powers,  by  virtue  of  his  office  merely,    justify  persons  who  dealt  with  him  in 
than  any  other  director  of  the  com-   the  inference  that  he  had  such  author- 
pany,  except  that  he  is  the  presiding   ity  in  fact.     So  if  the  act  is  one  inci- 
officer  at  the  meeting  of   the  board,    dent  to  the  execution  of  the  trust  re- 
Morawetz    on    Corporations,    §    537.    posed  ir.  him,  such  as  custom  or  neces- 
There  is  no  proof  in  the  record  as  to    sity  has  imposed  upon  this  office,  he 
what  the  business  of  [defendant  cor-    may  perform  it  without  express  au- 
poration]  is,  but  it  is  shown  that  its   thority.     Mitchell  v.  Deeds,  49  111.  416. 
business,  whatever  it  may  be,  is  car-    As  we  understand  Union  Mutual  Life 
ried  on  under  certain  by-laws,  section    Ins.  Co.  v.  White,  106  111.  67,  it  simply 
9  of  which  by-laws  relates  to  the  duty    holds  the  corporation  bound  by  acts 
of  the   president,   and,    among  other    which,  from  the  course  of  its  business, 
things,   provides    that  'he  shall  exe-    were  within    apparent  power  of  the 
cute  all    bonds,    contracts,   leases  or    president  and  general  agent  when  those 
other  instruments  required  to  be  made   officers  were  acting  for  the  corporation 
or  executed  by  authority  of  the  board    in  a  state  where  the  corporation   was 
for  and  011  behalf  of  the  association,    doing  business  by  comity,  the  home 
which  shall  also  be  signed  by  the  sec-    or  residence  of  the  corporation  being 
retary.'    Here  we  find  the  authority    in  anothsr  state." 

of  the  president  with  reference  to  exe- 


PRIVATE  CORPORATIONS. 


195 


ized  was  its  president  and  superintendent  as  well  as  general 
manager,  the  Supreme  Court  of  California  held  to  be  sufficient 
evidence  of  his  authority  to  make  the  contract,  and  it  was  not 
necessary,  upon  the  party  seeking  to  enforce  it,  to  show  any  vote 
or  other  corporate  act  constituting  him  the  agent  of  tin- 
corporation.1 


1  Crowley  P.  Genesee  Mining  Com- 
pany, (1880)  55  Cal.  278.  It  was  said 
in  the  opinion:  ' '  The  common-law  rule 
that  a  corporation  has  no  capacity  to 
act  or  to  make  a  contract,  except  un- 
der its  common  seal,  has  long  since 
been  exploded  in  this  country.  Even 
in  England  it  has  been  found  to  be  im- 
practicable, so  that  the  classes  of  cases 
which  constitute  exceptions  to  the 
rule  have  become  so  numerous  that  the 
exceptions  have  almost  abrogated  the 
rule.  In  the  United  States  nothing 
more  is  requisite  than  to  show  the  au- 
thority of  the  agent  to  contract.  That 
authority  may  be  conferred  by  the  cor- 
poration at  a  regular  meeting  of  the 
directors,  or  by  their  separate  assent, 
or  »by  any  other  mode  of  their  doing 
such  acts.  If  this  were  not  so,"  says 
Mr.  Chief  Justice  REDKIELD,  "it 
would  lead  to  very  great  injustice,  for 
it  is  notorious  that  the  transaction  of 
the  ordinary  business  of  railways, 
banks,  and  similar  corporations  in  this 
country,  is  without  any  formal  meet- 
ings or  votes  of  the  board.  Hence, 
there  follows  a  necessity  of  giving  ef- 
fect to  the  acts  of  such  corporations, 
according  to  the  mode  in  which  they 
choose  to  allow  them  to  be  transacted. 
If  this  were  not  done,  it  would  become 
impossible  to  dispose  of  such  contracts 
with  any  hope  of  reaching  the  truth 
and  justice  of  the  right  and  duties  of 
the  several  parties  involved.  *  *  * 
This  is  merely  holding  corporations  to 
such  rules  of  action  as  they  see  fit  to 
adopt  for  their  own  guidance  and  the 
transaction  of  their  business."  Bank 
of  Mi.  Id  Id  Miry  t>.  Rutland  R.  R.  Co., 
80  Vt.  159.  *  *  *  It  would  not  be 


in  accordance  with  justice  or  the  inter- 
ests of  society  to  allow  corporations  to 
deny  the  authority  of  such  agents,  or 
to  repudiate  contracts  made  by  them 
for  work  and  labor  from  which  they 
derive  benefit.  So,  in  Goodwin  v. 
Union  Screw  Company,  34  N.  H.  378, 
where  it  appeared  that  the  business  of 
manfacturing  screws  was  conducted 
under  the  general  management  of  one 
of  its  directors,  who  made  verbal  con- 
tract with  the  plaintiff  to  work  in  the 
shop,  at  manufacturing  screws  for  the 
defendant,  the  Supreme  Court  of  New 
Hampshire  held  that  where  one  has 
the  actual  charge  and  management  of 
the  general  business  of  a  corporation, 
with  the  knowledge  of  the  members  or 
the  directors,  this  is  sufficient  evidence 
of  authority,  and  the  company  will  be 
bound  by  his  contracts  made  in  their 
behalf,  within  the  apparent  scope  of 
the  business  intrusted  to  him.  And  in 
Wilson  Sewing  Machine  Company  r. 
Boyington,  73  111.  534,  where  it  ap- 
peared that  an  architect  had  drawn 
plans  for  a  building  for  a  corporation 
under  a  verbal  contract  made  with  one 
who  was  acting  as  president,  execu- 
tive manager  and  principal  stock- 
holder of  the  company,  the  Supreme 
Court  of  Illinois  held  that  the  contract 
was  binding  upon  the  corporation. 
"  A  corporation,"  says  the  court, 
"  which  suffers  appearances  to  exist, 
and  its  officers  and  agents  to  so  act  as  to 
give  one  employed  by  such  officers 
and  agents  reason  to  believe  that  he  is 
employed  by  the  company,  becomes 
liable  to  such  person  as  his  employee, 
to  pay  for  the  services  rendered." 


196  POWER  OF  AGENTS  AND  OFFICERS.  [§  149,  150 

§  149.  Question  of  authority  for  the  jury. —  In  a  case  before 
the  New  York  Court  of  Appeals,  which  was  an  action  upon  cer- 
tain promissory  notes  made  payable  to  a  domestic  corporation 
and  indorsed  by  its  president,  it  appeared  .that  the  corporation  had 
its  main  office  in  the  city  of  New  York,  and  while  a  portion  of 
its  business  was  transacted  and  most  of  its  purchases  and  sales 
were  made  in  other  states  and  countries,  its  principal  business 
operations  were  carried  on  in  that  city,  and  the  annual  meeting 
of  its  directors  was  there  held.  The  person  who  indorsed  these 
notes  was  president  and  treasurer,  the  general  manager  of  all  the 
corporation's  business  affairs  in  that  city,  and  the  only  officer  hi 
attendance  at  its  office  there ;  he  paid  the  current  accounts  of  the 
company  and  indorsed  checks  made  payable  to  its  order.  The 
discount  of  business  paper  and  the  use  of  its  money  for  its  pur- 
poses, and  the  account  of  the  same  on  its  cash  books  were  daily 
and  permitted  transactions.  The  corporation  had  no  cash  capital, 
and  its  working  capital  was  borrowed  on  the  credit  of  the  com- 
pany, and  this  borrowing  was  done  principally  by  the  president, 
and  mainly  by  the  use  of  paper  indorsed  by  him  in  the  name  of 
the  corporation.  The  evidence  on  the  trial  tended  to  show  that 
this  was  with  the  knowledge  and  acquiescence  of  the  directors. 
The  Court  of  Appeals  held  that  it  was  error  in  the  lower  courtr to 
dismiss  the  complaint ;  that  the  evidence  required  the  submission' 
of  the  question  of  the  authority  of  the  president  of  the  corpora- 
tion to  bind  it  by  indorsements  to  the  jury.1 

§  150.  Power  of  a  president  as  to  execution  of  notes.— 

The  making  of  promissory  notes  of  a  corporation  by  its  president 
to  one  who,  at  his  instance  and  request,  may  advance  money  to 
pay  indebtedness  of  the  corporation  to  save  it  from  a  law  suit,  is 
within  the  scope  of  the  business  intrusted  to  him  as  superintend- 
ent and  general  agent  of  the  corporation.2 

1  Fifth  National  Bank  of  Providence,  Co.,  44  Cal.  106;  Wilbur  n.  Lynde,  49 

R.  I.,  v.  Navassa  Phosphate  Company,  Cal.  290.  In  Farmers  &  Mechanics' 

(1890)  119  N.  Y.  256;  s.  c.,  23  N.  E.  Bank  of  Savings  v.  Colby,  (1883)  64 

Rep.  737.  Cal.  352,  it  was  held  that  a  note  signed 

*Seeley  t>.  San  Jose  Independent  by  one  as  president  of  a  corporation 

Mill  &  Lumber  Co.,  (1881)  59  Cal.  22.  and  another  as  secretary  pro  tern. ,  they, 

The  court  distinguished  Hall  v.  Au-  at  the  time  of  its  execution,  discharg- 

burn  Turnpike  Co.,  27  Cal.  255;  Davis  ing  the  duties  of  those  respective 

v.  Rock  Creek,  L.  F.  &  M.  Co. ,  55  Cal.  offices,  was  the  note  of  the  corpora- 

359;  San  Diego  r>.  S.  D.  &  L.  A.  R.  R.  tion,  and  imposed  no  personal  liability 


161] 


PRIVATE  CORPORATIONS. 


197 


§  151.  In  what  cases  the  authority  of  a  president  may  not 
be  questioned. —  The  knowledge  of  all  tin-  members  of  a  board 
of  directors  of  a  corporation,  except  one,  who  was  absent  from 
the  county,  the  concurrence  at  the  time  of  those  who  remained 
in  the  county,  or  their  long-continued  acquiescence  afterward,  has 
been  held  by  the  Supreme  Court  of  Judicature  of  M;i.--;u-husett8 
to  have  made  valid,  as  the  act  of  the  corporation,  the  execution  of 
a  mortgage  of  its  personal  property,  without  special  authority 
tin-refer,  by  its  president,  who  was  general  manager  of  its  busi- 
ness.1 In  case  the  president  of  a  corporation,  who  is  its  manag- 
ing officer  and  makes  its  contracts,  enters  into  a  fraudulent  con- 
tract on  its  behalf,  the  corporation  cannot  escape  liability  on  the 
ground  that  the  president  conducted  the  transaction  without  its 
knowledge  or  concurrence.2  The  by-laws  of  a  corporation  can- 
not be  set  up  by  the  corporation  as  counteracting  the  authority 
conferred  upon  its  president  by  permitting  him  to  hold  himself 
out  to  the  public  as  its  general  manager  and  director  of  its  busi- 
ness.8 A  corporation  accepting  the  benefit  of  work  done  or  mate- 
rials furnished,  upon  the  order  of  its  president,  will  be  estopped 
to  deny  the  power  of  the  president  to  make  the  contract.4  The 
authority  of  a  president  of  a  corporation  to  subscribe  for  stock  MI 
another  may  be  presumed  upon  the  facts  that  the  stock  was 
received  by  an  agent  of  the  corporation  he  represented  and 
retained  by*  it,  and  that  the  stock  on  several  occasions  may  have 
been  voted  by  an  officer  or  member  of  such  corporation.5 


upon  them  as  individuals.  In  Na- 
tional Spraker  Bank  r.  Tread  well  Co., 
(1894)  80  Hun,  363,  where  a  promis- 
sory note  of  a  corporation  was  executed 
by  its  president,  but  not  signed  by  its 
treasurer  in  accordance  with  the  by- 
laws of  the  corporation,  the  Supreme 
Court  of  New  York  in  General  Term 
held  that  the  fact  constituted  no  de- 
fense to  an  action  on  the  note,  if  the 
paper  was  riot  diverted  from  its  orig- 
inal purpose  and  went  into  the  hands  of 
a  borut  fide  holder  and  the  corporation 
received  tho  benefit  of  the  proceeds. 

1  Sherman  v.  Fitch,  (1867)  98  Mass.  59. 

'Grand  Rapids  Safety  Deposit  Co. 
«.  Cincinnati  Safe  &  Lock  Co. ,  45  Fed. 
Rep.  671. 


•Marine  Bank  of  Buffalo  r.  But- 
ler Colliery  Co.,  52  Hun,  612;  23 
K  Y.  St.  Repr.  318;  s.  c.,  5  N.  Y. 
Supp.  291;  affirmed  in  125  N.  Y.  695; 
Bank  of  Attica  v.  Pettier  &  Styiims 
Mfg.  Co.,  49  Hun,  606;  s.  c.,  1  N.  Y. 
Supp.  483;  17  N.  Y.  St.  Repr.  327. 
When  a  corporation  is  estopped  to  deny 
the  authority  of  its  president,  see  Alex- 
ander r.  Brown,  (1877)  9  Hun,  641. 

4  Brown  t.  Wright,  (1887)  25  Mo. 
App.  54 

6Elysville  Manufacturing  Co.  r. 
Okisko  Company,  1  Md.  Ch.  392;  af- 
firmed in  5  Md.  152.  In  Grape  Sugar 
Manufacturing  Co.  r.  Small,  (1874)  40 
Md.  395,  an  action  to  recover  for  work 
done  under  a  contract  with  the  acting 


198 


TOWEB  OF  AGENTS  AND  OFFICERS. 


[§152 


§  152.  Giving  a  judgment  note  —  New  Jersey. —  The 
president  of  a  corporation  has  no  power,  in  virtue  of  his  office,  as 
president,  to  execute  a  bond  and  warrant  of  attorney  for  the 
entry  of  a  judgment  by  confession  against  the  corporation.1  The 


president  of  this  manufacturing  cor- 
poration, the  Court  of  Appeals  held 
that  it  was  not  necessary  to  prove  that 
the  president  was  authorized  by  a  di- 
rect vote  or  resolution  of  the  corpora- 
tion to  make  the  contract.  The  work 
being  necessary  to  enable  the  corpora- 
tion to  carry  on  the  business  for  which 
it  was  incorporated,  and  accepted  by 
it  without  objection,  and  without  any 
intimation  that  its  acting  president  was 
not  authorized  to  make  such  contract, 
the  jury  on  the  trial  might  presume 
that  the  work  was  done  by  the  author- 
ity of  the  corporation,  or  that  it  was 
subsequently  accepted,  and  the  con- 
tract ratified.  In  the  same  case  it  was 
further  held  that  where,  under  the  con- 
tract made  with  the  acting  president 
of  the  corporation  after  the  certificate 
of  incorporation  was  signed  by  the 
members  of  the  proposed  corporation, 
but  before  it  was  recorded,  as  required 
to  constitute  it  a  body  politic  under 
the  General  Incorporation  Law,  the 
work  was  done  for  the  corporation  and 
accepted  after  its  incorporation  was 
complete,  the  corporation  would  be 
estopped,  both  at  law  and  in  equity, 
from  denying  its  liability  on  account 
of  the  same.  See,  as  to  the  liability  of 
corporations  under  similar  circum- 
stances, Baltimore  City  P.  Ry.  r.  Sew- 
ell,  35  Md.  251;  Edwards  v.  Grand 
Junction  Ry.  Co.,  1  Mylne  &  Cr.  650; 
Wesley  Church  v.  Moore,  10  Pa.  St. 
273;  Attorney-General  v.  Corporation 
of  Leicester,  9  Beav.  546;  Hughes  T. 
Antietam  Manufacturing  Co.,  34  Md. 
324;  Fister  v.  La  Rue,  15  Barb.  323; 
Low  to.  Connecticut  &  Passumpsic 
Railroad,  46  N.  H.  284.  As  to  estop- 
pel of  a  corporation  to  deny  the 
authority  of  its  president  to  bind  it 


where  he  has  been  held  out  to  the 
public  as  possessing  authority,  see 
Ceeder  r.  II .  M.  Loud  &  Sons  Lumber 
Co.,  86  Mich.  541;  s.  c.,  49  N.  W.  Rep. 
575;  24  Am.  St.  Rep.  134;  Sherman. 
Center  Town  Co.  v.  Swigart,  43  Kans. 
292;  s.  c.,  23  Pac.  Rep.  569;  19  Am. 
St.  Rep.  137;  Fitzgerald  Constr.  Co. 
«.  Fitzgerald,  137  U.  S.  98;  8.  c.,  11 
Sup.  Ct.  Rep.  36;  Olcott  v.  Tioga,  etc., 
R.  R.  Co.,  40  Barb.  179;  First  Nat. 
Bank  ».  Kimberlande,  16  W.  Va.  555; 
Fitzhugh  v.  Franco-Texas  Land  Co., 
81  Tex.  306;  s.  c.,  16  S.  W.  Rep.  1078; 
Washington  Savings  Bank  v.  Butch- 
ers', etc.,  Bank,  107  Mo.  133;  s.  c.,  17 
S.  W.  Rep.  644;  28  Am.  St.  Rep.  405; 
Dougherty  v.  Hunter,  54  Pa.  St.  380; 
Libby  v.  Union  National  Bank,  99  111. 
622;  Neiffer  r.  Bank  of  Knoxville,  1 
Head,  (Tenn . )  1 62.  Estoppel  by  reason 
of  a  presumption  that  corporation  has 
ratified  a  contract  of  its  president.  West 
Salem  Land  Co.  v.  Montgomery  Land 
Co.,  89  Va.  192;  s.  c.,  15  S.  E.  Rep. 
524;  Belleville  Savings  Bank  T.  Wins- 
low,  35  Fed.  Rep.  471;  Bagaley  v. 
Pittsburg  Iron  Co.,  146  Pa.  St.  478;  s. 
c.,  23  Atl.  Rep.  837;  Shaver  v.  Bear 
River,  etc.,  Co.,  10  Cal.  396. 

1  Stokes  v.  Jersey  Pottery  Co.,  (1884) 
46  N.  J.  Law,  237.  Arguendo,  DEPUE, 
J.,  for  the  court  said:  "The  powers 
of  the  president  of  a  corporation, 
rirtute  ojficii,  over  its  business  and 
property  are  strictly  the  powers  of  an 
agent  —  powers  delegated  to  him  by 
the  directors,  who  are  the  managers 
of  the  corporation,  and  the  persons  in 
whom,  as  its  representatives,  the  con- 
trol of  its  business  and  property  is 
vested.  If  the  corporation  be  organ- 
ized for  business  purposes,  the  presi- 
dent is  its  chief  executive  officer.  He 


§152] 


PRIVATE  CORPORATIONS. 


Court  of  Errors  and  Appeals  of  New  Jersey  has  hold  that  such  ;i 
judgment  did  not  acquire  validity  from  the  fact  that  the  money 
advanced  hy  the  plaintiff  was  applied  for  the  benefit  of  the  com- 
pany. "  From  that  fact,"  it  was  said,  "  a  debt  would  arise  and 


limy,  without  any  special  authority 
from  the  board  of  directors,  perform 
nil  nets  of  an  ordinary  nature  which. 
by  usage*or  necessity,  are  incident  to 
his  office,  and  may  bind  the  corpora- 
tion by  contracts  arising  in  the  usual 
course  of  its  business.  Boonc  on  <  'orp. 
§  144.  To  this  extent,  the*  president, 
in  virtue  of  his  election  as  such,  be- 
comes the  agent  of  the  corporation. 
Beyond  the  powers  which  usage  and 
custom  and  the  necessities  and  con- 
venience of  business  require  in  t  In- 
executive  officer  of  a  corporation,  he 
has  no  more  control  over  the  corporate- 
property  and  funds  than  any  other 
din-dor.  As  illustrative  of  the  re- 
stricted powers  of  a  president  of  a 
corporation  in  the  management  of  its 
business  and  control  over  its  property, 
I  will  refer  only  to  two  cases  in  our 
own  courts.  In  Titus  v.  Cairo  <fc  Ful- 
ton R.  R.  Co.,  this  court  held  that  a 
power  of  attorney  executed  by  the 
president  of  a  corporation,  authoriz- 
ing a  sale  of  its  bonds  in  the  market, 
gave  the  agent  no  power  to  sell,  and 
that  the  president  could  not  execute 
such  a  power  without  the  authority  of 
the  board  of  directors.  In  delivering 
the  opinion  of  the  court,  Mr.  Justice 
VAN  SYCKEL  said:  '  In  the  absence  of 
anything  in  the  act  of  incorporation 
bestowing  special  power  upon  the 
president,  he  has,  from  his  men-  oili- 
cial  station,  no  more  control  overt  In- 
corporate property  and  funds  than 
any  other  director.  The  affairs  of  cor- 
porate bodies  are  within  llu-exclu>ive 
control  of  their  boards  of  directors, 
from  whom  authority  to  disp. 
their  assets  must  be  derived.  The  act 
of  a  president  or  other  olVicer,  unless 
it  is  shown  to  pertain  to  his  official 


duty  or  to  lie  within  the  scop.-  of  his 
employment,  cannot  be  regarded  as 
the  act  of  the  corporation,  and  is  not 
binding  upon  it.  The  authority  re- 
quisite to  charge*  the  company  must, 
therefore,  be  derived  from  the  board 
of  directors.'  s  Vnx.ni,  !»s-l<)2.  The 
other  case,  is  Leggett  v.  New  Jersey 
Ranking  Co..  Snxt.  541.  In  that  case 
the  charter  of  a  bank  provided  that 
the  affairs,  property  and  concerns  of 
the  corporation  should  be  managed  by 
its  directors;  and  the  Court  of  Chan- 
cery held  that,  although  a  mortgage 
executed  under  the  authority  of  the 
board  of  directors  would  be  valid,  a 
mortgage  executed  by  the  president 
and  cashier  under  the  corporate  seal, 
without  the  authority  or  concurrence 
of  the  board  of  directors,  was  not  a 
valid  instrument.  The  reasoning  on 
which  the  cases  cited  were  decided 
applies  to  the  case  now  before  the 
court.  The  plaintiff  by  his  judgment 
and  the  execution  thereon,  has  ac- 
quired a  lien  on  all  the  property  of 
the  corporation;  and  I  cannot  find  in 
principle  any  distinction  between  a 
mortgage  or  conveyance  of  the  lands 
of  a  corporation  and  a  judgment  upon 
bond  and  warrant  of  attorney  upon 
which  the  property,  real  and  personal, 
of  the  corporation  is  taken.  Such  a 
transaction  is  not  within  the  ordinary 
business  of  a  corporation,  which  tin- 
president,  as  its  executive  officer  is,  in 
virtue  of  his  oMicc.  authori/.ed  \.> 
tran-aet.  There  are  cast's  in  which 
the  powers  of  an  officer  of  a  corpora- 
tion, and  his  authority  to  act  for  the 
company,  arc  enlarged  beyond  those 
|io\\ers  which  are  inherent  in  his 
nllice  Hut  the-  •  s  in  which 

the  agency  of  the  officer  ha> 


POWER  OF  AGENTS  AND  OFFICERS. 


[§153 


an  obligation  011  tlic  part  of  the  corporation  to  pay  the  debt  in 
common  with  its  other  debts  would  result ;  but  the  plaintiff  can- 
not hold  his  security  which  gives  him  a  lieu  upon  the  company's 
property,  unless  his  security  is  a  valid  security  thereon,  especially 
when  the  rights  of  the  other  creditors  are  involved."  l  The  facts 
that  a  president  owned  the  bulk  of  the  capital  stock  of  a  corpora- 
tion, and  that  he  was  the  superintendent  of  its  business  and  its 
treasurer,  as  well  as  the  active  manager  of  its  affairs,  and  had 
been  accustomed  to  borrow  money  for  the  use  of  the  corporation, 
it  has  been  held  would  not  give  him  power  to  incumber  its 
property  by  mortgage  or  confession  of  judgment  for  money 
borrowed.2 

§153.    The  same  subject  —  Illinois. —  The  Illinois  Appel- 
late Court  has  said,  as  to  the  power  of  a  president  of  a  corpora- 

from  the  assent  of  the  directors,  pre-  proof  on  that   subject   is  that  Cook 

sumed  from  their  consent  and  acqui-  [the  president  of  the  company]  was 

escence    in   permitting    the  officer  to  the  owner  of  all  the  capital  stock  of 

assume  the  direction  and  control  of  the  company  except  two  shares;  that 

the  business  of  the  company.     Taylor  he  was    president  and   treasurer  and 

on  Corp.  202,  236-244;  Ang.  &  A.  on  the  active  manager  of  the  company, 

Corp.  §§  299-302.    Thus,  when,  in  the  using  the  money  of  the  corporation  as 

usual  course  of  the  business  of  a  cor-  he  saw  fit,  and  borrowing  money  for 

poration,  an  officer  has  been  allowed  the  company  so  far  as    its   banking 

in  his  official  capacity  to  manage  its  business   was  concerned;  that  at  one 

affairs,  his  authority  to  represent  the  time  he  effected  a  loan  upon  mort- 

corporation  may  be  implied  from  the  gage,    but    that    the    mortgage    was 

manner  in  which   he  has  been   per-  made  by  the  authority  of  the  direct- 

mitted  by  the  directors  to  transact  its  ors,  and  that  he  never  undertook  to 

business.     Martin  v.  Webb,  110  U.  S.  execute  in  the  corporate  name   papers 

7.     These  are  simply  instances  of  the  of    the    character  of  the  security  in 

application  of  the  principle  that  usual  question,   without  the  assent  of  the 

employment  is  evidence  of  the  powers  directors,  except  in  this  instance.  *  *  * 

of  an  agent,  and  a  responsibility  will  Incident  to  the  power  of  Cook  to  bor- 

be  laid  upon  the  principal  for  the  acts  row  money  for  the  company's  use  was 

of    his    agent    within    the    apparent  the  power  to  secure  the  debt  in  the 

authority  so  conferred  upon  the  agent  usual  way;  but  the  power  to  contract 

—  a  doctrine  which  has  come  to  be  the  debt   did   not   carry  with    it  the 

applied  to  corporations  in  many  re-  power    to    incumber    the    company's 

spects  as  well  as  to  individuals,  and  property    by    a    mortgage   or   judg- 

with     the     same    qualifications    and  ment  confessed  as  a  security  for  its 

limitations."    The  court  then  applied  repayment." 

these  principles  to  the  case  at  bar,  !  Stokes  r.  New  Jersey  Pottery  Co., 

saying:   "  But  the  depositions  laid  be-  (1884)    46    N.    J.    Law,    237;     citing 

fore  the  court  do  not  bring  the  case  in  Hackensack  Water  Co.  ».  De  Kay,  9 

hand  within  the  range  of  the  author-  Stew.  Eq.  548. 

ities    above    referred    to.     The   only  « State  Bunk  r.  Holcomb,  7  Halst.  196. 


§153] 


PRIVATE  CORPORATIONS. 


201 


tion  to  confess  judgment:  "We  think  it  plain,  both  upon  prin- 
ciple and  from  the  authorities,  that  the  piv>idmt  of  a  corporation 
has  not,  as  a  matter  of  law,  and  simply  by  virtue  of  his  oflice  as 
president,  authority  to  either  confess  judgment  against  such  cor- 
poration or  execute  a  warrant  of  attorney  empowering  another 
so  to  do.  Such  matters  form  no  part  of  the  ordinary  business  of 
tin-  compjiny  which  the  president,  as  its  executive  officer,  is 
authorized  to  transact  virtuie  afficii.  The  power  in  question  is 
not  inherent  in  or  incident  to  the  office  from  either  usage  or 
necessity.1 

1  Joliet  Electric  Light  &  Power  Co. 
«.  Ingalls,  (1887)  23  111.  App.  45;  citing 
Stokes  r.  New  Jersey  Pottery  Co., 
(1884)  46  N.  J.  Law,  237;  Thew  r. 
Porcelain  Mfg.  Co.,  5  8.  C.  415. 
The  court,  in  Joliet  Electric  Light 
Co.  r.  Ingalls,  *upra,  discussed  the 
facts  and  the  law  applicable  to  them 
in  the  case  in  these  words:  "  It  is  one 
of  the  elements  of  a  prinui  facie  case 
that  it  is  subject  to  be  rebutted  and 
destroyed  by  evidence  to  the  contrary. 
The  case  of  the  defendant  in  error  is 
not  thut  of  a  stranger  to  the  corpora- 
tion dealing  with  the  agents  of  the 
corporation  and  without  actual  notice 
of  the  power  and  authority  given  to 
such  agents  by  the  corporation  or  its 
directors.  It  would  in  many  instances 
be  dilllciilt  and  even  impossible  for 
such  stranger  to  ascertain  with  cer- 
tainty and  precision  what  the  proceed- 
ings of  the  corporate  board  were.  As 
between  such  third  party  and  the  cor- 
poration the  rule  sometimes  applies 
that  where  one  of  two  innocent  parties 
must  suffer  for  the  unauthorized  act 
of  an  agent  the  loss  should  follow 
(fall  on?]  him  who  selected  the  agent. 
Taylor  on  Private  Corporations.  £  -JO::. 
Here  defendant  in  error  was  himself  a. 
member  of  the  board  of  directors  of 
the  [corporation],  and  present  at  and 
participating  in  its  meeting  of  the 
(date  of  this  actio'n  of  the  officers],  and, 
moreover,  was  secretary  of  the  com 
pany,  and  kept  and  had  the  custody 
26 


of  the  record  of  the  proceedings  of 
such  meeting.  He  had  actual  and  full 
notice  that  all  that  the  board  of  di- 
rectors did  on  that  occasion  was  to  ac- 
cept without  qualification  the  written 
offer  that  he  himself  had  made  for  the 
sale  of  the  plant  of  [another  electric 
light  company],  and  on  the  very  terms 
proposed  by  himself,  and  also  that 
the  only  papers  the  board  authorized 
the  president  to  execute,  and  himself 
as  secretary  to  affix  the  seal  of  the  cor- 
poration to,  were  '  the  necessary  papers 
to  complete  said  contract.'  What  con- 
tract? Evidently  the  contract  shown 
by  the  written  proposition  of  defend 
ant  in  error  to  sell  the  plant  for  [a 
fixed  sum],  payable  as  stated  therein, 
'and  secured  by  notes  and  mortgage 
or  other  instruments  upon  all  the  plant 
offered  '  for  sale,  and  by  the  resolution 
of  the  board  accepting  the  said  propo- 
sition. It  would  seem  the  reasonable 
construction  of  the  transaction  must 
necessarily  be  as  shown  by  the  offer 
and  the  simple  acceptance  thereof 
without  qualification  or  counter  offer, 
that  the  completed  contract  between 
the  parties  was,  that  in  respet  t  i  • 
security  for  the  purchase  money  tin- 
special  terms  proposed,  i.  «.,  'notes 
and  mortgage  upon  all  the  plant,'  con- 
stituted tin-  contract,  and  that  under 
the  agreement  defendant  in  error  could 
have  demanded  nothing  more  or  other 
than  notes  and  mortgage,  and  that  :i 
tender  by  plaintiff  in  error  of  such 


202  POWER  OF  AGENTS  AND  OFFICERS.  [§  154 

§  154.  Where  contract  of  purchase  includes  giving  a 
judgment  note. —  In  a  case  where  a  corporation  wishing  to  pur- 
chase property  for  its  nse,  contracted  for  advances  of  money  for 
the  purpose  for  which  the  corporation  was  to  execute  its  note 
with  a  warrant  of  attorney  to  have  judgment  on  the  same,  the 
Supreme  Court  of  Illinois  fully  considered  the  propriety  of  the 
judgments  upon  this  particular  note,  the  authority  of  the  officers 
in  the  matter  and  the  execution  of  the  notes,  and  declared  the 
following  rules  in  such  case  to  be  that :  Where  the  president  of 
a  corporation  is  authorized  to  enter  into  a  contract,  under  which 
another  is  to  loan  the  corporation  money,  and  the  president  is  to 
make  and  deliver,  on  its  behalf,  a  note  for  the  money  loaned, 
secured  by  a  warrant  of  attorney  to  confess  judgment,  and  such 
contract  is  entered  into,  and  the  president,  in  pursuance  of  its 
provisions,  gives  the  warrant  of  attorney,  the  act  will  be  binding 
on  the  corporation,  even  in  the  absence  of  the  adoption  of  any 
resolution  empowering  him  to  give  the  warrant  of  attorney. 

notes  and  mortgage  would  have  been  directors  and  accepted  by  them;  that 
in  full  payment  of  the  contract  made,  defendant  in  error  had  ample  notice 
Even  if  instruments  other  than  '  notes  that  the  authority  given  by  the  board 
and  mortgage '  could  rightfully  have  of  directors  to  the  president  of  the 
been  asked  for  under  the  contract,  yet  corporation  to  execute  papers  and  to 
it  is  plain  they  must  necessarily  have  the  secretary  to  affix  the  corporate  seal 
been  instruments  which,  when  given,  thereto,  was,  by  the  order  of  said 
extended  to  and  covered  the  plant  of  board,  expressly  limited  to  such  papers 
the  [other  corporation]  and  no  more,  as  were  necessary  in  order  to  carry 
the  words  '  upon  all  the  plant  offered '  into  effect  the  contract  made,  and 
being  words  of  limitation.  It  can  further,  as  has  been  already  stated, 
hardly  be  successfully  contended  that  that  there  was  no  inherent  power 
under  an  executory  agreement  to  give  vested  in  the  president,  rirtute  officii, 
'  notes  and  mortgage,'  payment  notes,  to  give  a  judgment  note  that  would 
or  notes  witli  warrants  of  attorney  at-  bind  the  company.  In  the  case  of 
tached  or  incorporated,  authorizing  Hoyt  r.  Thompson,  5  N.  Y.  320,  it 
confessions  of  judgment,  can  be  de-  was  held  that  a  deed  formally  exe- 
manded.  The  expression  'notes  and  cuted  under  the  corporate  seal,  and 
mortgage '  must  be  presumed  to  have  bearing  upon  its  face  the  presumption 
been  understood  by  the  contracting  that  it  was  executed  by  the  competnit 
parties  in  their  usual,  ordinary  and  authority  from  the  corporation,  was 
natural  sense,  and  as  indicating  only  void,  and  not  the  deed  of  the  corpora- 
simple  promissory  notes  secured  by  a  tion,  because  it  was  actually  executed 
mortgage  upon  property.  One  condi-  by  the  executive  officers  without  nu- 
tion,  then,  is  that  warrants  of  attorney  thority,  and  known  by  the  grantee  to 
were  not  called  for  or  included  in  have  been  so  executed.  The  same  rule 
either  of  the  expressions  used  in  the  has  application  to  the  matter  now  in 
proposition  submitted  to  the  board  of  hand." 


§154] 


I'RIVATK  COKl'OKATIONS. 


906 


Where  a  promissory  note  and  warrant  of  attorney  are  executed 
in  tlu-  name  and  under  the  seal  of  a  corporation,  it  will  be  pre- 
sumed that  such  instruments  were  properly  executed  by  the 
authority  of  the  corporation.  The  common  seal  of  a  corporation 
being  affixed  to  an  instrument,  and  the  signatures  of  the  proper 
officers  being  proved,  the  courts  will  presume  that  the  officers  did 
not  exceed  their  authority  ;  the  seal  itself  \s  pr'nna  facie  r\  iik-iu-e 
that  it  was  affixed  by  proper  authority.  Where  a  private  corpo- 
ration allows  its  managing  officer  to  so  conduct  himself,  in  his 
dealings  and  transactions  on  behalf  of  the  company,  as  to  lead 
the  public,  or  those  dealing  with  him,  to  reasonably  believe  him 
as  possessing  certain  powers,  the  company  will  not  be  allowed  to 
question  such  apparent  power  or  authority  as  against  one  relying 
in  good  faith  on  the  same.  If  an  act  performed  by  an  agent  of 
the  corporation  would,  under  any  circumstances,  be  within  the 
authority  delegated  to  the  agent,  a  person  dealing  with  him  on 
the  faith  of  his  apparent  powers,  and  without  a  notice  of  facts 
showing  that  the  act  was  unauthorized,  may  hold  the  principal 
liable,  whether  the  act  was  authorized  or  not.  In  giving  a  note 
and  power  of  attorney  to  confess  thereon  by  a  corporation,  with 
the  president  as  security,  all  the  papers  were  properly  executed, 
except  that  the  corporate  name  was  not  signed  to  the  note. 
Afterwards  the  secretary  of  the  company,  by  the  direction  of  the 
president,  put  the  name  of  the  company  to  the  note.  Such  action 
was  held  sufficient  to  cure  the  defective  execution  of  the  note, 
especially  when  the  power  of  attorney  in  terms  imposed  on  the 
corporation  the  duty  to  pay  this  note.1 


1  McDonald  r.  Chisholm,  (1890)  181 
111.  278;  s.  c.,  28  N.  E.  Rep.  596. 
The  power  of  a  president  of  a  corpora- 
tion to  confess  judgment  for  it  with- 
out authority  from  the  directors,  has 
been  questioned  in  Jones  r.  A  very.  .Vt 
Mich.  336;  s.  c.,  15  N.  W.  Rep.  494. 
The  power  to  confess  judgment  for 
the  corporation  has  been  held  not  lie 
in  its  treasurer.  Stevens  c.  Carp 
River  Iron  Co.,  57  Mich.  427;  s.  c.,  24 
N.  \V.  Rep.  160.  As  to  the  authority 
of  a  president  of  a  corporation  to  con- 
fess judgment  against  the  corporation, 
see Raub  r.  Rlairstown  Creamery  Assn., 
(N.  J.  1894)  28  All.  Rep.  884.  As  to 


confession  of  judgment  under  u  war- 
rant signed  by  a  director,  the  treasurer 
and  general  manager  of  a  corporation 
without  authority  of  the  board  of  di- 
rectors or  an  executive  officer,  see  Jack- 
son r>.  Cartwright  Lumber  Co..  2  Pa. 
Dist.  Rep.  680.  See,  on  confession  of 
judgment  by  officer,  Adams  r.  Cross- 
wood  Prg.  Co..  27  111.  App.  :!i:t: 
Freeman  r.  Plaindealcr  Co.,  9  Luz. 
Leg.  Reg.  87;  Me  Murray  r.  Oil  Co.. 
33  Mo.  377.  In  Chaniberlin  r  Mam- 
moth Minim,'  Co..  (1S54)  -jo  Mo.  96.  it 
was  held  that  the  president  of  a  min- 
ing cor|M>ratiou  might  appear  and  con- 
fess judgment  for  the  corporation. 


t><  l-t  POWER  OF  AGENTS  AND  OFFICERS.  [§§  155,  156 

§  J-SS-  What  raises  a  presumption  of  authority. —  The 
common  seal  of  a  corporation  being  affixed  to  a  deed,  as  an 
assignment  for  the  benefit  of  creditors,  and  the  deed  being  signed 
by  the  officers  authorized  by  the  charter  to  sign  it  or  attest  its 
contracts,  raises  the  presumption  that  the  instrument  was  executed 
by  the  authority  of  the  corporation.  Any  one  assailing  it  must 
show  its  invalidity.1  When  the  common  seal  of  a  corporation  is 
affixed  to  an  instrument  in  writing  purporting  to  be  executed  by 
it,  and  the  signatures  of  the  proper  officers  of  the  corporation 
are  affixed  to  it  and  proved,  courts  will  presume  that  the  officers 
did  not  exceed  their  authority,  and  the  seal  itself  is  prima,  facie 
evidence  that  it  was  affixed  by  proper  authority.2  In  the  absence 
of  the  common  seal  of  a  corporation  or  of  proof  of  facts  from 
which  the  existence  of  a  resolution  of  authorization,  or  of  the 
authority  itself  may  be  inferred,  the  authority  of  the  officers  of  a 
corporation  to  execute  a  conveyance  can  only  be  established  by 
resolution  of  the  managing  board,  entered  in  the  proper  book  of 
the  corporation.3 

§  156.  Power  of  officers  acting  conjointly. —  The  govern- 
ment and  direction  of  the  affairs  of  a  corporation  being  vested 
by  statute  in  a  board  of  not  less  than  five,  of  which  a  majority 
"  shall  form  a  board  and  shall  be  competent  to  transact  the  busi- 
ness of  the  company,"  such  majority,  when  assembled,  though 
without  notice  to  the  others,  possess  all  the  powers  of  the  board, 
as  in  this  case,  to  authorize  a  sale  of  the  stock  of  the  corporation.4 
There  being  no  charter  provision  to  the  contrary,  it  will  be  pre- 

1  Thorington  r.  Gould,  (1877)  59  Ala.  supposes  a  delegated  authority  for  the 
461.  BRICKELL,  Ch.  J.,  said:  In  Bank  purpose,  and  other  corporate  acts  show 
of  United  States  v.  Dandridge,  12  that  the  corporation  must  have  con- 
Wheat.  70,  it  is  said,  after  referring  to  templated  the  legal  existence  of  such 
the  presumptions  indulged  for  and  authority,  the  acts  of  such  officers  will 
against  natural  persons  :  "  The  same  be  deemed  rightful,  and  the  delegated 
presumptions  are,  we  think,  applicable  authority  will  be  presumed." 
to  corporations.  Persons  acting  pub-  *  Southern  California  Colony  Asso- 
licly  as  officers  of  the  corporation  are  ciation  n.  Bustamente,  (1877)  52  Cal. 
to  be  presumed  rightfully  in  office;  192;  Bliss  T.  Kaweah  Canal  &  Irriga- 
acts  done  by  the  corporation  which  tion  Co.,  65  Cal.  502. 
presuppose  the  existence  of  other  acts  3  Southern  California  Colony  Asso- 
to  make  them  legally  operative  are  ciation  v.  Bustamente,  (1877)  52  Cal. 
presumptive  proofs  of  the  latter."  192. 

Again,  "if  officers  of  the  corporation  4 State  ex  rel.  Page  0.  Smith,  48  Vt. 

openly  exercise  a  power  which  pre-  266. 


§156]  PRIVATE  CORPORATIONS.  *J<  '  '» 


that  the  president,  secretary  and  treasurer  of  a  corporation 
are  authorized  to  make  all  necessary  contracts  in  transacting  the 
ordinary  business  of  the  corporation,  within  the  legitimate  scope, 
objects  and  purposes  of  its  organization.1  The  president  and 
tary  of  a  corporation  are  proper  officers  to  agree  on  its 
behalf  upon  an  arbitration.2  There  being  in  manufacturing  and 
trading  corporations  a  power  to  borrow  money,  as  incident  to 
their  power  to  purchase  stock  and  materials,  and  to  give  security 
by  pledging  the  property  so  purchased,  and  as  corporations  can 
act  only  by  their  officers,  the  treasurer  and  general  agent  of  a 
corporation  unitedly  have  power  to  borrow  money  for  the  use  of 
the  corporation,  give  its  negotiable  note  and  pledge  its  personal 
property  for  the  same,  as  well  as  to  execute  the  necessary  docu- 
ments, notwithstanding  the  by-iaws  of  such  corporation  give 
these  officers  specific  powers  not  including  such  acts  as  are  above 
referred  to.3  A  corporation  may  bind  itself  by  a  note  and  mort- 
gage, made  by  its  president  and  secretary  and  signed  by  them  in 
their  official  capacity  as  such.4  The  president  and  secretary  of  a 
manufacturing  corporation,  even  if  the  powers  of  general  man- 
agers be  conceded  them,  though  they  may  bind  the  corporation 
to  any  debt  within  the  scope  of  its  ordinary  business,  cannot  bind 
it  to  assuming  another  and  distinct  corporation's  debts,  nor  by  a 
promissory  note  for  the  payment  of  such  a  third  party's  debt.5 
The  president  and  secretary  of  a  corporation  are  presumed  to 

'Eureka  Iron,  etc.,  Works  v.  Bres-  in  Verzan  ».  McGregor,  23  Cal.  389, 

nahan,  60  Mich.  832;  8.  c.,  27  N.  W.  847. 
Rep.  524.  6Rahm    t>.     King    Wrought    Iron 

1  Fitch  0.  Constantine  Hydraulic  Co.,  Bridge  Manufactory  of  Topeka,  (1876) 

44  Mich.  74;  a  c.,  6  N.  W.  Rep.  91.  16  Kans.  277.     In  Stark  Bank  c.  U.  8. 

•Fay  t>.   Noble,  (1853)  12  Cush.  1.  Pottery  Company,  (1861)  34  Vt.  144, 

In  Leonard  r.  Burlington  Mutual  Loan  is  was  held  that  the  assuming  of  a  debt 

Association,  (1881)  55  Iowa,  594;  s.  c.,  of  a  third  person  was  not  within  the 

8  N.  W.  Rep.  463,  the  corporation  was  ordinary  power  of  the  treasurer  of  a 

held  liable  for  money  hud  and  received  corporation,  it  not  being  in  the  usual 

on  account  of  sums  advanced  to  its  course  of  business,  and  to  bind  the  cor 

secretary  and  manager  and  by  him  poration,  it  would  be  necessary  to  show 

paid  into  its  treasury,  notwithstanding  some  special  authority  granted  him  to 

this  officer  was  at  the  time  a  defaulter  do  so.     Further,  that  the  directors  of 

and  not  authorized  to  borrow  money  the  corporation  had  no  power  to  assume 

on  its  account.  such  a  debt  except  in  case  of  urgent 

*Rowe  r.   Table   Mountain  Water  necessity,  which  was  a  question  of 

Company,  (1858)  10  Cal.  441;  approved  fact  for  the  jury. 


206 


POWEB  OF  AGENTS  AND  OFFICERS. 


[§157 


have  authority  to  execute  a  promissory  note  in  the  name  of  the 
corporation,  and  the  holder  of  such  a  note  will  not  be  affected  by 
the  fact  that  such  authority  did  not  exist,  unless  he  is  shown  to 
have  had  notice  thereof.1 

§  157.  An  illustration  on  this  subject. —  The  Florida 
Supreme  Court  has  held  that  the  assignment  of  a  note  payable  to 
the  order  of  a  corporation,  and  the  mortgage  given  to  secure  its 
payment  by  the  president  and  secretary  of  the  corporation,  was, 
upon  its  face,  the  act  of  the  corporation  through  their  officers, 
and  not  their  individual  acts.2 


'American  Exchange  Nat.  Bank  v. 
Oregon  Pottery  Co.,  (1892)  55  Fed. 
Rep.  265.  See,  also,  Merchants'  Bank 
v.  State  Bank,  10  Wall.  644;  Crowley 
v.  Mining  Co.,  55  Cal.  273.  In  Fur- 
niss  r.  Gilchrist,  1  Sandf .  53,  the  trans- 
fer of  a  note  transferable  by  delivery 
by  the  president  and  secretary  of  a 
corporation  was  held  to  be  valid. 

2  Lay  r.  Austin,  (1889)  25  Fla.  933; 
s.  c.,  7  So.  Rep.  143.  The  court  de- 
clared the  following  rules  established 
by  the  authorities  which  governed 
them  in  their  conclusions  :  "Where  a 
note  is  payable  to  a  corporation  by  its 
corporate  name,  and  is  indorsed  by  an 
authorized  agent  or  official  with  the 
affix  of  his  official  position,  it  will  be 
regarded  that  he  acts  for  his  principal 
disclosed  on  the  paper  as  the  payee, 
and  who,  therefore,  is  the  only  person 
competent  to  transfer  the  legal  title. 
Daniel  on  Negotiable  Instruments, 
§  416;  Randolph  on  Commercial  Pa- 
per, §  145.  An  indorsement  by  an  of- 
ficer of  a  corporation  is  prima  facie  the 
act  of  the  company.  Randolph,  §  368; 
Frye  v.  Tucker,  24  111.  180.  In 
Mclntire  v.  Preston,  5  Oilman,  48, 
a  note  payable  to  a  corporation  was 
assigned  thus:  'Without  recourse. 
Joel  Scott,  Secy.,'  and  it  was  held 
that  when  properly  filled  out,  as  the 
plaintiff  might  do  on  the  trial,  it  was 
sufficient  to  pass  the  legal  title  to  the 
note,  and  that  the  authority  of  Scott, 


the  secretary,  to  assign  it  could  only  be 
questioned  by  plea.  See,  also,  Good- 
rich v.  Reynolds,  Wilder  &  Co.,  31 
111.  491.  Northampton  Bank  v .  Pepoon, 
11  Mass.  288,  decides  the  same  where 
the  indorsement  was  in  blank,  by  an 
authorized  attorney  signing  his  name 
and  styling  himself  attorney.  Folger 
v.  Chase,  18  Pick.  63,  was  a  case  where 
a  note  was  indorsed  by  the  payee  to  a 
bank,  and  its  cashier  indorsed  it  as 
follows  :  'P.  H.  Folger,  Cashier,'  and 
it  was  objected  that  the  latter  indorse- 
ment was  not  made  in  the  name  of  the 
corporation;  but,  said  the  Supreme 
Court  of  Massachusetts,  we  think  the 
indorsement  by  the  cashier,  in  his  of- 
ficial capacity,  sufficiently  shows  that 
the  indorsement  was  made  in  behalf  of 
the  bank,  and  if  that  is  not  sufficient 
the  plaintiffs  have  the  right  now  to 
prefix  the  name  of  the  corporation. 
Nicholas  v.  Oliver,  36  N.  H.  218,  de- 
cides that  the  indorsement,  '  W.  Earle, 
A.  Secy.,  made  on  a  promissory  note 
payable  to  an  insurance  company,  is 
to  be  considered  the  indorsement  of 
the  company,  if  nothing  further  ap- 
pear to  indicate  that  it  is  intended  as 
the  indorsement  of  some  other  party. 
In  Russell  v.  Folsom,  72  Me.  436,  the 
indorsement  by  the  treasurer  of  the 
payee  corporation  signing  his  name 
and  an  abbreviation  of  his  office  was 
held  to  transfer  the  legal  title,  and  in 
Farrar  t.  Oilman,  19  Me.  440,  the  in- 


158] 


PRIVATE  CORPORATIONS. 


2"  7 


158.  Another  illustration  -   one  holding  several  offices. 

—The  by-laws  of  a  Michigan  manufacturing  corporation  provided 
that  one  person  might  hold  the  otlice>  of  president,  tn-a.-urer  and 
general  .superintendent,  an<l  ve.sted  in  the  president  the  general 
-u|>ervi.-ion  of  the  property  and  affairs  of  the  corporation,  and  in 
the  treasurer  the  en-tody  of  its  funds  and  valuable  papers,  with 
po\ver  to  collect  and  pay  out  all  moneys  and  sign  all  acceptances 
and  notes  in  its  behalf,  while  the  superintendent  was  given  gen- 
eral supervision  and  management  of  its  affairs,  subject  to  the 
president  and  board  of  directors,  with  power  to  make  all  contracts 
in  its  behalf,  except  when  otherwise  provided  by  the  by-laws. 
The  same  person  held  the  three  offices  for  five  years,  and  man- 
aged and  controlled  the  affairs  of  the  corporation,  if  not  without 
advice,  certainly  without  objection,  on  the  part  of  the  stockhold- 
ers or  directors,  lie  finally  assigned  to  a  bank  to  secure  existing 
indebtedne.-s  and  that  which  should  be  thereafter  incurred,  one 
hundred  and  fifty  thousand  dollars  of  good  and  collectible  accounts, 
then  existing  or  thereafter  acquired,  to  be  held  by  the  bank  as 
collateral  security  for  existing  and  future  indebtedness  of  the  cor- 
poration. The  corporation  afterwards  making  an  assignment  for 
the  benefit  of  its  creditors,  the  bank  filed  a  bill  to  enforce  the 
agreement.  The  Supreme  Court  of  Michigan  held  that  the  agree- 
ment was  one  which  the  president,  treasurer  and  superintendent 
had  the  power  to  make  and  that  it  was  enforceable  in  equity.1 


dorsemcnt  by  the  cashier  of  the  bank 
was  adjudged  to  be  prinui  facie  evi- 
denee  of  a  legal  transfer  of  a  negotiable 
note.  See,  also,  Chase  r.  Hathorn,  61 
Me.  ,")!).");  Dunn  /•.  Weston,  71  Me.  270; 
Klwcll  r.  Dodge,  33  Barb.  336;  Marine 
Bank  r.  Clements,  31  N.  Y.  33." 

1  Preston  National  Bank  of  Detroit 
v.  George  T.  Smith  Middlings  Purifier 
Co.,  (1890)  84  Mich.  364;  a  c.,  47  N. 
W.  Rep.  502.  CIIAMPLIN,  Ch.  J.,  dis- 
scnted  solely  upon  the  ground  that  the 
contract  was  too  uncertain  and  iinleti 
nite  to  be  specifically  enforced.  Aryu- 
endi>,  as  to  the  authority  of  this  holder 
of  the  three  positions,  it  was  said  by 
CAUILL,  J.,  for  the  court:  "Conced- 
ing  that  the  president  must  exercise 
his  powers  of  management  in  subordi- 


nation  to  the  board,  jet  when,  as  in 
this  case,  the  stockholders,  being  the 
owners,  have  seen  fit  to  vest  certain 
extraordinary  powers  of  management 
in  the  president,  and  certain  other  pow- 
ers  in  the  treasurer  and  superintendent, 
and  the  directors,  with  full  knowledge 
of  this,  elect  a  man  to  fill  all  those  offl- 
ces,  and  thereafter  put  no  restraint 
upon  his  management,  tin-  bo.-ird  must 
be  held  to  have  consented  to  his  exer- 
cising  all  the  power  reasonably  in 
(hided  in  the  language  by  which  it 
was  conferred.  Bank  r.  Comegys,  12 
Ala.  772.  The  right  of  the  directors 
to  make  the  security  in  question  is  not 
disputed,  yet  tlieir  authority  is  given 
in  language  no  broader  than  that  which 
defines  tin-  duties  of  the  president.  If 


208 


POWER  OF  AGENTS  AND  OFFICERS. 


[§159 


§  159-  Note  executed  by  a  secretary. —  In  an  action  against 
a  corporation  on  a  promissory  note,  signed  by  one  whom  the  evi- 
dence tended  to  show  was  the  secretary  of  the  corporation  and 
impressed  with  a  stamp  which  appeared  to  have  been  used  as  the 


it  be  said  that  the  stockholders  could 
not  thus  usurp  the  powers  of  the  board 
and  confer  them  on  the  president  it 
may  be  said  that  the  right  of  the  di- 
rectors to  delegate  certain  of  their 
powers  of  management  to  the  officers 
is  undoubted,  and  if  the  consent  of  the 
board  was  needed  to  fully  invest  the 
president  with  the  power  given  to  him 
in  the  by-laws  that  consent  has  been 
given  in  this  case.  The  question  of 
[the  president's]  power  is  largely  one 
of  intention  on  the  part  of  the  stock- 
holders and  directors.  As  bearing 
upon  this  question  of  intention,  the 
fact  that  no  corporate  meetings  were 
held  for  five  years  after  the  by-laws 
were  adopted  is  an  important  circum- 
stance. It  is  claimed  that  the  neglect 
to  hold  corporate  meetings  can  have 
no  bearing  on  this  case,  because  it  is 
not  shown  that  complainant  knew  of 
this  fact  or  was  influenced  by  it,  and 
we  are  referred  to  the  case  of  New 
York  Iron  Mine  v.  Negaunee  Bank,  39 
Mich,  at  page  655,  where  some  lan- 
guage of  Mr.  Justice  COOLEY  to  that 
effect  is  found.  In  that  case  the  only 
question  was  whether  the  bank  had 
been  influenced  to  rely  upon  Wet- 
more's  apparent  authority,  which  did 
not  in  fact  exist,  to  make  the  paper  in 
question.  The  question  is  different 
here.  It  is  not  one  of  apparent  power 
to  do  an  act  conceded  to  be  fraudulent 
and  void  unless  the  corporation  was  es- 
topped by  its  conduct  to  allege  the 
fraud,  but  it  is  a  question  of  actual 
power  in  Mr.  Smith,  as  the  president, 
treasurer  and  manager  of  this  corpora- 
tion, to  perform  an  act  entirely  legal 
and  proper  if  authorized.  The  inten- 
tion to  confer  such  power  may  be  evi- 
denced by  their  failure  to  act  in  oppo- 


sition to  or  in  restraint  of  a  course  of 
business  they  have  themselves  per- 
mitted, if  not  established.  It  is  an  ordi- 
nary occurrence  for  manufacturing  or 
trading  concerns,  whose  products 
have  sometimes  to  be  carried  to  await 
a  favorable  market,  to  draw  against 
such  products  for  the  money  needed 
to  carry  them;  and,  if  requested,  some 
form  of  security  upon  such  products 
is  given.  If  this  be  permissible  shall 
the  right  to  give  security  exist  only  so 
long  as  the  goods  are  in  stock,  or  may 
they  be  sold  on  credit  and  the  accounts 
due  for  such  sales  be  substituted  with 
the  consent  of  the  creditor?  If  not, 
then  trade  is  hampered,  the  debtor  is 
put  into  the  hands  of  the  creditor,  and 
the  latter  cannot  release  him  if  he 
would  without  risk.  The  right  of  Mr. 
Smith,  as  president  and  treasurer,  to 
borrow  money  for  the  legitimate  needs 
of  the  business  and  to  give  the  com- 
pany's paper  is  not  contested.  The 
duty  to  pay  is  involved  in  the  power 
to  incur  debts.  In  the  case  of  this  cor- 
poration its  power  to  pay  its  debts  de- 
pended on  the  profitable  sale  of  its 
products  and  the  collection  of  the 
money  due  on  such  sales.  If  it  could 
not  otherwise  dispose  of  its  products 
it  could  turn  them  out  to  its  creditors 
in  payment  of.  or  as  security  for,  such 
debts.  If  its  goods  were  sold  on  credit, 
these  credits  stood  as  the  representa- 
tives of  the  goods,  and  the  same  use 
could  legitimately  be  made  of  them. 
This  is  not  like  giving  security  upon 
all  the  corporate  property,  the  enforce- 
ment of  which  may  involve  the  corpo- 
rate existence.  The  giving  of  the  se- 
curity or  its  enforcement  did  not  nec- 
essarily interfere  with  the  prosecution 
of  the  corporate  business.  It  was  given 


§160] 


PRIVATE COUPOUA! 


909 


seal  of  the  company,  there  being  evidence  that  the  plaintiff  had 
advanced  to  the  corporation  the  amount  for  which  the  note  was 
<;ivrM,  the  Supreme  Court  of  New  York,  in  General  Term, 
held  that  a  finding  that  the  corporation  had  executed  the  note  in 
consideration  of  money  loaned  to  it  would  not  be  disturbed.1 

§  160.  Power  of  superintendents,  etc. —  A  corporation  will 
be  bound  by  a  contract  made  by  its  superintendent  and  manager 


upon  property  and  credits  already  de- 
voted in  equity  and  good  conscience 
to  the  payment  of  its  creditors,  of 
whom  the  bank  was  one.  The  effect 
of  it  was  simply  to  give  complainant 
priority  of  lien."  The  ccfurt  referred 
to  the  following  cases  to  which  it  was 
cited,  to  wit:  Kimball  v.  Cleveland,  4 
Mich.  606;  Joy  r.  Plank  Road  Co.,  11 
Mich.  155;  Peninsular  Bank  r.  Han- 
mer,  14  Mich.  208;  Adams  Mining  Co. 
t>.  Senter,  26  Mich.  73;  New  York 
Iron  Mine  v.  Negaunec  Bank,  39  Mich. 
644;  Star  Line  v.  Van  Vliet,  43  Mich. 
364;  New  York  Iron  Mine  r.  Citizens' 
Bank,  44  Mich.  $57;  Eureka  Iron  & 
Steel  Works  r.  Bresnahan,  60  Mich. 
332;  D wight  v.  Lumber  Co.,  67  Mich. 
507;  Delta  Lumber  Co.  i».  Williams, 
78  Mich.  86;  Genesee  Co.  Savings 
Bank  r.  Michigan  Barge  Co.,  52  Mich. 
438;  Kendall  r.  Bishop,  76  Mich.  634; 
Stokes  r.  Pottery  Co.,  46  N.  J.  L.  237; 
Bank  r.  Bank,  48  N.  J.  L.  527;  s.  c.(  7 
All.  Hep.  318;  Fay  v.  Noble,  12  Cush. 
1,  as  to  the  powers  of  agents  of  corpo- 
rations in  such  matters.  They  said: 
"They  are  not  altogether  free  from 
conflict,  although  if  the  exact  point 
necessary  to  be  decided  in  each  case  be 
kept  in  mind,  and  the  language  used 
be  given  no  broader  meaning  than  the 
facts  of  the  particular  case  require, 
the  conflict  will  be  found  more  appar- 
ent than  real." 

'Jansen  t>.   Otto  Steitz  New  York 

Glass  Letter  Co.,  (1888)  49  Hun,  606; 

8.  c.,  1  N.  Y.  Supp.  605.     DANIELS.  J., 

for  the  court,  said:  "  To  obtain  money 

27 


in  this  manner,  to  meet  its  financial 
necessities,  was  strictly  within  its 
authority  as  a  corporation,  and  it  was 
equally  within  its  power,  after  having 
obtained  it,  to  execute  and  deliver  the. 
note  which  was  the  subject  of  the 
action  for  payment  of  the  amount.  It 
is  true  that  it  was  not  subscribed  by 
the  president,  as  contracts  were 
authorized  to  be  made  by  article  7  of 
the  by-laws;  but  while  the  president 
did  not  subscribe  the  note,  bis  conduct 
authenticating  its  subscription,  in  the 
name  of  the  company,  was  equal  to 
what  was  in  this  manner  provided  for, 
inasmuch  as  he  directed  the  note  to  be 
made  by  the  secretary.  These  per- 
sons were  vested  with  the  apparent 
authority  for  conducting  and  carrying 
on  the  business  of  the  company.  And 
even  though  they  may  have  omitted 
literally  to  comply  with  the  by-laws, 
as  to  the  form  of  the  contract  for  the 
payment  of  the  money,  the  company 
itself  cannot  be  shielded  from  liability 
on  account  of  that  omission  of  its  con- 
trolling officers.  The  case  in  all  its 
features  differs  from  that  of  Bank  r. 
Church,  39  Hun.  498,  where  the  note 
was  neither  sanctioned  by  the  cor- 
poration, nor  given  by  the  officers 
conjointly  required  to  act  in  the 
transaction  of  its  business.  The  pres- 
ent note  WHS  tjie  act  of  the  officers, 
conjointly,  of  a  business  corporation 
empowered  to  borrow  money  and  pro- 
vide for  its  payment,  substantially  the 
same  as  that  might  be  done  by  an  un- 
incorporated partnership." 


210  POWER  OF  AGENTS  AND  OFFICERS.  [§  160 

relating  to  the  ordinary  concerns  of  its  business.1  It  may  be 
shown  by  the  testimony  of  any  one  who  knows  the  fact  that  one 
is  the  general  manager  of  a  corporation.2  A  corporation  which 
has  authorized  its  agents  to  sign  "  all  notes  and  business  paper," 
will  be  liable  on  accommodation  notes  given  by  him  in  the  name 
of  the  corporation  to  a  lona  fide  holder,  taking  them  in  good 
faith,  for  value  before  maturity,  notwithstanding  any  want  of 
authority  of  the  agent  to  execute  them  for  the  purposes  for  which 
they  were  given.3  The  business  manager  of  a  manufacturing 
corporation  cannot  be  assumed,  as  a  matter  of  law,  to  have  implied 
authority  to  agree,  in  behalf  of  the  corporation,  to  pay  for  medi- 
cal attendance,  however  small  the  sum,  on  one  whom  he  has 
reasonable  ground  to  believe  to  have  been  injured  by  the  fault  of 
the  corporation.4  An  engineer  employed  by  a  railroad  corpora- 

1  Whitaker  v.  Kilroy,  (1888)  70  Mich,  struction  Co.  r.  Fitzgerald,  (1890)  137 

635;  s.  c.,  38  N.  W.  Rep.  606.  U.  S.  98;  s.  c.,  11  Sup.  Ct.  Rep.  36. 

z  Corning  v.  Walker,  14  N.  Y.  Wkly.  Cases  as  to  the  power  of  a  president 

Dig.  314.  In  Negley  v.  Counting  of  a  corporation  growing  out  of  his 

Room  Company,  (City  Ct.  N.  Y.  1886)  being,  in  the  management  of  its  af- 

1  N.  Y.  St.  Repr.  299,  the  evidence  fairs,  its  managing  officer.  Siebe  v. 

that  the  agent  of  a  corporation  signing  Joshua  Hendy  Machine  Works,  86 

a  promissory  note  as  "manager,"  Cal.  390;  s.  c.,  25  Pac.  Rep.  14;  Lan- 

"had  mostly  the  entire  charge  of  the  caster  County  v.  Cheraw  &  C.  R.  R. 

business,"  has  been  held  sufficient  to  Co.,  28  S.  C.  134;  s.  c.,  5  S.  E.  Rep. 

show  that  his  act  in  executing  the  338;  Kenton  Insurance  Co.  v.  Bow- 
note  was  within  the  scope  of  the  gen-,  man,  84  Ky.  430;  s.  c.,  1  S.  W.  Rep. 

eral  powers  conferred  upon  him,  and  717;  Marlatt  v.  Levee  Steam  Cotton 

iiicidental  to,  and  necessary  for,  the  Press  Co.,  10  La.  583;  s.  c. ,  29  Am. 

conduct  of  the  corporation's  business.  Dec.  468;  Topeka  Primary  Assn.  r. 

Citing  Farmers' Bank  of  Bucks  County  Martin,  39  Kans.  750;  s.  c.,  18  Pac. 

v.  McKee,  2  Pa.  St.  318.  Rep.  941;  Bambrick  v.  Campbell,  37 

3  Bird  r.  Daggett,  (1867)  97  Mass.  Mo.  App.  460;  Grafius  v.  Land  Com- 

494.  pany,  3  Phil.  447;  Ceeder  v.  H.  M. 

4Swazey  v.  Union  Manufacturing  Loud  &  Sons  Lumber  Co.,  86  Mich. 

Co.,  42  Conn.  559.  As  to  the  power  541;  s.  c.,  49  N.  W.  Rep.  575;  24 

of  an  officer  of  a  corporation  author-  Am.  St.  Rep.  134;  Chicago,  etc.,  R. 

i/ed  to  draw  checks  and  drafts,  and  R.  Co.  v.  Coleman,  18  111.  297;  s.  c., 

charged  with  the  general  management  68  Am.  Dec.  544;  Steamboat  Company 

of  the  business  of  the  corporation,  in  r.  McCutcheon,  13  Pa.  St.  13;  Smith 

the  absence  of  contrary  instructions  v.  Smith,  62  111.  493;  Richmond,  etc., 

by  the  board  of  directors  to  bind  the  R.  R.  Co.  v.  Snead,  19  Gratt.  354;  s. 

corporation  by  notes  given  for  moneys  c.,  100  Am.  Dec.  670;  Dougherty  v. 

used  to  pay  off  indebtedness  of  the  Hunter,  54  Pa.  St.  380;  Moser  v. 

corporation,  which  was  a  railroad  cor-  Kreigh,  49  111.  86;  Chicago,  etc..  R. 

poration,  in  the  construction  of  its  R.  Co.  c.  Boone  Co.,  44  111.  247;  Voris 

road,  see  Fitzgerald  &  Mallory  Con-  r.  Renshaw,  49  111.  425. 


§  161]  PBIVATE  CORPORATIONS.  211 

tii  MI,  1)\  virtue  of  his  position,  lias  no  power  to  bind  the  corpora- 
tion by  his  contracts.1  To  bind  the  corporation  special  authority 
to  the  engineer  must  be-  shown.8  The  secretary  of  a  corporation 
has  no  authority  to  give  a  memorandum  of  indebtedness  of  the 
coqwration,  and  such  u  memorandum  would  not  be  negotiable.8 
The  unauthorized  execution  of  a  promissory  note  by  the  secretary 
of  a  corporation  for  money  borrowed,  may  be  ratified  by  the 
board  of  directors  of  the  corporation  authorized  by  its  by-laws  to 
borrow  money  and  execute  securities  therefor,  and  the  corpora- 
tion be  bound  by  such  ratification.4  It  is  in  the  power  of  the 
supervising  agent  of  a  corporation,  made  by  its  charter  its  execu- 
tive officer,  having  the  care  and  management  of  its  business 
under  the  direction  of  the  general  board  of  directors,  to  accept  a 
draft  for  the  corporation  where  there  is  no  restriction  upon  the 
general  jxjwere  conferred  upon  him.5 

§  161.  A  manager's  power. —  In  a  case  where  one  as  man- 
ager of  a  corporation,  to  which  position  he  had  been  duly 
appointed,  negotiated  a  loan  with  another,  and  gave  the  latter  his 
note  for  the  amount  payable  to  the  order  of  the  corporation, 
•which  note  was  indorsed  by  him  as  such  manager,  and  as  collat- 
eral security  for  its  payment  he  delivered  with  the  note  mortgage 
bonds  of  the  corporation,  the  New  York  Court  of  Appeals  said 
the  evidence  "  was  sufficient  to  permit  the  court  to  submit,  as  it 
did  to  the  jury,  the  question  whether  the  debt,  to  recover  which 
this  action  was  brought,  was  that  of  the  company."  The  court 
below  was  requested  to  charge  that  before  a  verdict  could  be 
found  for  the  plaintiff  the  jury  must  be  satisfied  by  affirmative 
proof  that  the  manager  was  authorized  to  indorse  the  name  of 
the  company  on  the  note  by  prior  resolution  of  the  executive 
committee  or  by  the  board  of  directors  or  by  ratification,  by  reso- 
lution or  some  equivalent  act  of  such  committee  or  bond.  The 
court  held  that  there  was  no  error  in  the  charge,  which  sub- 
stantially was  that  the  jury,  to  reach  such  result,  must  find  either 

1  Gardner  r.  B.  &  M.  R.   R.  Co.,  70  •Hascall     r.    Life    Association    of 

Me.  181.  America,   5    HUD,    151.      As   to   the 

1  Ibid.  power  of  a  superintendent  of  a  corpo- 

*  Sears  r.  Trustees  Illinois  Wesleyun  ration  operating  in  a  foreign  country. 

University,  (1862)  28  111.  188.  see  Rathbun  t.  Snow,  (1890)  123  N.  Y. 

4  Nebraska  &  K    Farm  Loan  Co.  t.  348. 
Bell,  68  Fed.  Rep.  826;  8.  c.,  7  C.  C. 
A,  258. 


212  POWER  OF  AGENTS  AND  OFFICERS.  [§  162 

prior  authority  or  subsequent  ratification,  and  that  it  could  be 
evidenced  by  general  course  of  business  as  well  as  by  resolution.1 

§  162.  Manager  of  a  foreign  incorporation. —  Certain  notes 
were  signed  by  the  president  of  a  construction  company,  an 
Iowa  corporation,  and  certain  others  by  an  auditor  of  the  corpo- 
ration, payable  to  the  order  of  certain  banks,  and  indorsed  by  one 
who  was  appointed  a  manager  for  the  construction  company  in 
its  work  of  constructing  railways  in  Nebraska.  Upon  these  notes 
the  latter  realized  money  through  the  banks  and  used  it  in  pay- 
ment of  bills  of  the  construction  company  for  labor,  etc.,  on  their 
work  of  construction.  When  the  notes  became  due  this  manager 
in  Nebraska  arranged  or  paid  off  the  notes  as  indorser,  and  they 
were  assigned  over  to  him.  He  brought  action  upon  them 
against  the  company  in  the  Nebraska  courts,  and  the  foreign 
corporation  defendant  had  the  cases  removed  to  the  federal 
courts.  When  the  case  came  before  the  Supreme  Court  of  the 
United  States,  in  the  opinion  rendered,  FULLER,  Ch.  J.,  for  the 
court,  said  of  the  evidence,  that  it  "  tended  to  show  that  Mallory 
[the  president  of  the  construction  company]  was  authorized  to 
build  the  line  of  [several  railroad  companies],  being  a  distance  in 
the  aggregate  of  about  six  hundred  miles  of  railroad,  and  which 
cost  some  seven  millions  of  dollars ;  that  he  had  full  charge  of 
the  location  and  construction  of  the  road  ;  that  he  was  authorized 
to  draw  checks  and  drafts,  and  all  these  notes  and  drafts  were 
made,  accepted  or  authorized  by  him  ;  that  the  directors  not  only 
did  not  give  contrary  instructions  in  the  first  instance,  but  knew 
of  the  giving  of  the  notes  and  drafts,  and  did  not  disaffirm  the 
action  of  the  president,  and  that  the  proceeds  were  used  for  the 
payment  of  construction  liabilities  of  the  company  in  every 
instance,  either  directly  or  in  taking  up  paper,  the  proceeds  of 
which  had  been  so  used."  The  argument  before  the  court  was 

1  Huntington  v.  Attrill,  (1890)  118  of  the  board  of  management,  con- 
N.  Y.  365;  s.  c.,  23  N.  E.  Rep.  544.  traded  to  lease  the  club  house  to 
In  Deller  v.  Staten  Island  Athletic  plaintiff,  who  agreed  to  maintain  a 
Club,  (1890)  56  Hun,  647;  s.  c.,  9  N.  restaurant  for  the  exclusive  use  of  the 
Y.  Supp.  876,  it  was  held  that  where  members  and  their  guests,  subject  to 
the  board  of  management  of  a  corpo-  the  approval  of  the  house  committee, 
ration  like  defendant  was  authorized  plaintiff  might  recover  for  refresh- 
by  the  by-laws  to  make  necessary  con-  ments  furnished  to  guests  of  the  club 
tracts  and  regulations,  and  the  officers  at  the  request  of  members  of  the 
of  the  club,  acting  under  a  resolution  house  committee. 


§162] 


PRIVATE  CORPORATIONS. 


213 


that  there  could  be  no  recovery  on  the  notes  and  drafts  in  ques- 
tion, 1  •(•cause  it  was  said  they  were  made  by  the  president  or 
auditor  of  the  company  without  the  knowledge  or  consent  of  the 
board  of  directors;  and,  further,  that  the  notes  in  the  first  two 
causes  of  action  n;unr<l  were  paid  by  the  plaintiff  when  he  was 
under  no  obligation  to  pay,  and  then  and  in  that  respect  was  a 
UK  iv  volunteer.  The  Supreme  Court  of  the  United  States  held 
that  the  instructions  to  the  jury  in  this  case  were  justified  by  the 
evidence.1 


1  Fitzgerald  &  Mallory  Construction 
Co.  t>.  Fitzgerald,  (1890)  187  U.  8.  98; 
a  c.,  11  Sup.  Ot.  Rep.  36.  The 
instructions  of  the  United  States  Cir- 
cuit Court  in  this  case  to  the  jury 
were  as  follows:  ' '  That  if  they  found 
from  the  evidence  that  the  presi- 
dent was  given  entire  management  in 
building  the  railroad,  and  in  the  in- 
curring of  liabilities  and  paying  of 
debts  incurred  therein,  he  might  ap- 
point other  agents,  such  as  a  cashier 
and  auditor,  for  the  purpose  of  making 
the  calculations  on  pay-rolls  and  on 
contracts  for  building  the  road,  and 
might  empower  any  one  of  such 
agents  who  made  such  calculations 
upon  the  pay-rolls  of  the  amount  due 
to  those  who  did  the  work  by  contract 
or  otherwise,  to  draw  any  checks  or 
bills  or  sight  drafts  necessary  to  pay 
the  name,  and  '  if  it  becomes  necessary 
for  the  benefit  of  said  company  to  exe- 
cute promissory  notes  or  to  draw  sight 
drafts,  the  said  president  would  have 
ample  authority  to  do  the  same,  and 
might  likewise  empower  the  cashier, 
or  the  party  whose  duty  it  was  to 
ascertain  the  amounts  due  to  contract- 
ors, materialmen  and  persons  working 
upon  the  construction  or  building  of 
said  railroad  by  the  construction  com- 
pany, to  draw  drafts  or  checks,  or 
even  make  promissory  notes,  and  that 
the  same,  if  done  for  the  company  or 
for  its  use  and  benefit,  would  be  bind- 
ing upon  the  said  company,  unit •*«.  tin- 
president  received  from  the  directors 


certain  instructions  which  limited  his 
authority  in  the  premises.' "  The  court 
also  instructed  the  jury:  "As  to  the 
promissory  notes  which  were  indorsed 
by  the  plaintiff,  and  upon  which  he 
was  held  as  indorsee,  if  the  jury  found 
from  the  evidence  that  said  notes  were 
executed  in  good  faith  for  the  presi- 
dent of  the  construction  company,  and 
that  the  proceeds,  or  the  proceeds  of 
the  notes  and  drafts  of  which  the  notes 
in  question  were  renewals,  were  re- 
ceived by  and  used  for  the  benefit  of 
the  construction  company,  and  you 
further  find  that  the  plaintiff  is  not  the 
holder  and  owner  of  said  notes,  you 
will  find  for  the  plaintiff  in  the  full 
sum  of  the  notes,  with  interest  "  And 
further:  "  And  although  there  may  be 
a  provision  in  the  by-laws  of  said  con- 
struction company  requiring  certain 
formalities  in  the  execution  of  a  prom- 
issory note  or  draft,  yet  that  does  not 
necessarily  make  such  formalities  es- 
sential to  the  ratification  of  the  con- 
tract; but  if  yon  find  from  this  evi- 
dence that  said  notes  were  given  for 
the  purpose  of  paying  off  debts  that 
were  due  by  said  construction  com- 
pany, and  that  the  directors  of  said 
construction  company  had  full  know  I 
edge  of  the  same  and  assented  to  this 
transaction,  to  the  signing  and  execu- 
tion of  the  notes,  you  will  find  thai 
said  acts  of  the  president  have  hem 
fully  confirmed,  and  you  will  find  for 
the  plaintiff  the  full  amount  of  said 
with  interest,  provided  you  find 


214  POWER  OF  AGENTS  AND  OFFICERS.  [§  163 

§  163.  Authority  of  a  manager. —  One,  a  physician,  manag- 
ing a  medicine  company,  a  corporation  organized  under  the  laws 
of  New  Jersey,  who  had  been  intrusted  witli  the  management  so 
far  as  the  collection  of  debts  due  to  it  and  payment  of  debts  due 
by  it,  had  placed  in  a  bank  for  collection  certain  checks  payable 
to  the  order  of  the  corporation,  indorsed  in  the  name  of  the  cor- 
poration by  himself.  The  total  amount  of  the  collections  were 
paid  to  him  by  the  bank,  and  it  appeared  that  a  part  of  the  sum, 
he  failed  to  pay  over  to  the  corporation  or  on  its  account.  The 
corporation  brought  action  against  the  bank  for  this  balance, 
denying  the  authority  of  this  person  to  indorse,  etc.,  the  paper 

the  plaintiff  was  the  owner  of  the  arose,  would  not  change  the  binding 
same,  and  is  now  the  lawful  holder  of  character  of  the  obligation.  Twin- Lick 
them."  It  was  said  by  the  Supreme  Oil  Co.  v.  Marbury,  91  U.  S.  ?>81; 
Court  on  the  merits  of  the  case:  "If  the  Gardner  v.  Butler,  30  N.  J.  Eq.  702, 
moneys  were  used  to  pay  off  indebted.  721;  Harts  v.  Brown,  77  111.  226; 
ness  of  the  company  arising  in  the  con-  Again,  there  was  evidence  to  the  effect 
structionof  the  road,  and  for  work  done  that  [the  plaintiff]  indorsed  the  notes 
under  proper  authority,  the  transac-  at  the  request  of  the  president.  Inas- 
tions  were  in  pursuance  of  the  author-  much  as  the  defendant  was  answerable 
ized  purposes  of  the  corporation,  and  for  the  indebtedness  which  the  money 
occurred  in  its  legitimate  business,  received  upon  the  notes  went  to  pay, 
The  execution  of  the  paper  could  not  if  in  order  to  obtain  that  money  [the 
be  held  to  be  in  excess  of  the  powers  plaintiff]  was  called  on  to  indorse  the 
given,  and  it  was  clearly  the  duty  of  notes,  and  compelled  to  protect  his  in- 
the  directors  to  give  contrary  instruc-  dorsement,  he  could  not  be  treated  as 
tions  if  they  wished  to  withdraw  the  a  volunteer.  There  would  be  no  ele- 
general  management  from  its  presi-  ment  in  such  a  transaction  of  the  vol- 
dent,  and  to  disaffirm  the  action  of  untary  payment  by  one  of  another's 
their  agents  promptly  and  at  will,  if  debt.  So,  if  [the  plaintiff]  was  the 
they  objected  to  it.  Indianapolis  manager  of  the  work  under  the  presi- 
Rolling  Mill  v.  St.  Louis,  etc.,  R.  R.  dent,  and  the  money  was  used  to  pay 
Co.,  120  U.  S.  256;  Cresswell  n.  Lana-  off  the  sub-contractor,  materialmen 
han,  101  U.  S.  347.  The  company  and  hands,  then,  upon  the  refusal  of 
was  liable  upon  the  original  indebted-  the  company  to  repay,  [the  plaintiff] 
ness,  and  its  change  of  form  in  order  had  the  right  to  take  up  the  notes  and 
to  relieve  the  pressure  of  the  creditors  have  them  assigned  to  him;  and 
was  by  the  direction,  with  the  partici-  whether  he  was  the  owner  and  holder 
pation,  and  the  request  of,  the  presi-  of  the  notes  was  left  to  the  determina- 
dent.  We  perceive  no  want  of  power  tion  of  the  jury.  By  the  first  section 
and  no  omission  of  essential  formali-  of  the  by-laws,  the  officers  of  the  corn- 
ties  in  what  was  done.  Another  mere  pany  were  declared  to  be  '  a '  president, 
fact  that  [the  plaintiff]  was  a  stock-  vice-president,  secretary  and  treasurer, 
holder  in  and  a  promoter  and  director  and  such  other  officers  as  may  be 
of  the  company,  and,  witli  the  presi-  deemed  necessary  to  carry  out  the 
dent,  the  manager  of  the  work  in  the  object  of  the  articles  of  this  incor- 
prosecution  of  which  the  indebtedness  poration." 


§  163]  I'KIVAIl    •      i:i  "K  VTK  215 

belonging  to  the  ci.inj.aiiv.  ami  claiming  that  .-itch  authority  was 
onlv  in  its  treasurer.  The  trial  court  refused  the  requc>t  «f  the 
bank  on  the  trial  to  instruct  "that  if  the  jury  shall  find  that  by 
the  consent  of  the  [corporation  this  person]  had  conducted  tho 
plaintiffs  business,  had  paid  bills,  sold  goods,  received  and  paid 
out  moneys  for  the  [corporation],  and  wa*  in  fact  ••-tensibly  in 
charge  of  the  business,  then  [he]  had  apparent  authority  to  indorse 
the  drafts  in  question  and  receive  the  money  in  question,  and  it 
was  immaterial  whether  or  not  he  had  actual  authority."  The 
Supreme  Court  of  Xew  York,  in  (Jeneral  Term,  held  that  tin- 
refusal  to  instruct,  as  requested,  was  error,  f«.r.  said  they:  "Cor- 
porations can  act  only  through  their  ohVer>  and  agents  and,  if  a 
person  has  been  instructed  by  the  officers  to  carry  «.n  the  business, 
the  acts  of  that  person  must  be  deemed  to  be  binding  upon  the 
corporation  in  all  cases  where  the  parties  dealing  with  him  have 
not  notice  or  knowledge  of  his  want  of  actual  authority."1 

1  Craig  Medicine  Co.   r.   Merchants'  nt  the  meeting  of  the  stockholders  for 

Bank  of  Rochester,  (1891)  59  Hun,  561;  the  election  of   directors,  vote  when 

s.  c.,   14  N.  Y.  Supp.    10.     But  the  absent  by  giving  a  written   proxy  to 

court  considered  another  point  a  more  some  other  person.     This  is  also  true 

radical  reason  for  reversing  this  judg-  of  the  statutes  of  New  Jersey,  put  in 

tnent,    to  wit:    It  appeared   that  the  evidence,  but  there  is  no  law  in  New 

treasurer  had  been  given  a  proxy  by  Jersey  that  permits  a  director  to  vote 

the   other  stockholders    to   represent  by  proxy  at  board  meetings.    The  gen- 

them  in  the  meeting  to  be  held  in  Xew  eral  rule  there,  as  in  this  state,  and 

Jersey  to  organize  the  corporation  and  universally,  is  that  it  requires  a  quo- 

to  vote  for  them.     This  he  did,  organ-  rum  of  directors  or  managers  as  trus- 

i/ing  the  company,  electing   himself  tees  of  a  corporation  to  transact  busi- 

and  the  persons  he  represented  as  a  ness,  and    that,  in  the  absence  of  a 

board  of  directors,  he  only  being  pres-  statute  making    a    different    number 

ent,  and  afterwards,  in  a  meeting  of  such  quorum,  a  majority  of  the  whole 

its  board  of  directors  represented  by  board    is    required.       The    principal 

himself  alone,  elected  officers,  includ-  claim,  therefore,  made  by  the  plaintiff, 

ing  himself  as  treasurer.     It  was  said  that    it  had  a   legally  elected   tre.-is 

as  to  the  law  applicable  to  this  state  of  urer,  who  alone  could  transact  busi- 

facts:  "  We  know  of  no  principle  up-  ness  of  the  corporation  of  this  <  -harac 

plicablc  to  the  discharge  of  corporate  ter,  cannot  be  maintained.     The  proxy 

functions,  by  which  directors  or  trus  or  power  of  attorney,  put  in  evidence, 

tees  of  the  corporation  can  vote  at  tin-  did  not  give  [its  holder)  the  right  to 

meeting  of  the  board  of  directors  or  vote  in  the  name  of  the  directors  who 

trustees  by  proxy.     Under  the  act  of  should  be  chosen  at  the  stockholders' 

this  state  (Chapter  40,  Laws  of  1848)  meeting,  ami  if  it  had,  it  would  have 

for  the  organization  of  companies  for  been  utterly  void.      It  was  not  known, 

manufacturing,  mining,  mechanical  or  indeed,  who   the  directors  would   IH-. 

chemical  purposes,  stockholders  may.  I'nder  the  power  of  attorney  [he]  had 


216 


TOWEB  OF  AGENTS  AND  OFFICERS. 


[§164 


§  164.  What  is  not  within  the  duties  of  a  cashier  of  a 
corporation. —  The  Michigan  Supreme  Court  has  declared  in 
a  case  before  it  that  compromising  claims,  settling  unliquidated 
damages,  and  releasing  debts  due  to  the  corporation,  are  acts 
which  do  not  come  within  the  ordinary  duties  of  a  cashier,  book- 
keeper, or  corresponding  clerk.1 


the  right  to  elect  other  persons  than 
those  whom  he  did  in  fact  designate  as 
directors.  In  the  absence,  therefore, 
of  a  legally  authorized  treasurer,  any 
person  in  the  position  of  [the  person 
here]  who  had  general  management  of 
the  business,  or  any  director,  as  [the 
one  who  signed  for  him]  is  shown  to 
be,  had  the  power  to  indorse  the  cor- 
poration's name  for  the  purpose  of 
collecting  commercial  paper  made  pay- 
able to  its  order.  The  [bank],  having 
acted  in  perfect  good  faith,  has  turned 
its  collections  over  to  the  proper  per- 
son representing  the  corporation. 
There  being  no  treasurer  by  election 
of  the  directors,  and  none  in  fact  by 
the  usual  conduct  of  the  business,  ex- 
cept the  person  acting  for  the  [corpo- 
ration] in  this  instance,  it  follows  that 
the  manager  or  any  director  of  the  cor- 
poration could,  in  the  absence  of  a 
positive  statute,  sign  the  corporation 
name  for  the  purposes  of  the  collect- 
ing of  commercial  paper." 

1  Delta  Lumber  Co.  r.  Williams, 
(1888)  73  Mich.  86;  s.  c.,  40  N.  W. 
Hep.  940.  Arguendo,  the  court  said: 
"  The  statute  authorizing  the  forma- 
tion of  corporations  for  manufacturing 
purposes  enacts  that  the  stock,  prop- 
erty, affairs  and  business  of  every 
such  corporation  shall  be  managed  by 
its  board  of  directors.  The  board 
shall  choose  one  of  their  number  to  be 
president,  one  to  be  vice-president, 
and  also  a  secretary  and  treasurer. 
The  office  of  cashier  is  not  one  that  is 
named  in  the  act,  and  although  such 
corporations  are  authorized  to  elect,  in 
such  manner  as  they  may  determine, 
all  necessary  officers,  and  to  prescribe 


their  duties,  yet  no  testimony  in  the 
case  was  introduced  to  show  what  the 
duties  of  the  cashier  were  defined 
to  be.  In  banking  institutions  the 
authority  of  a  cashier  has  become 
pretty  well  defined  by  common  usage. 
He  is  considered  the  executive  officer 
through  whom  and  by  whom  the 
whole  moneyed  operations  of  the  bank 
in  paying  or  receiving  debts,  or  dis- 
charging or  transferring  securities,  are 
to  be  conducted.  Ang.  &  A.  Corp. 
§  299.  'But  his  authority  does  not  ex- 
tend so  far  as  to  justify  him  in  alter- 
ing the  nature  of  the  debt,  or  chang- 
ing the  relation  of  the  bank  from  that 
of  a  creditor  to  that  of  an  agent  of  its 
debtor.  And  an  agreement  by  the 
president  and  cashier  of  a  bank,  that 
an  indorscr  shall  not  be  liable  on  his 
indorsements,  is  not  binding  on  the 
bank.  Bank  c.  Dunn,  6  Pet.  51;  Bank 
r.  Jones,  8  Pet.  16.  In  the  absence  of 
any  thing  in  the  charter  or  by-laws  of 
the  corporation  known  as  the  '  Delta 
Lumber  Company '  defining  the  duties 
of  the  cashier  of  such  corporation,  and 
in  the  absence  of  any  showing  as  to 
the  usage  of  this  company,  or  of 
manufacturing  corporations  in  this 
state,  by  which  the  duties  of  a  cashier 
may  be  inferred,  we  cannot  ascribe  to 
him  greater  powers  as  an  agent  of  the 
corporation  than  would  pertain  to  the 
agent  of  a  banking  corporation.  He 
may  be  considered  the  executive  officer 
of  the  financial  operations  of  the  cor- 
poration; and  whether  he  would,  in 
an  emergency,  be  considered  as  author- 
ized to  sell  and  convert  the  personal 
property  of  the  corporation  into 
money  to  meet  its  obligations,  need, 


§§100,166]  PRIVATE  CORPOK  ATI..  •  217 

<<  165.  Auditing  board  of  a  corporation. —  In  the  absence  of 
any  proof  of  authority  conferred  upon  an  auditing  board  of  a 
manufacturing  corporation  of  New  York,  beyond  the  usual  func- 
tion.- of  such  ;i  hoard  to  allow  or  reject  claims,  such  an  audit- 
ing hoard,  it  has  been  held,  had  no  authority  to  rescind  a  con- 
tract which  it  was  claimed  in  the  action  against  the  corporation 
hu<l  IHH-H  made  with  a  licensor  by  its  president  representing  the 
••itrpoi-ation.  the  licensee  of  a  patented  article  used  in  its  business, 
ur  determine  the  future  action  of  the  corporation,  but  that  such 
authority  was  in  the  trustees  of  the  corporation.1 

§  166.  Power  of  a  treasurer  generally. —  Title  will  pass  by 
a  sale  made  by  the  treasurer  of  a  corporation,  without  special 
authority,  where  he  has  been  in  the  habit  of  transacting  such 
Business  with  the  knowledge  and  sanction  of  the  managing  board 
of  the  corporation.2  The  authority  of  a  treasurer  of  a  corpora- 
tion to  bind  it  by  the  acceptance  of  a  draft,  may  be  inferred  from 
the  knowledge  and  acquiescence  of  the  directors.8  An  attorney 
may  be  employed  by  the  treasurer  of  a  corporation  without  any 
special  authorization  of  the  board  of  directors.4  A  treasurer  of 
a  corporation  must  have  special  authority,  it  not  being  within  the 
general  power  and  province  of  such  officer,  to  issue  written  admis- 
sions, which  would  bind  the  corporation,  of  the  amount  due  upon 
a  disputed  claim  for  salary  of  other  agents  of  similar  grade  ;  the 
power  to  fix  such  amounts  belongs  regularly  to  the  board  of 
directors.5  The  treasurer  of  a  manufacturing  corporation  has  no 
authority  to  release  a  claim  for  a  loss  under  a  policy  of  insurance 
obtained  by  him  in  behalf  of  the  corporation.6  A  treasurer  of  a 
corporation  is  not  authorized  to  pay  a  claim  of  his  own  against 
the  corporation  where  it  has  not  been  approved  and  its  payment 

not  now  IMJ  determined,  ns  certain  it  is  ing  &  Heaping  Machine  Co..  (1898)  140 

that  he  would   have  no  authority,  as  N.  Y.  217. 

such  cashier  or  general  financial  agent,  *  Phillips   r.    Campbell.    4#    N      V 

to  give  away  the  property  of  the  cor-  271. 

poration  or  change  its  relation  with  its  »  Partridge  r.  Badger,  25  Barb.   1  •!•> 

debtor  by  releasing  a  debt  due  to  it.  *  Turner  r.  Chillicothc  &  Des  Moines 

without  express  authorization.     Bank  K.  R.  Co.,  (1873)  51  Mo.  601. 

r.  Dunn,  6  Pet.   51;  Kirk   r.  Bell,  12  &  Kalaiua/.oo  Novelty  Manufacturing 

Kng.  Uw  &  Eq.  889;  Hoyt  r.  Thomp-  Co.  t>.  McAlister.  86  Mich.  827. 

son,  5  N.  Y.  820."  •  E.    Carver  Co.    r.  Manufacturers' 

1  Skinner  c.  Walter  A.  Wood  Mow-  Insurance  Co.,  (1856)  6  Gray,  214. 


218  POWER  OF  AGENTS  AND  OFFICERS.  [§  167 

authorized  by  the  corporation.1  On  a  debt  being  paid  to  the 
treasurer  of  a  corporation  lie  lias  no  power  to  assign  the  security 
without  direction  from  the  board  of  directors.2  A  vote  of  the 
directors  of  a  corporation  authorizing  its  treasurer  to  hire  money 
on  such  terms  and  conditions  as  lie  may  think  most  conducive  to 
the  interests  of  the  corporation  to  meet  certain  of  the  accept- 
ances by  him  of  the  drafts  of  the  corporation  upon  him,  carries 
with  it  authority  to  indorse  drafts  drawn  by  himself  to  accom- 
plish the  object.3  Mere  lapse  of  time  will  not  destroy  the  official 
character  of  the  last  secretary  of  a  corporation  so  as  to  prevent 
his  releasing  a  mortgage  given  to  the  corporation.4  In  a  case 
where  the  authority  of  a  treasurer  of  a  corporation  to  sell 
material  or  products  of  the  same  was  questioned,  and  one  of  the 
by-laws  of  the  corporation  was  put  in  evidence  providing  that 
the  treasurer  "  should  discharge  the  duties  usually  and  customarily 
pertaining  to"  this  officer  and  other  testimony  that  witness  was 
familiar  with  the  duties  of  cordage  and  other  manufacturing  cor- 
porations at  the  place  where  the  contract  was  executed  and  where 
this  particular  corporation  was  located,  and  that  they  were  accus- 
tomed to  buy  and  sell  merchandise  and  to  sign  and  accept  con- 
tracts such  as  was  made  in  this  case,  it  was  held  by  the  United 
States  Circuit  Court  of  Appeals  that  the  authority  of  the  treasurer 
to  bind  the  corporation  by  this  contract  was  one  for  the  jurv.5 

§  167.  Power  of  a  treasurer  as  to  transfer  of  a  note. —  In 
the  absence  of  evidence  of  authority,  the  title  to  a  note  will  not 
pass  by  the  indorsement  of  the  treasurer  of  a  corporation  in  his 
official  capacity.6  A  treasurer  of  a  corporation  being  intrusted 
by  it  to  take  notes,  an  indorsement  by  him  will  bind  the  corpora- 

1  Peterborough  Railroad  r.  Wood,  61  a  statue  to  be  used  as  an  advertisc- 
N.  H.  418.  ment  of  its  business;  that  the  concur- 

2  Ballou  v.  Campbell,  5  Wend.  572.  rence  in  such  case  of  the  whole  or  of 

3  Belknap  r.  Davis,  19  Me.  455.  the  majority  of  the  board  of  directors 

4  Kimball  v.  Goodburn,  32  Mich.  10.  was  not  essential.     As  to  the  power  of 

5  National  Cordage  Co.  v.  Pearson  a  treasurer  of  a  corporation,  see  Colum- 
Cordage  Co.,  55  Fed.  Rep.  812;  s.  c.,  bia  Bank  ».  Gospel  Tabernacle  Church, 
5  C.    C.    A.   276.      In  Ellis  ».  Howe  (1889)  57  N.  Y.  Super.  Ct.  149.     As  to 
Machine    Co.,    9    Daly,    78,    it    was  the  power  of  a  treasurer  of  a  lumber, 
held  that  the  treasurer  of  the  sewing  ranch  and  mining  company,  see  Rum- 
innchine  company,  owning  with  his  bough  0.   Southern  Improvement  Co., 
brother,  the  president  of  the  company,  (1893)  112  N.  C.  751. 

nearly  the  entire  capital,  had  power  to  6  Knight  T.  Lang,  4  E.  D.  Smith, 
bind  the  corporation  by  a  contract  for  381;  s.  c.,  2  Abb.  Pr.  227. 


§  168]  PRIVATE  CORPORATIONS.  219 

tii >n,  his  authority  to  indorse  them  being  implied  from  his  being 
trra-uivr  and  being  intrusted  with  the  sec  tiri  ties,  and  that  they 
are  made  payable  to  the  treasurer,  or  to  him  as  treasurer.1  In 
case  the  directors  of  a  corporation  by  vote  authorize  its  treasurer 
to  indorse  notes  of  the  corporation  to  a  third  person,  or  such 
treasurer  be  suffered  to  draw  and  accept  drafts,  to  indorse  notes 
payable  to  the  corporation,  and  to  do  other  similar  acts  whereby 
he  is  held  out  to  the  public  as  having  the  general  authority 
implied  from  his  official  name  and  character,  an  indorsement  of  a 
note  made  in  pursuance  of  such  express  or  implied  authority 
would  pass  a  valid  title  to  the  indorsee.3 

§  168.  Power  of  a  treasurer  as  to  execution  of  a  note. — • 
A  treasurer  of  a  corporation  may  be  given  authority  by  a  corpora- 
tion by  parol  to  execute  a  promissory  note  in  its  name.8  Where 
a  treasurer  of  a  corporation  has  been  authorized  to  give  the  note 
of  a  corporation  in  payment  of  a  corporate  debt,  he  may  do  so 
after  the  lapse  of  several  years,  provided  the  debt  is  not  barred 
by  the  Statute  of  Limitations.4  The  authority  to  execute  a  note 
of  a  corporation  in  an  officer  of  the  same  may  exist  under  a 
by-law  of  the  corporation,  or  be  based  upon  its  custom  in  such 
matters.  If  its  custom  is  to  permit  its  treasurer  to  execute  its 
promissory  notes,  the  corporation  will  be  bound  by  a  note  exe- 
cuted by  such  treasurer,  especially  where  it  receives  the  benefit  of 
the  money  loaned  upon  the  notes.5  The  board  of  directors  of  a 

1  Perkins  v.  Bradley,  24  Vt.  66.  is  that  the  authority  is  not  presumed 
'Lester  r.  Webb,  (1861)  1  Allen,  34.  from  the  mere  fact  that  the  person  as- 
»Odd  Fellows  r.  First  National  Bank  sumed  the  right  to  give  a  note  in  the 
of  Sturgis,  42  Mich.  461;  8.  c.,  4  N.  name  of  the  corporation.     A  corpora  - 
W.  Rep.  158.  tion  is  an  artificial  person,  which  must 
4  Hay  ward  r.  Pilgrim  Society,  (1838)  act  within  certain  limits.     It  differs 
21  Pick.  270.  from  a  natural  person.     If  an  iudivid- 
•  Foster  v.  Ohio-Colorado  Reduction  ual  gives  his  note,  it  is  not  necessary 
A-  Mining  Co.,  (1883)17  Fed.  Rep.  130.  to  prove  anything  in  the  way  of  au- 
McCRAKY,  J.,  in  this  case  charged  the  thority,  but  a  corporation  must  act  In- 
jury in  these  words:  "Upon  the  first  way  of  agents,  and  the  authority  of 
question,  as  to  whether  this  is  the  note  the  agent  who  acts  for  it  is  not  pre- 
of  the  defendant  corporation,  that  is  sumed.     It  may,  however,  be  shown, 
to  be  determined   upon  the  question  either  by  showing  an  express  authority, 
whether  the  person  who  executed  tin;  as,   for  example,  a  resolution  of  the 
note  on   behalf    of    the    corporation,  board  of  trustees  authorizing  a  certain 
*   *    *    the  treasurer  of  the  company,  party  to  execute  a  note  on  behalf  of 
was  authorized  to  execute  such  an  in-  the  corporation,  or  by  a  provision  of 
strument.     The  law  upon  tin*  sulijeet  the  constitution  or  by-laws  of  the  cor- 


230  POWEK  OF  AGENTS  AND  OFFICERS.  [§  169 

construction  company  authorized  the  officers  of  the  company  to 
execute  a  note  for  nine  thousand  dollars  and  a  chattel  mortgage 
upon  the  rolling  stock  of  the  company  to  secure  the  payment  of 
the  same.  The  officers  executed  the  note  and  mortgage  and  stip- 
ulated therein  for  attorney's  fees  in  case  of  suit  for  the  collection 
of  the  same.  In  a  suit  to  foreclose  the  mortgage,  a  District  Court 
of  Iowa  refused  to  allow  attorney's  fees.  Upon  an  appeal,  the 
Supreme  Court  said  as  to  this  matter :  "  This  was  an  explicit 
direction  to  execute  a  note  for  nine  thousand  dollars  and  interest, 
and  no  more.  The  company  did  not,  by  any  official  action, 
authorize  the  execution  of  a  note  in  any  amount  exceeding  said 
sum  in  any  event.  We  think  the  court  correctly  held  that  the 
measure  of  liability  was  nine  thousand  dollars  and  interest."  l  It 
is  not  within  the  ordinary  powers  of  the  treasurer  of  a  corpora- 
tion, acting  as  its  financial  agent,  to  give  the  note  of  the  corpora- 
tion for  the  debt  of  a  third  person  ;  neither  is  it  within  the  ordi- 
nary powers  of  the  directors  of  a  corporation,  unless  there  is 
an  urgent  necessity  to  do  so  to  subserve  the  interests  of  the 
corporation.2 

§  169.  Authority  of  a  treasurer  to  borrow  money  by 
means  of  sterling  contracts. —  In  a  federal  court  case  the 
action  was  assum/psit  for  breach  of  contract  by  a  railroad  com- 
pany in  not  placing  in  the  hands  of  the  drawers  of  a  foreign  bill 
of  exchange  money  to  meet  it  when  matured.  The  company's 

poration  authorizing  a  certain  officer  it,  and,  especially,  if  they  received  the 

to  execute  promissory  notes.     It  might  benefits  of  transactions  of  this  sort, 

be  shown  in  that  way,  but  I  believe  it  which  they  permitted  the  treasurer  to 

is  not  claimed  that  there  is  anything  enter  into." 

of   this  kind  here.     It  may   also  be  '  Hardin    v.    Construction    Co.,    78 

shown  by  the  course  of  dealings  of  the  Iowa,  729;  s.  c.,  43  N.  W.  Rep.  543. 

corporation  and  by  facts  and  circum-  See,  also,    Pacific    R.     M.   v.  Dayton, 

stances  which  are  sufficient,   in    the  S.  &  G.  R.  Ry.  Co.,  5  Fed.  Rep.  852; 

judgment  of  the  jury,  to  show  that  s.  c.,   7  Sawy.  61;   Schallard  n.   Eel 

the  party  who  executed  the  note  had  River  Steam  Navigation  Co.,  (1886)  70 

the  authority.     If  it  was  the  custom  Cal.  144;  8.  c.,  11  Pac.  Rep.  590.     For 

of  this  corporation  to  permit  the  treas-  a  case  showing  under  what  circum- 

urer  to  execute  its  promissory  notes,  stances  the  signing  of  a  note  by  the 

and  if  he  was  in  the  habit  of  doing  so,  treasurer  of  a  corporation  was  unau- 

with  the  knowledge  of  the  trustees,  or  thorized,  see  Medberry  v.  Short,  15  N. 

of  the  corporation  —  which  means,  of  Y.  Wkly.  Dig.  227. 

course,   the  trustees  —  they  had,   by  'Stark  Bank  v.  U.  S.  Pottery  Co.,  34 

recognizing  that  custom  and  acting  Vt.  144. 
upon  it,  themselves  become  bound  by 


§  169]  PRIVATE  CORPORATIONS.  221 

treasurer  had  borrowed  money  by  the  purchase  of  a  foreign  bill 
.change  and  entered  into  the  contract  signing  the  name  of 
tin-  corporation  by  himself  "Treasurer."  The  question  in  the 
case  was  whether  he  had  authority  to  bind  the  corporation  in  this 
way.  The  insistment  of  the  plaintiff  was  that  such  authority 
was  to  be  found  in  the  by-laws  of  the  corporation.  COLT,  J., 
in  his  opinion,  recites  the  by-law's  provision  that  the  treasurer 
"  shall  collect  and  receive  all  assessments,  incomes  and  moneys 
that  may  be  due  to  the  corporation,  and  disburse  the  same  as  the 
board  of  directors  may  order ;  he  shall  surrender  notes  and  other 
promissory  papers  on  payment  thereof,  and  discharge  such  mort- 
gages as  may  have  been  given  securing  the  same  ;  he  shall  keep 
a  regular  set  of  books,  containing  the  accounts  of  the  corpora- 
tion, and  of  all  its  funds  that  may  pass  through  his  hands ;  and 
shall  lay  before  the  directors  monthly  a  written  statement  of  all 
notes,  drafts,  promises,  contracts  made,  signed,  indorsed  or  sur- 
rendered by  him,  an  abstract  of  all  monevs  received  and  paid  by 
him,  .and  a  statement  of  all  property  bought  or  sold,  and  of  such 
other  matters  as  the  directors  may  deem  important."  He  then 
said :  "  The  fact  that  this  by-law  directs  the  treasurer  to  lay 
before  the  directors  monthly  a  written  statement  of  all  notes, 
drafts,  promises  and  contracts  signed  or  indorsed  by  him  does 
not,  I  think,  confer  upon  him  the  authority  to  do  these  acts  with- 
out their  direction  or  approval.  To  confer  such  broad  and  general 
powers  on  the  treasurer  of  a  corporation  is  certainly  unusual. 
The  court  should  not  hold  that  such  authority  is  vested  in  a 
treasurer  by  implication  from  the  language  of  a  by-law,  but  the 
by-law  should  expressly  give  such  authority,  if  it  was  intended  to 
be  so  conferred."1 

1  Page  ».  Fall  River,  W.  &   P.  R.  loan  of  money  on  such  contracts.     On 

Co.,  (1887)  81  Fed.  Rep.  257.  258,  259.  the  other  hand,  the  plaintiff  introduced 

The  defendant  called  several  officers  evidence  that  at  the  time  of  this  trans- 

of  different     railroads,   who    testified  action    the    borrowing  of  money   by 

that,  in    their  experience,  they  never  means  of  sterling  contracts  similar  to 

knew  railroads  to  borrow  money  upon  the  one    now   in    controversy   was  a 

SIK-II  contracts  as  this  ;  also  two  presi-  usual  and  ordinary  way  of  borrowing 

dents  and  one  cashier  of  Boston  banks  money  in  Boston  among  houses  hav- 

wcre    called,  who    testified,   in    sub-  ing  foreign  capital  to  loan,  by  persons 

stance,  that  to  their  knowledge  such  not  importers    or    requiring     to    use 

contracts  were    not  an  ordinary  and  money  abroad.    Upon   this  the  court 

usual  method  of  borrowing    money,  said:  "  It  may  be  true  that  to  ordinary 

and  that  they  had  never  known  of  the  bankers  this  way  of  borrowing  money 


222 


POWER  OF  AGENTS  AND  OFFICERS. 


[§170 


§  170.  Power  of  a  treasurer  to  indorse  in  name  of  cor- 
poration a  note  for  accommodation. —  It  has  been  held  in  one 
of  the  courts  of  New  York  that  a  negotiable  note  indorsed  in  the 
name  of  a  manufacturing  corporation  by  its  treasurer  for  the 


was  unusual  or  unknown,  but  to 
bankers  having  foreign  funds  it  seems 
to  have  been  a  common  mode.  To 
bankers  like  these  plaintiffs  there 
would  be  nothing  unusual  or  cal- 
culated to  excite  suspicion  for  any  one 
desiring  a  loan  to  apply  to  them,  and 
for  them  to  make  it  in  such  form  as 
was  most  convenient  to  them  at  the 
time.  There  is  no  proof  that  [the 
treasurer]  suggested  the  form  the 
loan  should  take.  The  inference 
rather  would  be  that  he  applied  to  the 
plaintiffs,  and  they  suggested  the 
mode  adopted.  The  fact  that  it  was 
not  customary  for  railroads  to  borrow 
money  in  this  way  was  not  sufficient 
to  put  the  plaintiffs  upon  their  guard. 
or  to  excite  suspicion  of  irregularity. 
The  plaintiffs  were  lenders  of  foreign 
money  in  the  Boston  market.  They 
were  applied  to  by  one  who  was  a 
customary  borrower  of  home  capital 
from  other  parties,  and  whose  notes 
were  bought  by  institutions  not  only 
in  this  state,  but  out  of  it.  Why 
should  they  not  loan  their  funds, 
under  these  circumstances,  in  a  man- 
ner not  unusual  with  them  and 
bankers  of  their  class  ?  If  the  de- 
fendant had  desired  to  restrict  its 
treasurer  to  borrowing  money  from 
[one  certain  bank]  or  through  [certain 
parties]  or  to  the  form  of  borrowing 
by  promissory  notes,  it  could  have 
done  so  by  formal  and  proper  action 
on  the  part  of  the  directors.  In  the 
absence  of  any  such  restriction  the 
defendant  must  be  held  liable.  When 
the  authority  of  the  agent  is  left  to  be 
inferred  by  the  public  from  powers 
usually  exercised  by  the  agent,  it  is 
enough  if  the  transaction  in  question 
involves  the  same  general  powers 


though  applied  to  a  new  subject-mat- 
ter. Merchants'  Bank®.  State  Bank,  10 
Wall.  604.  '  It  is  not  necessary  in  order 
to  constitute  a  general  agent,  that  he 
should  have  done  an  act  the  same  in 
specie  with  that  in  question.  If  he 
has  usually  done  things  of  the  same 
general  character  and  effect,  and  with 
the  assent  of  his  principals,  that  is 
enough.'"  COWEN,  J.,  in  Commercial 
Bank  of  Erie  ®.  Norton,  1  Hill,  501, 
503.  The  right  to  recover  in  this 
case  rested  mainly  on  the  ground  of 
an  implied  authority  on  the  part  of  the 
treasurer  to  make  this  contract,  be- 
cause the  corporation  held  him  out  to 
the  world  as  its  general  fiscal  agent 
authorized  to  negotiate  loans,  borrow 
money,  make  notes  and  manage  its 
whole,  financial  business.  The  court 
said  :  ' ;  The  legal  principle  relied  upon 
by  the  plaintiff  is  well  stated  in  Lester 
v.  Webb,  1  Allen,  34 :  '  The  rule  is 
well  settled  that  if  a  corporation  per- 
mit the  treasurer  to  act  as  their  gen- 
eral fiscal  agent,  and  hold  him  out  to 
the  public  as  having  the  general  au- 
thority implied  from  his  official  name 
and  character,  and  by  their  silence 
and  acquiescence  suffer  him  to  draw 
and  accept  drafts,  and  to  indorse  notes 
payable  to  the  corporation,  they  are 
bound  by  his  acts  done  within  the 
scope  of  such  implied  authority.' 
See,  also,  Merchants'  Bank  T.  State 
Bank,  10  Wall.  604;  Mining  Co.  «. 
Anglo-Calif ornian  Bank,  104  U.  S.192." 
Upon  the  facts  in  this  particular  case 
the  court  then  considered  the  ques- 
tions, whether  the  directors  by  their 
course  of  conduct,  held  the  treasurer 
out  to  the  public  as  the  fiscal  agent  of 
the  corporation,  having  authority  to 
make  and  indorse  notes  for  the  cor- 


§  171]  PRIVATE  CORPORATION-.  223 

accommodation  of  the  maker  could  not  be  enforced  against 
the  corporation  where  the  note  did  not  concern  any  business  of 
the  corporation  and  there  was  no  by-law  or  resolution  authorizing 
tin  treasurer  to  indorse  negotiable  paper  or  any  proof  of  a  recog- 
ni/.ed  com>e  of  l>u>ine»  \>\  which  the  treasurer  was  held  out  as 
••-- •  ing  such  power,  or  any  evidence  that  the  corporation  had 
ratified  the  act  or  derived  any  benefit  from  it  though  the  note 
was  in  the  hands  of  a  bonafide  holder.1 

j$  171.  Power  of  a  treasurer  to  indorse  note  of  another 
corporation. —  A  trading  corporation  sought  in  an  action  to 
recover  of  a  former  treasurer  the  amount  of  money  it  had  been 
compelled  to  pay  on  account  of  an  indorsement  in  its  name 
made  upon  a  note  of  another  corporation,  contending  that  the 
indorsement  was  an  act  "///•'/  /•/'/•, .v  the  trading  corporation.  It 
appeared  that  the  defendant  at  the  time  of  indorsing  the  note  in 
question,  and  for  five  years  prior  thereto,  was  the  treasurer  and 
general  manager  of  the  plaintiff.  As  such  general  manager  he 
was  allowed  to  exercise  his  discretion  in  managing  plaintiff's  busi- 
ness. During  all  the  years  that  he  was  plaintiffs  manager  the 

poration,  and,  if  so,  whether  there  was  ceeds  never  reaching  its  treasury), 
anything  so  unusual  in  this  trans-  said  McADAM,  Ch.  J.,  "  under  these 
action  as  to  have  put  the  plaintiffs  on  circumstances,  was  not  a  corporate 
tlu-ir  inquiry.  COLT.  J.,  said:  "I  act."  Wahlig  r.  Manufacturing  Co., 
have  no  doubt  that  the  directors  by  (N.  Y.  City  Ct.  Gen.  T.,  1890)5  N.  Y. 
allowing  [the  treasurer]  for  several  Supp.  420;  Mather  r.  Trust  Co.,  (N. 
years  and  for  a  large  amount  to  sign  Y.  City  Ct.  Spl.  Term,  1890)  7  N.  Y. 
notes  for  the  corporation,  most  of  Supp.  213;  Westerfield  r.  Radde,  7 
which  were  sold  to  different  banks  in  Daly  326;  s.  c.,  55  How.  Pr.  369. 
the  Mate  and  smiic  out  of  it —  some  of  "[This]  treasurer  had  no  power  to 
the  directors  going  so  far  in  recogni-  lend  the  credit  of  the  corporation.  If 
tion  of  [his]  authority  as  to  indorse  the  indorsement  was  not  a  corporate 
the  notes  —  conferred  upon  him.  so  act,  the  fact  that  the  plaintiff  was  a 
far  as  the  public  is  concerned,  an  bona  fide  holder  cannot  even  under 
implied  power  to  borrow  money,  Mechanics',  etc.,  Assn.  v.  New  York, 
which  the  corporation  cannot  now  dis-  etc.,  Lead  Co.,  85  N.  Y.  505,  make  it 
pute.  As  to  the  nature  of  this  trans-  a  corporate  charge.  In  such  a  case 
action,  I  am  unable  to  conclude  that  the  remedy  would  seem  to  be  against 
it  was  of  such  an  extraordinary  char-  the  treasurer  who  acted  without  cor- 
acter  as  to  relieve  the  defendant."  poratc  sanction,  (Green's  Brice  Ultra 
'Wahlig  r.  Standard  Pump  Mfg.  Vires,  634)  upon  the  theory  that,  where 
Co.,  (N.  Y.  City  Ct.  Spl.  Term,  1890)  the  act  does  not  bind  the  principal,  it 
9  N.  Y.  Supp.  739.  "  The  act  of  the  binds  the  person  who,  without  author- 
treasurer  "  (the  corporation  receiving  ity,  assumed  to  act  as  agent." 
no  benefit  from  the  note,  and  the  pro- 


224  POWER  OF  AGENTS  AND  OFFICERS.  [§  171 

plaintiffs  board  of  directors  left  the  direction  and  management 
of  the  business  to  his  judgment  and  habitually  held  no  meeting* 
except  an  annual  meeting.  The  plaintiff  was  organized  as  a  cor- 
poration under  the  laws  of  Connecticut  for  the  purpose  of  manu- 
facturing and  dealing  in  certain  classes  of  goods,  and  to  exercise 
such  mercantile  powers  as  might  be  convenient  and  necessary 
for  the  prosecution  of  its  particular  business.  It  had  been  the 
practice  of  the  plaintiff  to  extend  financial  assistance  to  parties 
with  whom  it  had  business  relations.  The  whole  management  of 
its  business  was,  in  fact,  intrusted  to  this  treasurer.  He  made  a 
contract  with  a  carbon  manufacturing  company  upon  behalf  of 
his  corporation  by  the  terms  of  which  the  latter  was  to  receive 
and  sell  the  greater  part  of  the  carbon  manufactured  by  the 
former  company  upon  certain  terms,  etc.  For  the  purpose  of 
increasing  its  manufacture  of  carbon,  the  carbon  company  applied 
to  the  treasurer,  as  representing  the  trading  corporation,  for  assist- 
ance, and  made  its  promissory  note  for  $10,000,  payable  to  the 
order  of  the  corporation,  which  note  the  treasurer  in  the  corpora- 
tion's name  indorsed  and  procured  to  be  discounted,  and  handed 
over  the  proceeds  to  the  carbon  manufacturing  company.  The 
Supreme  Court  held  adversely  to  the  claim  of  the  corporation 
that  this  note  was  an  accommodation  indorsement  by  its  treas- 
urer, and,  therefore,  ultra  vires.1 

1  Holmes,  Booth  &  Haydens  v.  Wil-  raised  here,  therefore,  is  whether  a 
lard,  (1889)  53  Hun,  629;  5  N.  Y.  loan  of  money  by  a  corporation  is 
Supp.  610.  VAN  BRUNT,  P.  J.,  for  the  ultra  vires.  We  have  not  been  re- 
court,  said:  "The  transaction  as  it  f erred  to  any  authority  or  principle, 
took  place  between  the  carbon  com-  under  which  such  a  transaction  can  be 
pany  and  the  defendant,  representing  held  ultra  vires  of  a  corporation,  par- 
the  plaintiff,  was  simply  a  loan  of  ticularly  a  trading  corporation  which 
money  The  carbon  company  gave  has  the  right  to  exercise  such  mercan- 
its  note,  payable  to  the  order  of  the  tile  powers  as  may  be  convenient  and 
plaintiff,  and  the  plaintiff  loaned  the  necessary  for  the  successful  transac- 
money  upon  the  note.  How  it  got  the  tion  of  its  business,  which  clearly 
money  was  immaterial,  whether  by  gives  it  the  authority  to  extend  mer- 
having  the  note  discounted  upon  its  cantile  facilities  to  the  persons  dealing 
own  credit,  or  otherwise,  does  not  alter  with  it  if  in  its  judgment  it  thinks  it 
the  relations  of  the  parties.  It  was  a  for  the  benefit  of  its  business  so  to  do. 
loan  made  between  the  plaintiff  and  The  transaction,  therefore,  between 
the  carbon  company,  by  and  through  the  plaintiff  and  the  carbon  company 
its  treasurer,  and  there  is  nothing  in  was  in  no  respect  ultra  vires.  As  to 
the  case  going  to  show  that  there  was  the  power  of  the  treasurer  of  the  cor- 
any  accommodation  indorsement,  or  poration  to  use  its  credit  and  money  in 
anything  of  that  sort.  The  question  such  a  way,  it  was  said:  "  It  is  suffi- 


§172] 


PRIVATE  COKI'oItATIoXS. 


825 


§  172.  When  a  corporation  will  be  bound  by  a  note  exe- 
cuted by  its  treasurer. — In  a  case  where  a  bank  discounted  a 
note  for  a  private  corporation  "  in  the  usual  course  of  its  business 
without  notice  of  any  defect  or  infirmity,"  and  its  good  faith  was 
not  questioned,  the  Supreme  Court  of  Massachusetts  held  that  if 
the  note  was  signed  by  an  officer  authorized  generally  to  give 
notes  in  its  behalf  the  corporation  would  be  liable,  although  tin- 
agent  in  signing  this  particular  note  exceeded  his  authority  or  the 
powers  of  the  corporation.1 

cient  to  say  that  the  evidence  shows  sons  with  whom  the  plaintiff  had 
conclusively  that  it  had  been  the  prac-  dealings.  If  corporations  choose  to 
tice  of  this  corporation  to  lend  money  place  the  whole  of  the  management  of 
and  extend  financial  assistance  to  par-  their  business  for  the  purpose  of  ex- 
ties  with  whom  it  had  business  rela-  pedition  in  the  hands  of  a  single  indi- 
t ions.  It  is  true  t hut  it  is  claimed  that  vidual,  and  give  him  a  general  author- 
the  only  evidence  of  any  such  course  ity  to  act  as  under  the  circumstances 


is  that  the  defendant  during  his  ad- 
ministration often  gave  financial  assist- 


may  seem  best  to  him,  unless  absolute 
fraud  is  shown    on    his    part,   there 


with  whom  is  intrusted  all 
the  corporation,  can 
powers    which  the 


ance  to  customers  by  him,  but  that  seems  to  be  no  ground  upon  which  a 
such  acts  were  not  reported  to  the  right  of  recovery  can  be  had  against 
board  of  directors.  But  the  evidence  him  for  any  such  acts.  Certainly  a 
fails  to  establish  this  proposition.  It  mere  mistake  in  judgment  does  not 
is  true  that  the  subsequent  treasurer  render  him  liable.  Trading  corpora- 
says  that  such  accommodations  were  lions  are  necessarily  managed  in  a 
not  extended  to  any  but  the  customers  more  informal  way  than  those  of  a 
by  him,  but  there  is  no  evidence  but  different  character.  They  arc  volun- 
that  it  had  been  the  practice  prior  to  tary  copartnerships,  having  u  right  of 
this  time  to  give  financial  assistance  survivorship,  not  dissolved  by  reason 
to  others  than  customers  strictly  of  the  death  of  any  one  of  the  parties 
speaking,  in  the  shape  of  extending  in  interest,  and  a  director  or  officer  or 
their  paper  as  is  claimed  to  have  been  manager 
only  done  by  [the  last  treasurer].  And  the  business  of 
it  appears  without  contradiction  that  exercise  all  the 
it  was  not  customary  for  the  board  of  board  of  directors  could  exercise  under 
directors  to  give  the  manager  direc-  the  same  circumstances  in  the  general 
tions  in  these  matters;  that  he  always  management  of  the  corporation  busi- 
exercised  the  authority,  and  it  was  not  ness.  Hoyt  t>.  Thompson,  19  N.  Y. 
customary  to  bring  it  before  the  board  209.  Even  if  we  concede  that  the 
of  directors.  In  other  words,  the  corporation  had  no  power  to  lend  its 
whole  details  of  the  management  of  money,  yet,  when  it  is  found  that  it 
the  corporation  were,  as  above  stated,  had  been  in  the  habit  of  so  doing,  and 
committed  to  the  general  manager,  that  it  had  been  the  course  of  business 
Under  this  state  of  things,  it  is  difficult  of  the  corporation,  certainly  an  officer 
to  see  how  the  defendant  can  be  held  cannot  be  held  liable  simply  because 
liable,  because  of  his  action,  in  con-  he  has  continued  the  practice." 
ducting  the  business  in  precisely  the  '  Merchants'  Nat.  Bank  of  Gardiner 
same  way  in  which  it  had  heretofore  t>.  Citizens'  Gas  Light  Co.  of  Quincy, 
been  done,  and  extending  aid  to  per-  (1893)  159  Mass.  505;  8.  c.,  34  N.  E. 
29 


226 


POWER  OF  AGENTS  AND  OFFICERS. 


[§  173 


§  173.  When  a  corporation  is  bound  by  acts  of  treasurer. 
—  In  a  recent  case  before  it  the  Supreme  Court  of  New  York, 
in  General  Term,  has  held  that  where  the  treasurer  of  a  businr-v- 
corporation  was  also  permitted  to  become  and  act  as  its  sole  finan- 
cial manager,  the  corporation  would  be  chargeable,  irrespective 
of  the  question  of  authority,  in  fact,  with  liability  for  acts  done 
by  him  within  the  apparent  scope  of  the  authority  conferred 


Rep.  1083,  citing  Monument  Nat.  Bank 
T.  Globe  Works,  101  Mass.  57.  BAK- 
KER,  J.,  for  the  majority  of  the  court, 
said,  arguendo :  "It  is  not  necessary 
that  the  authority  of  an  officer  or  agent 
to  sign  notes  in  behalf  of  a  corporation 
should  appear  in  the  by-laws,  or 
should  have  been  expressly  given  by 
a  vote  of  the  directors  or  of  the  stock- 
holders. In  Lester  t.  Webb,  1  Allen, 
34,  it  was  said:  '  The  rule  is  well  set- 
tled that  if  a  corporation  permit  their 
treasurer  to  act  as  their  general  fiscal 
agent  and  hold  him  out  to  the  public 
as  having  the  general  authority  im- 
plied from  his  official  name  and  char- 
acter, and  by  their  silence  and  acqui- 
escence suffer  him  to  draw  and  accept 
drafts  and  to  indorse  notes  payable  to 
the  corporation,  they  are  bound  by  his 
acts  done  within  the  scope  of  such  im- 
plied authority.  Fay  v.  Noble,  12 
Cush.  1;  Williams  r.  Cheney,  3  Gray, 
215;  Con  ver  r.  Insurance  Co.,  IN.  Y. 
290.  Ou  the  facts  found  at  the  trial 
the  plaintiff  might  well  claim,  if  the 
jury  believed  the  evidence,  that  the 
treasurer  had  authority  to  indorse  the 
notes  in  suit,  derived,  not  from  any 
express  direction,  but  from  the  course 
of  conduct  and  dealing  of  the  treas- 
urer with  the  knowledge  and  implied 
assent  of  the  directors  of  the  corp^ra- 
tion.' "  See,  also,  McNeil  v.  Chamber  of 
Commerce,  154  Mass.  285;  s.  c.,  28  N. 
E.  Rep.  245;  Mining  Co.  v.  Anglo- 
CalifornianBank,  104 U.  S.  192.  "But," 
said  the  Massachusetts  court,  "cases 
where  the  actual  authority  of  an  officer 
is  inferred  from  a  course  of  business 
known  to  and  permitted  by  the  stock- 


holders or  directors  of  a  corporation, 
do  not  touch  the  question  whether  au- 
thority is  to  be  implied  as  matter  of 
law  from  the  name  and  nature  of  the 
office  itse'f.  In  the  present  case  the 
j  ury  were  instructed  that  the  treasurer 
of  such  a  corporation  as  the  defendant 
company  has,  by  virtue  of  his  office, 
authority  to  sign  a  note  which  shall 
bind  the  corporation,  and  the  defend- 
ant contends  that  this  instruction  was 
incorrect.  The  incidental  powers  of 
some  officers  or  agents  have  become  so 
well  known  and  defined,  and  have  been 
so  frequently  recognized  by  courts  of 
justice,  that  certain  powers  are  implied 
as  matters  of  law  in  favor  of  third  per- 
sons who  deal  with  them  on  the  as- 
sumption that  they  possess  these  pow- 
ers, unless  such  persons  are  informed 
to  the  contrary.  The  officers  and 
agents  usually  mentioned  in  this  cate- 
gory are  auctioneers,  brokers,  factors, 
cashiers  of  banks  and  masters  of  ships. 
See  Merchants'  Bank  c.  State  Bank,  10 
Wall.  604;  Case  v.  Bank,  100  U.  S.446. 
Treasurers  of  towns  or  cities  in  this 
commonwealth  are  well-known  offi- 
cers, and  their  powers  are  very  limited. 
They  are  in  general  to  receive,  keep 
and  pay  out  money  on  the  warrant  of 
the  proper  officers  of  the  towns  and 
cities.  Treasurers  of  business  corpo- 
rations usually  have  much  more  ex- 
tensive powers,  and  the  decisions  of 
this  court  hold  that  the  treasurer  of  a 
manufacturing  and  trading  corpora- 
tion is  clothed,  by  virtue  of  his  office, 
with  power  to  act  for  the  corporation 
in  making,  accepting,  indorsing,  issu- 
ing and  negotiating  promissory  notes 


§173] 


PRIVATE  CORPORATIONS. 


227 


upon  him  by  the  corporation.  In  this  case,  for  instance,  the 
treasurer  of  a  water  works  company  had  been  permitted,  through 
the  oiui»ii»n  of  its  other  officers  to  direct  its  financial  manage- 
ment or  supervise  his  acts,  to  become  and  act  as  its  sole  financial 
manager,  and  had  made  and  negotiated  some  fifty  promissory  notes 
in  its  name  during  a  period  extending  over  about  a  year  and  a 
half.  The  court  held  that  the  company  was  liable  to  a  bonafide 
holder  for  value  of  a  promissory  note  executed  in  its  name  by 
such  treasurer,  which  matured  while  he  was  still  treasurer,  and 
the  proceeds  of  which,  so  far  as  received  by  him,  had  been 
applied  to  the  use  of  the  corporation,  although  the  note  was  not 
specially  authorized.1 


and  bills  of  exchange,  and  that  such 
negotiable  paper  in  the  hands  of  an 
innocent  holder  for  value,  who  has 
taken  it  without  notice  of  any  want  of 
authority  on  the  part  of  the  treasurer, 
is  binding  on  the  corporation,  although 
with  reference  to  the  corporation  it  is 
accommodation  paper.  Narragansett 
Bank  r.  Atlantic  Silk  Co.,  3  Met.  282; 
Bates  r.  Iron  Co.,  7  Met.  224;  Fay  v. 
Noble,  12  Cush.  1;  Lester  P.  Webb,  1 
Allen,  34;  Bunk  r.  Winchester,  8  Allen, 
109;  Bird  r.  Daggett,  97  Mass.  494; 
Monument  Nat.  Bank  t.  Globe  Works, 
101  Mass.  57;  Corcoran  r.  Cattle  Co., 
151  Mass  74;  8.  c..  23  N.  E.  Rep.  727. 
While  it  is  possible  that  most,  if  not 
all,  of  the  cases  in  which  this  rule  has 
been  stated  as  law  hare  some  special 
circumstances  from  which  the  treas- 
urer's authority  could  be  inferred,  and 
that  the  court  was  influenced  in  the  de- 
cisions by  the  well-known  fact  that  in 
many  of  the  manufacturing  corpora- 
tions of  this  commonwealth  the  treas- 
urer not  only  has  the  custody  of  the 
money,  but  is  the  general  financial 
manager,  and  often  the  general  busi- 
ness manager  of  the  corporation,  the 
rule  itself  has  been  frequently  and 
broadly  stated  in  our  decisions  and  is 
well  known  both  to  the  officers  of 
manufacturing  and  trading  corpora- 
tions and  to  those  of  banks  and  finan- 


cial institutions.  It  could  not  now  be 
abrogated  or  unsettled  without  dis- 
turbing commercial  transactions. 
There  are,  however,  many  corpora- 
tions which  transact  more  or  less  busi- 
ness to  which  the  rule  has  been  held 
not  to  apply.  Thus,  it  does  not  apply 
to  a  college  (Webber  r.  College,  23 
Pick.  302);  nor  to  a  parish  (Packard  v. 
Society,  10  Met.  427);  nor  to  a  monu- 
ment association  (Torrey  v.  Dustin 
Monument  Association,  5  Allen,  327); 
nor  to  a  municipality  (Bank  v.  Win- 
chester, 8  Allen,  109;;  nor  to  a  savings 
bank  (Tappan  r.  Bank,  127  Mass.  107); 
nor  to  a  horse  railroad  company  (Craft 
r.  Railroad  Co.,  150  Mass.  207;  s.  c.,  22 
N.  E.  Rep.  920)." 

1  Perry  t>.  Council  Bluffs  Water 
Works  Co.,  (1893)  67  Hun,  456;  8.  c., 
22  N.  Y.  Supp.  151.  The  court  ap- 
proved the  findings  and  the  reasoning 
and  conclusions  of  the  referee  in  this 
case,  O'BRIEN,  J.,  speaking  for  the 
court,  referring  to  them  thus:  "He 
finds  that  during  the  period  from  some 
time  in  the  month  of  October,  1885,  to 
February  27,  1887,  Harry  Allen,  as 
treasurer  of  the  defendant  corporation, 
made  and  issued  in  the  name  of  the 
defendant,  and  to  which  the  name  of 
the  defendant  was  signed  by  himself 
as  treasurer  thereof,  some  forty  or  fifty 
promissory  notes,  to  the  order  of  and 


POWER  OF  AGENTS  AND  OFFICERS. 


§  174.  When  a  corporation  will  not  be  bound  by  the  act 
of  its  treasurer. —  In  a  case  before  the  Supreme  Court  of  New 
York  the  corporation  provided  for  all  its  obligations  by  the  issue 
of  bonds.  Parties,  among  whom  was  its  treasurer,  became  pos- 
sessed of  these  bonds  by  agreeing  to  pay  the  debts  of  the  com- 
pany. To  discharge  the  personal  liability  thus  incurred,  the 
treasurer  discounted  notes  of  the  company  made  by  him  without 


indorsed  '  Allen  &  Stead,'  which  were 
negotiated  and  money  obtained 
thereon;  that  the  reason  for  the  mak- 
ing of  such  promissory  notes  to  the 
order  of  Allen  &  Stead  was  that  they 
were  acting  as  the  financial  agents  of 
the  defendant,  and  it  was  to  give  ad- 
ditional credit  to  such  notes,  the  credit 
of  the  corporation  itself  being  poor, 
and,  although  the  by-laws  of  the  de- 
fendant required  the  countersigning 
by  the  president,  none  of  these  notes  so 
issued  was  so  countersigned;  that  the 
note  in  suit  .was,  in  form,  similar  to 
these  others;  that  during  all  this  pe- 
riod, with  the  exception  of  one  in  May, 
1886,  no  meetings  of  the  board  of  di- 
rectors were  held,  and  at  the  one  meet- 
ing no  business  was  transacted  other 
than  the  re-election  of  officers  of  the 
defendant;  that  Allen,  though  he 
sought  to  consult  and  advise  with  the 
president  of  the  corporation,  was  re- 
ferred to  the  latter*s  law  partner,  who 
was  also  a  director  in  the  corporation; 
that  none  of  the  officers  or  directors 
used  or  exercised  any  official  supervis- 
ion over  Allen  or  his  acts  and  transac- 
tions as  treasurer,  except  the  director 
who  was  the  president's  law  partner, 
and  who,  it  would  appear,  was  not 
only  consulted  with  respect  to  the 
making  of  the  promissory  notes,  and 
the  obtaining  of  money  thereon,  but 
concurred  in  the  very  beginning  with 
the  making  of  such  promissory  notes; 
that  further,  he  not  only  advised  the 
making  and  issuing  of  such  notes  from 
time  to  time,  but  personally  indorsed 
a  large  number  of  them,  and  one  with 


the  name  of  his  firm,  of  which  the 
president  was  a  member.  A  review  of 
the  evidence  supporting  these  findings 
will  sustain  the  referee  and  justify  his 
conclusion  that  Allen  was  practically 
the  corporation,  and  that  the  case  is 
brought  within  the  principle  laid  down 
in  Fifth  National  Bank  v.  Navassa 
Phosphate  Company,  119  N.  Y.  256, 
because  he  was  not  only  the  treasurer 
of  -the  defendant,  but,  as  said  in  that 
case,  '  he  was  consciously  invested  by 
the  company  with  the  broad  general 
power  inseparable  from  the  position 
in  which  it  placed  him  as  the  sole  man- 
ager of  its  affairs  at  its  principal  place 
of  business.'  Acting,  therefore,  within 
the  apparent  scope  of  the  authority 
conferred  upon  him  by  the  corpora- 
tion, the  latter  is  charged  with  liabil- 
ity, irrespective  of  the  question  of  au- 
thority in  fact."  This  particular  note 
had  been  placed  as  collateral  security 
with  a  certain  party  who  loaned  a  cer- 
tain amount  upon  it,  under  an  agree- 
ment that  it  was  to  be  paid  within  a 
few  days,  with  interest,  at  the  rate  of 
five  dollars  a  day  until  such  time  as 
the  loan  was  paid.  The  court  limited 
the  measure  of  damages  in  the  recovery 
to  the  amount  loaned  by  this  person, 
with  legal  interest  from  the  date  of  his 
loan.  It  was  said  in  the  opinion : 
'•Taking  the  facts  here,  we  think  that 
this  note  was  not  valid  as  a  legal  obli- 
gation in  the  hands  of  the  payee  nego- 
tiating it,  or  in  the  hands  of  Bradford, 
who  delivered  it  to  the  plaintiff  as  col- 
lateral security  for  a  loan  made  by  him. 
but  that  when  transferred  to  the  plain- 


|174] 


PRIVATE  CORPORATIONS. 


its  authority  or  knowledge,  or  tliat  of  its  officers.  It  was  sought 
to  hold  the  corporation  liable  in  an  action  l>y  the  hank  which  dis- 
counted them  upon  the  ground  that  the  treasurer  was  a  financial 
officer  of  the  corporation,  and,  therefore,  held  apparent  authority 
to  indorse  the  notes,  so  far  as  bona  fide  purchasers  were  con- 
cerned, and  upon  another  ground  that  the  previous  conduct  of 
the  treasurer  had  been  such  in  issuing  the  notes  that  the  corpora- 
tion must  be  held  to  have  authorized  the  making  and  indorsement 
of  the  notes  in  suit.  It  was  held  by  the  court  that  the  treasurer 
of  a  corporation  engaged  in  the  business  of  operating  water  works 
did  not  have,  by  virtue  of  his  office,  any  implied  authority  to 
borrow  money  and  give  the  corporation's  note  therefor.1 


tiff  it  became  in  bis  hands  a  vega'v 
obligation  against  the  defendant,  but 
only  to  the  extent  of  what  was  ad- 
vanced upon  the  faith  thereof.  We 
think  the  principle  of  the  cases,  which, 
under  such  circumstances,  would  pre- 
vent a  profit  being  made  out  of  the 
transaction,  is  applicable,  and  that, 
while  the  plaintiff  is  entitled  to  protec- 
tion to  the  extent  of  the  moneys  ad- 
vanced, and  legal  interest  from  the  date 
of  the  loan,  he  cannot  recover  either 
the  face  value  of  the  note,  with  inter- 
est thereon,  nor  the  amount  loaned, 
with  interest  at  the  rate  agreed  upon  by 
Bradford,  of  five  dollars  a  day." 

1  First  Nat.  Bank  of  Middletown  v. 
Council  Bluffs  City  Water  Works  Co., 
(1890)  56  Hun,  412;  s.  c.,  9  N.  Y. 
8upp.  859.  In  support  of  their  con- 
tention the  counsel  of  the  bank  cited 
Bank  of  Batnvia  t>.  New  York,  L.  E. 
&  W.  R.  H.  Co.,  106  N.  Y.  195;  s.  c., 
12  N.  E.  Rep.  433,  and  Bank  of  Au- 
burn r.  Putnam,  1  Abb.  Dec.  80. 
PRATT,  J.,  upon  the  question  win  tlicr 
the  facts  of  the  case  brought  it  within 
the  rules  of  the  cases  cited,  said: 
"There  was  no  evidence  that  any 
part  of  the  proceeds  of  the  notes  sued 
on  came  to  the  use  of  the  company. 
The  bonds  and  money  which  [the 
treasurer]  received  for  these  notes  he 
retained.  As  to  the  bonds,  the  evi- 


dence was  that  he  still  had  them.  Aa 
to  the  money,  it  went  into  his  indi- 
vidual bank  account,  and  he  refused 
to  My  that  he  paid  any  debt  of  the 
company  out  of  that  bank  account 
after  he  received  the  money.  He 
would  not  even  say  that  he  kept  the 
money  for  the  payment  of  what  the 
company  owed  him,  although  he  tried 
to  produce  that  impression.  There  was 
no  evidence,  however,  that  the  com- 
pany owed  him  anything,  except  his 
general  stnteemnt  that  they  owed  him 
something,  but  what  the  something 
was  he  did  not  attempt  to  say.  Of 
course,  as  treasurer  of  the  company, 
he  could  not  issue  its  notes  and  sell 
them,  and  pocket  the  proceeds,  under 
the  pretense  that  the  company  owed 
him  money,  without  showing  some 
authority  outside  of  himself  for  such 
a  transaction,  and  without  establish- 
ing, in  the  most  satisfactory  manner, 
that  the  company  was  indebted  to  him 
for  the  amount  which  he  so  obtained. 
The  referee  found  that  the  proceeds 
of  some  of  the  previous  notes  made  by 
[the  treasurer]  were  applied  'to  at 
least  some  extent,'  to  the  payment  of 
the  debts  and  obligations  of  the  de- 
fendant. This  fact  would  tend  to  es- 
tablish the  company's  liability  f»r  tin- 
notes  sued  on,  under  the  theory  that 
they  were  responsible  in  thus  having 


230  POWER  OF  AGENTS  AND  OFFICERS.  [§§  175,  176 

§  175.  Another  illustration  of  such  a  case. —  In  a  Massa- 
chusetts case  it  appeared  that  a  stockholder,  who  was  the  treas- 
urer of  a  street  railway  corporation,  wrote  to  a  customer  that  lie 
could  lend  the  proceeds  of  bonds  sold  by  him  for  her  to  the  cor- 
poration, and  she  told  him  that  she  would  so  lend  a  part  of  the 
proceeds  to  it,  and  left  the  amount  in  his  hands,  receiving  from 
him  a  note  for  the  amount  made  in  the  corporation's  name  by 
him  alone  as  treasurer.  She  was  ignorant  of  and  made  no 
inquiries  as  to  the  by-laws  of  the  corporation,  which  provided 
that  he  could  sign  notes  only  as  the  directors  might  require,  which 
notes,  to  bind  the  corporation,  were  to  be  countersigned  by  the 
president,  but  acted  in  good  faith,  believing  that  the  treasurer  of 
the  corporation  also  acted  honestly  and  had  authority  to  make  the 
loan  and  to  give  a  note  for  the  same  binding  upon  the  corpora- 
tion. The  treasurer  had  no  such  authority  in  terms,  and,  being  a 
defaulter,  used  the  loan  to  cover  up  his  defalcation  by  paying 
debts  of  the  corporation.  The  Supreme  Court  of  Judicature 
held  that  his  customer  in  the  stock  brokerage  business  could  not 
recover  against  the  corporation  either  upon  the  note  or  for  money 
had  and  received.1 

§  176.  When  contracts  of  a  chief  engineer  will  bind  a  rail- 
road corporation. —  It  appeared  in  a  Michigan  case  that  certain 
individuals  organized  a  railroad  corporation  for  the  purpose  of 
constructing  a  line  of  railroad.  Two  of  these  individuals  entered 

held  out  [the  treasurer]  as  their  agent  him  to  do  so.      The  finding  with  re- 

to  make  their  notes.     But  in  order  to  gard  to  the  application  of  the  proceeds 

create  such  an  agency  by  representa-  of  the  notes,  therefore,  does  not  go  for 

tion  or  estoppel,  it  is  essential  that  the  enough  to  establish  a  liability  in  this 

principal  shall  have  knowledge  of  the  case.     The  fact  that  an  agent  has,  in 

assumption  by  the  agent  of  the  pow-  one  or  more  instances,  made  notes  and 

ers  he  has  exercised.     In  order  to  ere-  applied  the  proceeds  in  part  payment 

ate  a  liability  in  this  case,  therefore,  of  his  principal's  debts,  without  his 

it  was  necessary  to  go  a  step  further  knowledge,  creates  no  liability  on  his 

in  the  findings,  and  to  find  that  the  part    for    his    subsequently    making 

company  had  knowledge  of  the  fact  notes  in  the  name  of  the  principal." 

that  [the  treasurer]  had  so  applied  the  '  Craft  v.    South    Boston    Railroad 

proceeds  of  these  notes.      There  not  Co.,  (1889)  150  Mass.  207;  s.  c.,  22  N. 

only  is  no  such  finding,  but  the  referee  E.  Rep.  920.     Upon  the  first  point  it 

has  expressly  found  that  the  directors  was  said:  "  Whatever  may  be  true  of 

had  no  knowledge  that  [he]  had  as-  trading  corporations  there  is  nothing 

sumed  to  make  the  notes  of  the  com-  in  the  nature  of    the  business   of  a 

pany,  and  that  they  never  authorized  horse  railroad  corporation,  or  of  the 


ri;i\  AH   r.,i;poi:.vM"- 

into  an  agreement,  by  wliieh  the-  third  intere.-tcd  party  \vas  to 
construct  the  road,  to  be  paid  in  bond-,  and  .-tork.  This  latter 
was  the  principal  promoter  of  this  railroad  enterpri>e.  T I ie  work 
was  to  l)e  done  under  the  supervision  of  a  chief  engineer.  The 
work  for  building  the  road  was  let  to  a  >iil>-<-ontra<-tor.  The 
plaintiff  in  this  action  had  furnished  supplies  for  this  work  to  the 
sub-contractor.  Failing  to  be  paid,  this  action  against  the  com 
pany  resulted.  In  it  the  plaintiff  claimed  that  the  goods  were 
delivered  upon  orders  given  by  the  company's  agent,  and  upon 
its  credit.  The  principal  question  in  the  <-;i-,-  aro>e  upon  the 
authority  of  the  agent  to  bind  the  company.  The  Supreme, 
Court  of  Michigan  held  that  the  question  of  the  authority  of  the 
agent  was  one  of  fact  properly  >ul>mitted  to  the  jury,  and 
reviewed  the  evidence  and  affirmed  the  judgment  against  the 
company.  They  said  of  the  testimony :  "  [It]  brings  the  case 
within  any  one  of  several  well-established  rules.  If  the  company 
relinquished  to  [this  contractor]  the  matter  of  construction  of  this 
road,  and  [he]  knew  that  [its  chief  engineer]  was  contracting 
these  obligations  in  the  name  and  upon  the  credit  of  the  com- 
pany, [the  contractor]  must  be  deemed  to  have  adopted  them. 
1 1  is  knowledge  was  the  company's  knowledge,  and  the  company 
is  liable.  If  the  officers  of  the  company  were  advised  that  [the 
chief  engineer]  had  incurred  the  indebtedness  to  plaintiff  in  the 
name  and  upon  the  credit  of  the  company,  and  with  that  knowl- 
edge did  not  protest,  but,  on  the  contrary,  corresponded  directly 
with  the  plaintiffs  and  *%aid  that  account,  plaintiffs  were  justified 

duties  of  a  treasurer  of  such  a  corpo-  debts  of  the  company,  which  the 
ration,  which  implies  that  the  treas-  money  of  the  company,  if  he  had  not 
urer,  by  virtue  of  his  office,  has  au-  embezzled  it,  would  have  been  used  to 
thority  to  borrow  money  for  the  com-  pay.  The  only  reasonable  inference 
pany  and  to  give  its  notes  therefor,  is  that  [the  treasurer's]  primary  pur- 
It  does  not  appear  that  the  company  pose  in  using  the  money  in  this  way 
in  any  way  held  out  [their  treasurer)  was  to  escape  detection  and  to  benefit 
to  the  public  or  to  the  plaintitl  as  hav  himself.  Whether  it  WMt  benefit  to 
ing  any  such  authority,  or  that  treas-  tin- company  that  he  was  able  to  ob- 
urvrs  of  horse  railroad  corporations  tain  and  use  money  for  this  purpose  is 
customarily  have  or  exercise  any  such  necessarily  uncertain.  The  money 
authority."  Upon  the  second  it  was  was  not  borrowed  boiut  ji<l<  for  the  u-e 
said:  "No  objection  on  the  part  of  of  the  company.  >< •>•  Railroad  Na- 
the  [corporation]  ought  to  be  implied  tionnl  Hank  r  Lowell.  KW  .Mass.  214; 
in  this  case,  because  [its  treasurer)  was  Agawam  National  Bank  r.  South 
a  defaulter,  and  the  money  wa>  used  Iladh-y,  128  Mass.  503." 
to  cover  up  his  defalcation  by  paying 


232  POWER  OF  AGENTS  AND  OFFICERS.  [§ 

in  relying  upon  that  action  as  an  assurance  of  [the  chief 
engineer's]  authority,  and  extending  further  credit,  and  defend- 
ant is  estopped  froni^  the  denying  the  authority  of  [its  chief 
engineer].  If  [the  latter],  in  the  exercise  of  the  authority  given 
to  him  by  the  contract,  in  view  of  [the  sub-contractor's]  inability, 
was  prosecuting  the  work  for  and  on  behalf  of  the  company, 
and  incurred  this  indebtedness  in  such  prosecution  of  the  work, 
the  plaintiffs  were  entitled  to  recover.  If  [the  chief  engineer] 
was  entering  into  contracts  for  the  work  upon  the  road,  employ- 
ing men  and  purchasing  supplies  in  the  name  of  the  company 
and  upon  its  credit,  and  the  officers  of  the  company  knew  of -the 
fact,  or  had  been  advised  of  instances  of  like  conduct  and 
remained  silent,  the  company  cannot  now  be  heard  to  say  that 
such  person  so  acting  was  without  authority." *  In  another 
action  against  this  railroad  company  for  supplies  furnished  to  the 
sub-contractor  in  the  construction  of  its  road,  the  same  court 
held  that  upon  the  evidence  the  principles  of  the  last  case  were 
established,  and  that  the  railroad  company  was  properly  found 
liable,  not  only  upon  the  verbal  arrangement  made  by  the  chief 
engineer  with  the  plaintiff  through  its  managing  officer,  but  also 
upon  a  written  guaranty  of  the  sub-contractor's  orders  for  sup- 
plies made  by  the  engineer.2  They  further  held  in  this  case  that 
the  third  of  the  then  parties  organizing  this  railroad  company, 
with  whom  the  two  entered  into  the  agreement  for  the  construc- 
tion of  the  railroad,  who  was  its  president,  could  bind  the  corpo- 
ration for  supplies  used  in  the  construction,  though  not  acting  by 
any  corporate  authority.  This  president  was  at  the  same  time 
president  of  the  supply  company  which  brought  this  action.  It 
was  contended  that  from  this  fact,  and  his  powers  being  limited 
in  the  contract  with  his  associates  for  the  construction  of  the 
road,  which  provided  that  "  no  indebtedness  shall  be  incurred 
and  no  expenditures  made  without  the  free  consent  and  co-opera- 
tion of  all  the  parties  to  the  agreement,"  his  knowledge  of  this 
limitation  was  the  knowledge  of  the  plaintiff,  and,  therefore,  the 

1  Hirschmann  r.  Iron  Range  &  Iluron  Mich.    541;    Whitaker    r.    Kilroy,   70 

Bay  R  R.  Co.,  (1893)  97  Mich.  384;  Mich.  635,  638;  Bcattie  r.  Railroad  Co., 

s.  c.(  56  N.  W.  Rep.  842.     The  court  90  N.  Y.  643. 

referred  in  its  discussion  to  the  follow-       s  Michigan  Slate  Co.  v.  Iron  Range 

ing  cases  as  in  point:    Olcott  r.  Rail-  &  Huron  Bay  R.   R.  Co.,   (1894)  101 

road  Co..  27  N.  Y.  546,  558;  Ceeder  t.  Mich.  14;  s.  c.,  59  N.  W.  Rep.  646. 
H.  M.  Loud  &  Sons  Lumber  Co.,  86 


7  7 1  PRIVATE  OORPOR ATI*  •  233 

latter  was  estopped  from  the  recovery.    The  court  held  adversely 
to  this  contention.1 

§  177.  Ratification  by  corporation  of  agent's  acts  —  gen- 
eral rules. —  If  a  trading  corporation  take  and  hold  the  benefit 
derived  from  a  contract  made  for  it  by  an  agent  not  duly  author- 
ized, it  thereby  makes  the  contract  its  own  by  ratification  or  adop- 
tion and  will  thereby  be  estopped  from  disputing  its  liability 
rlim-nii.*  A  corporation  will  be  held  liable  for  materials  fur- 
nished for  its  use  and  benefit  by  the  order  of  one  not  expressly 
authorized  to  give  such  order,  where  its  officers  have  knowledge 
of  the  order  and  do  not  object  to  it.8  Ratification  of  an  unau- 
thorized act  of  an  agent  of  a  corporation  will  be  inferred  from 
failure  on  the  part  of  the  corporation  to  promptly  disavow  it 
upon  knowledge  of  the  act  being  brought  to  it.4  The  ratification 
of  an  unauthorized  act  of  an  agent  of  a  corporation  is  equivalent 
to  a  previous  authority,  and  such  ratification  need  not  be  by  any 
formal  vote  or  resolution  of  the  corporation,  or  be  authenticated 
by  the  corporate  seal.5  A  ratification  of  an  act  of  an  officer  of  a 
corporation  in  making  a  contract  may  be  implied  by  the  acts  of 
the  corporation  as  well  as  expressed  by  its  vote.  The  acts  and 
assent  of  corporations  may  be  shown  and  inferred  from  facts  and 
circumstances.6  Before  a  corporation  can  be  said  to  have  ratified 

'Ibid.    The  court  said:    "  A  party  San  Francisco,  16  Cal.  265;  Fraylor  P. 

may  act  in  the  double  relation  of  agent  Souora  Mining  Co.,  17  Cal.  594;  Ros- 

f or  both  parties."  Adams  Mining  Co.  r.  borough  r.  Shasta  River  Canal  Co.,  23 

Senter,  26  Mich. 73;  C'olwellr.  Keystone  Cal.    556;    Allen    r.    Citizens'    Steam 

Iron  Co.,  36  Mich.  51;  U.  8.  Rolling  Navigation  Co.,   22  Cal.   28;   United 

Stock  Co.  v.  Atlantic  &G.W.  R  Co.,  34  States   r.    Dandridgc,    12  Wheat.  70; 

Ohio  St.  450;   Mayor,  etc.,  r.  Inman,  Olcott  r.  Tioga  R.  R.  Co.,  27  N.  Y. 

57  Ga.  370;  Manufacturers'  Sav.  Bank  558;  Hoyt  r.  Thompson,  19  N.  Y.  215; 

f.  Big  Muddy  Iron  Co..  97  Mo.  88;  Bank  of  Kentucky  r.  Schuylkill  Bank, 

s.  c.,  10  8.  W.  Rep.  865;   Kitchen  r.  1  Parsons'  Sel.  Cas.  in  Equity,  250. 

Railway   Co.,   69  Mo.   224;    Fitzsim-  'Beattie  r.  Delaware,  Lack.  &  West, 

mons  v.  Express  Co.,  40  Ga.  330.    See,  R.  R.  Co.,  (1881)  12  N.  Y.  Wkly.  Dig. 

as  to  contract  made  by  one  styled  en-  334. 

gineer    of    the    railroad    corporation,  *  First    National    Bank    r.    Frickr, 

Wilson  r.  Kings  County  Elevated  R.  (1881)  75  Mo.  178. 

R.  Co.,  (1889)  114  N.  Y.  487.  » Campbell  r.   Pope,  (1888)  96  Mo. 

'Pixley  v.  Western  Pacific  R.  R.  Co.,  468;  s.  c.,  10  8.  W.  Rep.  187. 

(1867)  88  Cal.  188;   Gas  Company  r.  «  Louisville,  New  Albany  &  Chicago 

San  Francisco.  9  Cal.  453;  Argonti  r.  K\.  Co.  r.  Carson.  (1894)  151  111.  444; 
30 


£34  POWER  OF  AGENTS  AND  OFFICEES.  [§  177 

an  unauthorized  contract  of  its  agent  by  receiving  the  considera- 
tion of  the  contract,  there  must  be  proof  that  the  corporation, 
through  its  proper  officer,  knew  the  terms  of  the  contract  and 
received  the  money  on  that  account.1  A  contract  having  been 
made  by  an  agent  of  a  corporation  out  of  the  usual  course  of 
business  of  the  corporation,  and  his  receiving  money  as  a  consid- 
eration of  the  contract  and  paying  it  to  the  corporation,  the  reten- 
tion of  the  money  by  the  latter  will  not  constitute  an  adoption  of 
the  contract,  unless  it  appears  that  the  corporation  knew  on  what 
account  the  money  was  paid  and  what  were  the  terms  of  the 
contract.2 

Farmers  &  Citizens'  Bank  v.  Sherman,  mont,  60  N.  Y.  96;  Bommer  r>.  S.  S. 

6Bosw.  181;  Hoyt  v.  Shelden,  3  Bosw.  Co.,  81  N.  Y.  468;  Castle  v.  Lewis, 

267;  Houghton  v.  Dodge,  5  Bosw.  326;  (1879)  78  N.  Y.  131,  affirming  13  Hun, 

Madison  Avenue   Baptist  Church   r.  298;    Eickland   v.    Menasha    Wooden 

Baptist  Church  in  Oliver  St.,  2  Abb.  Ware  Co.,  68  Wis.  34;  Paxton  Cattle 

Pr.  (N.  S.)  254;  s.  c.,  32  How.  Pr.  335.  Co.  r.  First  Nat.  Bank,  21  Neb.  621; 

What  amounts  to  a  ratification  of  the  Holmes  r.  Kansas  City  Board  of  Trade, 

contracts  of  officers  or  agents.     MA-  81  Mo.  137;    Pauling  v.    London  Ry. 

rine  Bank  v.  Butler  Colliery  Co.,  52  Co.,  8  Exch.  867;  Beverley  ».  Lincoln 

Hun,  612;  s.  c.(  5  N.  Y.  Supp.  291;  Gas  Co.,  6  Ad.  &  El.  829;  Tnskaloosa, 

Mobile  &  M.  Ry.  Co.   ».   Gilmer,  85  etc.,  Co.  r.  Perry,  85  Ala.  158;  M( •!- 

Ala.    422;    s.    c.,    5    So.    Rep.     138;  ledge  r.    Boston   Iron    Co.,  5    Cush. 

Campbell  v.  Pope,  96  Mo.  468;  s.  c.,  158,  175;     Smith  r.  Martin  Anti-Fire 

10  S.  W.  Rep.  187;  Hamilton  v.  Bates,  Car    Heater    Co.,    64    Hun,    639;    s. 

(Cal.  1894)  35  Pac.  Rep.  304  (holding  c.,  19  N.  Y.  Supp.  285;   Brower   r. 

there  was  no  ratification  of  an  agree-  Brooklyn  Trust  Co.,  21  N.  Y.  Supp. 

ment  of  the  president  that  the  corpo-  324:  Tryon  r .  White  &  Corbin  Co. ,  62 

ration  should  assume  the  debts  of  a  Conn.   161;   s.   c.,  25  Atl.   Rep.   712; 

person);  Frank  v.  Hicks,  (Wyo.  1894)  Weatherford,  M.  W.  &  N.  W.  R.  Co. 

35  Pac.  Rep.  475;  Bibb  v.  Hall,  (Ala.  r.  Granger,  (Tex.  Civ.  App.   1894)  22 

1894)   14   So.    Rep.    98;    Nebraska   &  S.  W.  Rep.  70. 

K.  Farm  Loan  Co.  v.   Bell,  58  Fed.  *  Pennsylvania,    Del.    &    Maryland 

Rep.  326;  s.  c.,  7  C.  C.  A.  253;  West  Steam  Navigation  Co.  r.  Dandridge,  8 

Salem  Land  Co.  r.  Land  Co.,  89  Va.  G.  &  J.  (Md.)  248.     As  to  estoppel  to 

192.  deny  authority  of  officers  and  ratifica- 

1  Hyde  v.  Larkin,  (1889)  35  Mo.  App.  tion  of  their  acts  on  the  part  of  a  cor- 

365.     As  to  corporations  receiving  the  poration,  see  Tuskaloosa  Cotton  Seed 

benefit  of  a  contract  made  by  its  agents  Oil  Co.  v.  Perry,  85  Ala.  158;  s.  c.,  4  So. 

or  officers  being  considered  as  ratify-  Rep.  635;  Morrell  v.  Long  Island  R.  Co. , 

ing  it.  see  Jourdan  v.  Long  Island  R.  (N.  Y.  City  Ct.  Spl.  T.)  1  N.  Y.  Supp. 

R.  Co.,  115  N.  Y.  380;  8.  c.;  22  N.  E.  65;  Fitch  v.  Lewiston  Steam  Mill  Co., 

Rep.  153;  Scott  t>.  W.,  etc.,  R.  R.  Co.,  80 Me.  34;  s.  c.,  12  Atl.  Rep.  732;  Metro- 

86  N.  Y.  200;  Wild  v.  New  York,  etc.,  politan  T.  &  T.  Co.  v.  Domestic  T.  & 

M.  Co.,  59  N.  Y.  644;  Decker  r.  G.,  T.  Co.,  44  N.  J.  Eq.  568;  s.  c.,  14  Atl. 

etc.,  Co.,  61  Hun,  516;  Hoag  r.  La-  Rep.  907;  Alabama  Great  So.  R.  R. 


§178]  PKIVATK  .  "i:!'.'UATIOX8.  235 

3178.  Modes  of  ratification.— The  United  States  Circuit 
Court  of  Appeals  for  the  eighth  circuit  held  that  the  board  «.i 
•  li rectors  of  this  corporation  upon  the  promissory  note  of  which 
tlii>  action  was  brought  by  the  receiver  of  the  bank  which  loaned 
tlu-  corporation  money  on  the  note,  who  were  authorized  by  its 
by-laws  to  borrow  money  and  execute  securities  therefor,  ini^lit 
ratify  the  unauthorized  execution  of  the  promissory  note  by  the 
secretary  of  the  corporation,  and  thus  the  corporation  would  be 
bound.1  In  a  case  where  the  foreman  of  a  mining  corporation, 
with  the  knowledge  and  acquiescence  of  the  officers  of  the  cor- 
poration—  but  without  any  special  request  —  advanced  money  to 
pay  the  debts  of  the  corporation,  and  the  corporation,  with  full 
knowledge  of  all  the  facts,  acquiesced  in  the  acts  of  its  officers 
and  agents  in  their  dealings  with  the  foreman,  the  Supreme 
Court  of  Nevada  held  that  such  knowledge  and  acquiescence 
amounted  to  a  ratification  of  the  acts  of  the  foreman  and  rendered 
the  corporation  liable  to  him  for  the  money  so  advanced.2 

Co.  t.  South  &  North  Alabama  R.  R.  Co.  v.  Troy  &  Lansingburgh  K.   R. 

Co.,  84  Ala.  570;  s.  c.,  3  So.  Rep.  Co.,  (1872)  7  Laos.  240.     What  does 

286;  Hoosac  Mining  &  Milling  Co.  v.  not:  Harrington  r.  First  Nat.  Bunk  of 

Donat,  10  Col.  529;  8.  c.(  16  Pac.  Rep.  Chittcnango,  (1873)  1  T.  &  C.  361.    In 

157;  Second  Nat.  Bank  r.   Pettier  &  Licbfritz  r.  Dubuquc  Street  Railway 

Stymus  Mfg.  Co.,  56  N.  Y.  Super.  Ct.  Co.,  (1878)48  Iowa,  709,  the  managing 

216;  8.  c.,  2  N.  Y.   Supp.  644;  Getty  director     of    a     corporation     having 

t».  C.  R.  Barnes  Milling  Co.,  40  Kans.  knowledge  that  an  agent  of  the  coin- 

281;  8.  c.,  19  Pac.  Rep.  617;  Corn  Ex-  pnny  had  borrowed   money   and   ap- 

changc  Bank   r.    American   Dock    &  plied  it  to  the  payment  of  corporate 

Trust  Co.,  78  Hun,  400;  s.  c.,  29  N.  indebtedness,  the  corporation  was  held 

Y.   Supp.  158;  Thomas  v.  City  Nat.  liable  for  the  sum  borrowed. 

Bank,  (Neb.  1894)  58  N.  W.  Rep.  943;  '  Nebraska  &  Kansas    Farm   Loan 

Moyer  t.  East  Shore  Terminal  Co.,  Co.  v.  Bell,  (1893)  58  Fed.  Rep.  326; 

(1898)41  S.  C.  300;  8.  c.,  19  S.  E.  Rep.  citing    Allis  r.   Jones,  45    Fed.   Rep. 

051;     Norton    r.    Alabama    National  148;  Indianapolis  Rolling  Mill  Co.  r. 

Bank,  (Ala.   1894)   14  So.  Rep.   872;  St.  Louis,  Ft.  S.  &  W.  Ry.  Co.,  120 

Martin  r.  Santa  Cruz  Water  Storage  U.  8.  256 ;  8.  c. ,  7  Sup.  Ct.  Rep.  542; 

Co.,   (Ariz.    1894)   36    Pac.   Rep.    36  Pittsburgh,   C.  &  St.  L.   Ry.   Co.  r. 

(where   there  was  held   to  have  not  Keokuk  &  II.  Bridge  Co.,   181  I     E 

been  a  ratification);  Currie  r.  Bowman,  378  ;  8.  c.,  9  Sup.  Ct.  Rrp.  It" 

(1894)  25  Or.  364;  s.  c.,  85  Pac.  Rep.  •  Martin  r.   Victor    Mill  &  Mining 

848  (ratification  of  execution  of  a  mort-  Co.,  (1885)  19  Nev.  180;  s.  c.,  8  I'M.  . 

gage);  Church  r.  Sterling,  16  Conn.  398;  Rep.  161.     A  ratification  of  an  agent's 

Howe  r.  Keeler,  27  Conn.  554;  John-  use  of    the    rorporaiimi's    funds    for 

son  ».  Smith,  21  Conn.  682:    Hewitt  r.  "special  purposes  "  by  :i  resolution  of 

Wheeler,  22  Conn.  564;    Hyde  r.  Lar  ihr  dim-tors,   held  not  to  be  void,  as 

kin,  35  Mo.  App.  365;    Union  Bridge  constituting  :i  fraud   upon  the  stock- 


POWER  OF  AGENTS  AND  OFFICERS.  [§  179 

§  179.  Illustration  of  ratification  of  contract  of  agent.— 
In  a  late  California  case  it  appeared  that  a  corporation,  by  resolu- 
tion of  its  directors,  authorized  its  president  to  execute  a  mort- 
gage to  secure  a  loan  at  a  rate  of  interest  and  for  a  length  of 
time  specified.  The  mortgage  executed  by  him  was  for  a  shorter 
period  than  authorized,  and  provided  that  the  interest  should  be 
paid  monthly  ;  that  a  failure  to  pay  interest  when  due  rendered 
the  principal  due  and  that  the  mortgagees  should  recover  attor- 
ney's fees  in  case  of  foreclosure.  In  an  action  to  foreclose  this 
mortgage  the  assignee  of  the  corporation  appointed  after  the 
suit  was  begun,  being  made  a  party,  defended  upon  the  ground 
inter  alia  that  the  execution  of  the  mortgage  on  terms  which 
were  a  departure  from  the  terms  named  in  the  resolution  of  the 
directors  was  in  excess  of  the  authority  of  the  president  and  not 
binding  upon  the  corporation.  The  facts  that  the  president  of  the 
corporation  included  in  the  note  and  mortgage  terms  and  condi- 
tions which  the  corporation  had  power  to  authorize,  but  which  it 
did  not  authorize  him  to  insert ;  that  the  corporation  received  the 
consideration  of  $17,000  from  the  plaintiffs  and  applied  the  money 
to  its  uses,  including  the  payment  of  a  prior  mortgage  upon  its 
property  and  the  extinguishment  of  the  lien  thereof ;  that  the 

holders.     Clarke.  American  Coal  Co.,  s.  c.,  33  Pac.  Rep.  728;  Willis  v.  St. 

(1892)  86  Iowa,  436.     As  to  contracts  Paul  Sanitation  Co.,  (1893)  53  Minn, 

being  made  valid  by  ratification  by  a  370;    s.    c.,    55    N.    W.    Rep.    550; 

corporation,  see  Dubuque  College  r.  Augusta,  T.  &  G.  R.  Co.  t>.  Kittel,  52 

Dubuque,  13  Iowa,  555-560  ;  Beach  on  Fed.  Rep.  63  ;   s.  c.,  2  C.  C.  A.  615; 

Priv.    Corp.    §   195;     Oregon  Ry.    r.  2  U.   S.  App.  409;  Hitchings  v.  St. 

Oregon  Ry.  &  Nav.  Co.,  28  Fed.  Rep.  Louis,  N.  O.  &  O.   Canal  &  Transp. 

505;  Greenleaf  v.  Norfolk    Southern  Co.,   68  Hun,  33;    6.   c.,    22  N.    Y. 

Ry.,  91  K   C.  33 ;  First  Nat.  Bank  v.  Supp.    719;     Tingley   ».  Bellingham 

Fricke,  75 Mo.  178;  Kelsey  r.  National  Bay  Boom  Co.,  5  Wash.  St.   644;  s. 

Bank,  69  Pa.  St.  426;  Eureka  Co.  v.  c.,    32  Pac.    Rep.    737;    Goldbeck  v. 

Bailey  Co.,  11  Wall.  488, 491;  Gold  Min-  Bank,    147    Pa.    St.    267;     Haines  9. 

ing  Co.  v.  National  Bank,  96  U.  S.  640,  Detrick,  75  Md.  256 ;  Smith  v.  Martin 

644;   Pacific  Rolling  Mill  Co.  v.  Day-  Anti-Fire  Car  Heater  Co. ,  64  Hun,  639; 

ton  Ry.,  7  Sawy.  61,  67;  Wai  worth  Co.  s.  c.,  19  N.  Y.  Supp.  285;  Seymour  v>. 

Bank  v.  Farmers' Loan  &  Trust  Co.,  16  Association,  64  Hun,  632;  McComb  v. 

Wis.  629  ;  Connett  ».  City  of  Chicago,  Association,  134  N.  Y.  598 ;  Shaver  v. 

114111.  233;  Wood  v.  Whelen,  93  111.  Hardin,   82    Iowa,    378;    Hayden    ». 

153.     Ratification  generally  :  Nims  P.  Wheeler  &  Tappan  Co.,  66  Hun,  629  ; 

Mt.  Hermon  Boys'  School,  160  Mass.  s.  c.,  20  N.   Y.   Supp.   902  ;    Seal  ». 

177  ;  s.  c.,  35  N.  E.  Rep.  776 ;  People  Puget  Sound  Loan  &  Imvest.  Co.,  5 

r.  Eel  River  &  E.  R.  Co.,  98  Cal.  665 ;  Wash.  St.  422  ;  s.  c.,  32  Pac.  Rep.  214. 


§  180]  PRIVATE  CORPORATIONS.  'Jo 7 

corporation,  by  its  representations,  declarations  and  acts,  through 
its  directors,  intentionally  led  the  plaintiffs  to  believe,  and  th«-v 
did  believe,  the  president  of  the  corporation  was  authorized  to 
execute  the  note  and  mortgage  for  one  year,  with  interest  pay- 
;iltlr  monthly;  that  the  corporation,  with  full  knowledge  of  the 
terms  and  conditions  of  the  note  and  mortgage,  received  and 
used  the  consideration  of  $17,000,  and  paid  the  interest  thereon 
monthly  as  the  same  became  due  for  about  four  months,  were 
held  sufficient  to  constitute  a  ratification  of  the  acts  of  the  presi- 
dent of  the  corporation  and  sufficient  to  support  the  invocation 
of  an  estoppel  in  pais.1 

§  180.  What  does  not  amount  to  a  ratification. —  A  treas- 
urer of  a  Massachusetts  savings  institution  for  the  corporation 
became  a  party  to  an  assignment  for  the  benefit  of  creditors,  and 
thereby  undertook  to  release  one  of  the  promisors  on  a  joint  and 
several  note  belonging  to  the  institution.  The  by-laws  of  the 
corporation,  concerning  the  duties  of  the  treasurer  or  as  ex  ojfieio 
secretary,  after  enumerating  several  particulars,  provided  gener- 
ally that  "  he  shall  perform  and  discharge  all  such  other  duties, 
in  addition  to  the  above,  as  are  usually  required  of  the  treasurer 
and  secretary  of  similar  institutions."  There  was  no  record  of 
any  vote  of  the  institution  to  release  any  claim  against  any  per- 
son, or  to  cancel,  or  discharge,  or  receive  payment,  partial  or  in 
full,  of  any  debt  of  any  person  whatever.  Tl>e  binding  effect  of 
this  action  of  the  treasurer  upon  the  corporation  being  for  the 
consideration  of  the  Supreme  Court,  it  was  held  that  the  treasurer 
of  an  incorporated  institution  for  savings  had  no  authority,  as 
such,  and  without  being  specially  authorized  thereunto,  to  exe- 
cute a  release  in  the  name  of  the  corporation.  Further,  they 
held  that  the  facts  that  payments  of  dividends  were  subsequently 
made  to  the  treasurer's  successor  in  office,  and  indorsed  on  the 
note  of  the  one  making  the  assignment,  and  entered  in  the  books 
of  the  institution,  as  so  much  received  of  the  assignees  of  the 
promisor,  and  the  treasurer's  account  and  cash,  including  the 
sum  so  received,  and  the  notes  of  the  institution,  including  the 
note  in  question,  were  subsequently  examined  by  a  connnittrf 
and  certified  as  correct,  were  not  acts  which  amounted  to  a  ratiti- 

1  Gribble  e.  Columbus  Brewing  Co. ,  (1898)  100  Cal.  67;  s.  c.,  84  Pac.  Rep.  527. 


238  POWEB  OF  OFFICERS  AND  AGENTS.  [§  180 

cation  of  the  release.1  It  appeared,  in  an  action  upon  a  written 
contract  executed  in  the  name  of  a  corporation  by  its  president, 
that  there  was  no  vote,  either  of  the  corporation  or  of  the 
directors,  giving  the  president  authority  to  execute  the  contract ; 
that  under  the  by-laws,  the  directors  might  confer  upon  him  such 
authority ;  that  there  were  five  directors,  of  whom  the  president 
was  one,  and  there  was  evidence  that  one  director,  besides  the 
president,  knew  of  this  contract,  but  there  was  no  direct  evidence 
that  the  other  three  directors  had  any  knowledge  of  it.  The 
jury  were  instructed  that  if  "  the  corporation,  represented  by  its 
entire  board  of  officers,  knew  of  and  ratified  the  contract,  it 
would  be  as  binding  as  if  the  corporation  had  authorized  it  by 
express  vote,"  with  this  addendum :  "  But  all  directors  of  a  cor- 
poration are  presumed  to  know  what  it  is  their  duty  to  know, 
what  they  are  able  to  know,  and  what  they  undertook  to  know 
when  they  accepted  the  responsibility  of  directors,  and  a  jury 
have  a  right  to  suppose  that  the  directors  of  a  corporation  have  a 
knowledge  of  its  concerns.  In  the  absence  of  direct  and  positive 
evidence  of  the  knowledge  of  the  directors,  jurors  have  a  right  to 
assume  that  they  are  doing  what  they  were  appointed  to  do,  and 
that  they  know  what  they  are  appointed  to  know."  The  Supreme 
Court  of  Massachusetts  held  such  instruction  to  be  erroneous.2 

1  Dedhain  Institution  for  Savings  v.  fication  may  be  shown  by  proving 

Slack,  (1850)  6  Cush.  408.  that  the  officers  who  had  the  power  to 

8  Murray  v.  Nelson  Lumber  Com-  authorize  the  act  knew  of  it,  and 

pany,  (1887)  143  Mass.  250;  s.  c.,  9  N.  adopted  it  as  a  valid  act  of  the  corpo- 

E.  Rep.  634.  MORTON,  Ch.  J.,  speak-  ration,  although  no  formal  vote  is 

ing  for  the  court,  said:  "  It  is  a  well-  passed  by  them.  Sherman  «.  Fitch, 

settled  rule  that  a  ratification  by  a  98  Mass.  59;  Lyndeborough  Glass  Co. 

principal  of  the  unauthorized  acts  of  v.  Massachusetts  Glass  Co.,  Ill  Mass, 

an  agent,  in  order  to  be  effectual,  must  315;  Kelley  r>.  Newburyport  Horse 

be  made  with  a  knowledge  on  the  Railroad,  141  Mass.  496.  In  the  case 

part  of  the  principal  of  all  the  mate-  at  bar,  therefore,  it  was  incumbent 

rial  facts.  And  the  burden  is  upon  upon  the  plaintiff  to  show  that  the 

the  party  who  relies  upon  a  ratifica-  directors,  or  at  least  a  majority  of 

tion  to  prove  that  the  principal,  hav-  them,  knew  of  the  contract  and  its 

ing  such  knowledge,  acquiesced  in  terms,  and  that,  with  such  knowledge, 

and  adopted  the  acts  of  the  agent.  It  they  acquiesced  in  and  adopted  it. 

is  not  enough  for  him  to  show  that  the  But  the  instructions  given  by  the 

principal  might  have  known  the  facts  court  gave  to  the  jury  a  different 

by  the  use  of  diligence.  Combs  v.  test.  Under  them,  the  jury  would 

Scott,  12  Allen,  493.  Where  the  al-  naturally  understand  that  it  was  not 

leged  principal  is  a  corporation,  a  rati-  necessary  to  find  that  the  directors 


$  180] 


PRIVATE  CORPORATIONS. 


889 


knew  uf  t in-  contract,  and  that  it 
would  ho  sufficient  if,  in  their  judg- 
ment, the  dim-tors,  by  the  use  of  dili 
might  have  known  it.  Tin- 
instruction-*  arc  i-vm  broader  than  this. 
us  tln-y  told  tin-  jury  that  the  directors 
wrre  presumed  to  know  wlmt  they 
were  able  to  know,  and  that  the  jury 
had  the  right  to  suppose  that  the 
directors  of  a  corporation  had  a  knowl- 
edge of  its  concerns."  Knowledge  of 
officer  imputable  to  the  corporation. 
Anderson  r.  Kinley,  (Iowa,  1894)  58 
N.  W.  Rep.  909;  Merchants'  Nat. 
Bank  v.  Tracy,  77  Hun,  443;  s.  c.,  29 
N.  Y.  Supp.  77;  Huron  Printing  & 
Bindery  Co.  t>.  Kittleson,  (S.  D.  1894) 


\V.  Rep.  283;  Willard  r.  Deniuc-. 
50  N.  J.  Eq.  482.  Estoppel  of  corpo 
ration  to  deny  authority  of  its  officers 
and  agents.  Dall.-i*  /.  Columbia  Iron 
A:  St, •«•!  Co.,  158  Pa.  St.  446;  8.  c.,  27 
All.  Rep.  1055;  St.  I/>uis  &  8.  F.  R. 
Co.  v.  Kirkpatrick,  52  Knns.  104;  8.  c., 
34  Pac.  Rep.  400;  Duggan  t.  Pacific 
Boom  Co.,  6  Wash.  593;  8.  c.,  84  Pac. 
i;<  l>  M7;  Merchants'  Nat.  Bank  r. 
Citi/.cns'  Gaslight  Co.,  159  Mass.  506; 
s.  c.,  34  N.  E.  Rep.  1083;  Jourdan  v. 
Long  Island  R.  Co.,  115  N.  Y.  880;  s. 
c.,  22  N.  E.  Rep.  153;  Beach  t>.  Miller, 
130  111.  162;  s.  c.,  22  N.  E.  Rep.  464; 
Brown  r.  Wright,  25  Mo.  App.  54. 


CHAPTER  V. 


FRAUDULENT  ACTS  OF  OFFICERS. 


§  181.  General  rules. 

182.  General  rules  continued. 

183.  Breaches  of  trust. 

134.  Officers  interested  in  contracts 
with  a  corporation. 

186.  Directors  of  an  insolvent  cor- 
poration preferring  them- 
selves to  other  creditors. 

186.  Directors    contracting    with  a 

syndicate  composed  of  them- 
selves—  when  such  a  con- 
tract cannot  be  rescinded. 

187.  Directors     issuing    shares    of 

stock  to  themselves. 

188.  Officers  profiting  by  their  rela- 

tion to  the  corporation. 

189.  Repudiating  or  avoiding  such 

contracts. 

190.  Rules  as  to  such  contracts. 

.  191.  Circumstances  under  which  the 
directors  cannot  avail  them- 
selves of  the  defense  of  the 
invalidity  of  the  contract. 

192.  Purchase  by  officers  of  debts 

due  by,  or  property  of,  cor- 
poration. 

193.  Purchase  and  sale  of  property 

of  corporations  by  officers. 

194.  Illustrations  of  a  sale  of  prop- 

erty to  corporation  which 
was  not  fraudulent. 

195.  When    a    transfer    of    prop- 

erty of  corporation  will  be 
upheld. 

196.  Officers  voting  themselves  sala- 

ries or  compensation. 

197.  Interest  upon  exorbitant  salary 

voted  officer  recoverable. 

198.  Contracts  between  corporations 

having  the  same  directors  in 
part. 


§  199.  Issue  of  worthless,  or  overissue 
of,  stock. 

200.  False    representations   of  offi- 

cers —  deceit. 

201.  A  leading  English  decision  on 

this  subject. 

202.  The  rule  adhered  to  in  England. 

203.  Officers  conspiring  to  wreck  a 

corporation. 

204.  President  conspiring  against  a 

corporation  —  terms  on  which 
the  corporation  could  rescind 
the  contract  made  by  him. 

205.  Promoters  of  corporations  ac- 

countable for  profits. 

206.  Promoters  obtaining  stock  of 

corporation  for  nothing, 

207.  Jurisdiction  of  equity  courts  as 

to  breaches  of  trust,  etc. 

208.  When  a  court  of  equity  is  not 

open  to  the  complaints  of 
stockholders. 

209.  Remedy  in  equity. 

210.  Malfeasance  of  the  president  of 

a  corporation  —  a  stockhold- 
er's remedy. 

211.  When  a  demand  upon  a  direct- 

ory to  bring  suit  is  not  re- 
quired. 

212.  When  a  stockholder  may  bring 

an  action. 

213.  Dissolution  of  a  corporation  by 

a  scheme  of  stockholders  and 
a  sale  of  the  property  to 
themselves. 

214.  The  rights  of  the  minority  in 

such  a  case. 

215.  Principles  applied  to  this  par- 

ticular case. 

216.  When  a  fraudulent  assignment 

of  a  mortgage  by  the  treas- 


§181] 


urer  of   a    corporation   will 
bind  it. 

§  217.  When  a  corporation  may  re- 
cover money  fraudulently 
paid  out  by  its  treasurer. 
218.  When  a  corporation  must  re- 
spond for  damages  resulting 
from  a  fraudulent  issue  of  its 
•tocfc. 


241 


§219.  The  same  subject  —  a  Massa- 
chusetts derision. 

•j-jit    Tin-  vaine  Milijeet  —a  Pennsyl- 
vania decision. 

221.  When  a  •••u-puration  may  not 

respond  for  damages. 

222.  A   Massachusetts    decision  on 

this  subject. 


§  181.  General  rules. —  Directors  of  a  corporation  will  be  held 
responsible  to  the  stockholders  for  losses  from  fraud,  embezzle- 
ment, willful  misconduct,  breach  of  trust  and  for  gross  inatten- 
tion or  negligence,  as  a  result  of  which  fraud  has  been  perpe- 
trated by  agents,  officers  or  co-directors.1  It  is  now  well  settled 
that  directors  and  managers  of  corporations  are  equally  within  the 
rule  which  guards  and  restrains  the  dealings  and  transactions 
between  trustee  and  cestui  que  trust  and  agent  and  his  principal, 
such  directors  or  managers  being  in  fact  trustees  and  agents  of 
the  bodies  represented  by  them.*  Bank  directors  are  not  mere 
agents,  like  cashiers,  tellers  and  clerks.  It  is  the  duty  of  the 
board  to  exercise  a  general  supervision  over  the  affairs  of  the  bank 
and  to  direct  and  control  the  action  of  its  subordinate  officers  in 
all  important  transactions.  *  *  *  They  invite  the  public  to 
deal  with  the  corporation,  and  when  any  one  accepts  the  invitation 
he  has  the  right  to  expect  reasonable  diligence  and  good  faith  at 
their  hands,  and  if  they  fail  in  either,  they  violate  a  duty  they  owe 
not  only  to  the  stockholders  but  to  the  creditors  and  patrons  of 
the  corporation.8  The  directors  of  a  banking  or  other  corpora- 
tion are,  in  the  management  of  its  affairs,  only  trustees  for  its 
creditors  and  stockholders,  and  are  bound  to  administer  its  affaire 
according  to  the  terms  of  its  charter  and  in  good  faith.  If  they 
fail  in  either  respect  they  are  liable  to  the  party  in  interest  who 
is  injured  by  it  for  a  breach  of  trust  and  may  be  made  to  account 
with  him  in  a  court  of  cliancery.4  The  character  of  directors  as 


1  Spering's  Appeal,  (1872)  71  Pa. 
St.  11. 

*  Cumberland  Coal  &  Iron  Co.  c. 
Parish,  42  Md.  598;  Cumberland  Coal 
A  Iron  Co.  t>.  Sherman,  30  Barb.  558; 
Stewart  F.  Lchigh  Valley  Railroad  Co., 
88  N.  J.  Law,  505;  Gardner  t».  Butler, 
80  N.  J.  Eq.  702;  Kitchen  r.  St.  Louis, 
31 


etc.,  Railway  Co.,  69  Mo.  224;  Chou- 
teau  t>.  Allen,  70  Mo.  290;  Ilubbard  r. 
N  V.  etc.,  Investment  Co.,  14  Fed. 
Rep.  679. 

*  United  Sodcty  r.  Underwood,  9 
Bush,  609.  Sec.  also,  Bank  r.  Wulfe- 
kuhler.  Ml  Kans.  60. 

4  Bank  r.  St.  John,  £>  Ala.  566. 


242  FRAUDULENT  ACTS  OF  OFFICERS.  [§  181 

agents  of  a  corporation  for  the  management  of  its  affairs  for  the 
benefit  of  its  stockholders  and  creditors  forbids  the  exercise  of 
their  powers  for  their  own  personal  ends  against  the  interest  of 
the  corporation.  Their  position  is  one  of  great  trust,  and  to 
engage  in  any  matter  for  their  personal  advantage  inconsistent 
with  it  would  be  to  violate  their  duty  and  to  commit  a  fraud 
upon  the  company.1  They  cannot,  as  agents  or  trustees,  enter 
into  or  authorize  contracts  on  behalf  of  those  for  whom  they  are 
appointed  to  act  and  then  personally  participate  in  the  benefits. 
Hence  all  arrangements  by  directors  of  a  corporation  to  secure 
an  undue  advantage  to  themselves  at  its  expense,  by  the  forma- 
tion of  a  new  corporation  as  an  auxiliary  to  the  original  one,  with 
an  understanding  that  they,  or  some  of  them,  should  take  stock 
in  it,  and  then  that  valuable  contracts  should  be  given  to  it,  in  the 
profits  of  which  they,  as  stockholders  in  the  new  corporation,  are 
to  share,  are  so  many  unlawful  devices  to  enrich  themselves  to 
the  detriment  of  the  stockholders  and  creditors  of  the  original 
corporation,  and  will  be  condemned  whenever  properly  brought 
before  courts  for  consideration.2  A  director  of  a  corporation  is  a 
trustee  of  the  corporation,  and  is  under  the  disability  which 
attaches  to  all  trustees  in  dealing  with  trust  property  and  in  trans- 
acting the  business  pertaining  to  the  trust.  He  cannot  act  as 
trustee  and  for  himself  at  the  same  time,  and  will  not  be  per- 
mitted to  make  a  profit  to  himself  in  his  dealings  with  the  cor- 
poration. It  is  against  public  policy  to  allow  persons  occupying 
fiduciary  relations  to  be  placed  in  such  positions  as  that  there  will 
be  constant  danger  of  a  betrayal  of  trust  by  the  vigorous  opera- 
tion of  selfish  motives.3 

1  Wardell  t.  Railroad  Co.,  (1880)  103  505;  Gardner  v.  Butler,  30  N.  J.  Eq. 
U.  S.  651.  702;  Foster  t.  Oxford,  W.  &  W.  Ry. 

2  Ibid.;    citing  Great    Luxembourg  Co.,  14  Eng.   Law  &  Eq.  306;  Aber- 
Railway  Co.  v.  Maguay,  25  Beav.  586;  deen  Ry.  Co.    r.  Blakie,   1  MacQueen 
Benson  r.  Heathorn,  1  Y.  &  Cal.  C.  C.  H.  L.  461.     As  to  the  duties  of  direct- 
326;  Flint  &  Pere  Marquette  Railway  ors  and  the    restrictions   upon    their 
Co.  «.  Dewey,  14  Mich.  477;  European  action  in  matters  of  the  corporation 
&  North   American  Railway  Co.    v.  growing  out  of  their  trust  relation  in 
Poor.  59  Me.  277;  Drury  r.  Cross,  7  Bird  Coal  &  Iron  Co.  r.  Humes,  (1893) 
Wall.  299.  157  Pa.    St.  278:  s.  c.,  27  Atl.  Rep. 

3  Barnes  r.  Brown,  (1880)  80  N.  Y.  750;  33   W.    N.    C.  174,    Mr.    Justice 
527;  citing  Rislcy  r.  Indianapolis,  B.  DEAJJ  said:  "A  director  is  a  trustee 
&  W.  R.  R.  Co..  62  N.   Y.  240;  Butts  for  the  entire  body  of  stockholders, 
».   Wood,    37  N.    Y.   317;  Stewart  r.  and  both  good  morals  and  good  law 
Lehigh  Valley  R.  R.  Co.,  3*  N.  J.  Law,  imperatively  demand  he  shall  manage 


182] 


FRAUDULENT  ACTS  OF  OFFICERS. 


243 


§  182.  General  rules  continued. — A  director  of  a  corporation 
cannot  become  a  contractor  with  the  corporation  nor  can  he  have 
any  personal  or  pecuniary  interest  in  a  contract  between  the  cor- 


all  the  business  affairs  of  the  company 
with  a  view  to  promote,  not  his  own 
i  -is,  but  the  common  interests, 
and  he  cannot  directly  or  indirectly 
derive  any  personal  profit  and  advan- 
tage by  reason  of  his  position  distinct 
from  his  co-shareholders.  1  Potter  on 
Corp.  §  330;  Moraw.  on  Corp.  517, 
518.  And  by  assuming  the  office  he 
undertakes  to  give  his  best  judgment 
in  the  interests  of  the  corporation  in 
all  matters  in  which  he  acts  for  it  un- 
tranimeled  by  any  hostile  interest  in 
himself  or  others.  There  is  an  inherent 
obligation  as  his  part  that  he  will  in 
no  manner  use  his  position  to  advance 
his  own  interest  as  an  individual  as 
distinguished  from  that  of  the  corpo- 
ration. Cumberland  Coal  &  Iron  Co.  r. 
Parish,  42  Md.  598;  Hill  t.  Frazier,  22 
Pa.  St.  320.  And  all  secret  profits  de- 
rived by  him  in  any  dealings  in  regard 
to  the  corporate  enterprise  must  be 
accounted  for  to  the  corporation,  even 
though  the  transaction  in  which  they 
were  made  advantaged  the  corpora- 
tion of  which  he  was  director.  Par- 
ker r.  Nickerson,  112  Mass.  195." 
Fiduciary  relation  of  directors  to 
shareholders  discussed,  and  English 
and  American  decisions  on  the  sub- 
ject examined.  26  Can.  Law  J.  66. 
In  McQourkey  r.  Toledo  &  Ohio 
Central  Ry.  Co.,  (1892)  146  U.  8.  536, 
a  case  involving  the  right  of  the  pur- 
chasers of  railway  property  under  a 
foreclosure  sale  to  certain  rolling 
stock  which  was  claimed  to  be  the 
property  of  those  representing  a 
"contract,"  the  Supreme  Court  of  the 
United  States,  speaking  through  Mr. 
Justice  BROWN,  thus  refers  to  the  acts 
of  the  directors  in  the  matter:  "  The 
directors  of  this  road  were  evidently 
acting  in  two  inconsistent  capacities. 


As  directors  they  were  bound  to  watch 
and  protect  the  interests  of  the  road 
and  obtain  the  rolling  stock  upon  the 
most  advantageous  terms.  As  holders 
of  the  car  trust  certificates,  or  repre- 
sentatives of  such  holders,  it  was  to 
their  interest  to  lease  the  same  at  the 
best  possible  rate  and  to  make  sure 
that  as  directors  this  rolling  stock 
should  never  become  their  property 
except  at  the  highest  price.  In  other 
words,  they  were  both  buyers  and  sell- 
ers or  lessors  and  lessees  of  the  same 
property,"  and  their  action  was  con- 
demned by  the  court  upon  authority 
of  the  cases  of  Wardell  v.  Railroad 
Co.,  103  U.  S.  651;  Oilman,  etc.,  Rail- 
road Co.  r.  Kelly,  77  111.  426;  Whelp- 
dale  v.  Cookson,  1  Ves.  Sr.  9;  Drury 
r.  Cross,  7  Wall.  299;  York  Buildings 
Co.  t.  Mackenzie,  3  Paton  (Scotch)  App. 
Cas.  378;  People  v.  Overyssel  Town- 
ship Board,  11  Mich.  222,  and  others. 
The  competency  of  the  mortgagee  to 
impeach  this  transaction  was  ques- 
tioned in  McGourkey  v.  Toledo  &  Ohio 
Central  Ry.  Co.,  supra.  Upon  this 
question  it  was  said:  "A  contract  of 
this  kind  is  clearly  voidable  at  the  elec- 
tion of  the  corporation,  and  when  such 
corporation  is  represented  by  the  direct- 
ors against  whom  the  imputation  is 
made,  and  the  scheme  was  in  reality  di- 
rected against  the  mortgagees,  and  had 
for  its  very  object  the  impairment  of 
their  security  by  the  withdrawal  of 
the  property  purchased  from  the  lien 
of  their  mortgage,  it  would  be  mani- 
festly unjust  to  deny  their  compe- 
tency to  impeach  the  transaction. 
The  principle  itself  would  be  of  no 
value  if  the  very  party  whose  rights 
were  sacrificed  were  denied  the  bene- 
fits of  it." 


244  FRAUDULENT  ACTS  OF  C  TICERS.  [§  182 

poration  and  a  third  person.1  A  board  of  directors  who  have 
made  a  barter  of  the  assets  oi  the  corporation  for  personal  gain 
cannot,  by  an  act  purporting  to  be  an  acceptance  for  the  corpo- 
ration of  an  equivalent  for  the  assets,  conclude  tile  stockholders 
or  their  representatives  from  showing  that  no  equivalent  was 
actually  received.2  Officers  of  a  corporation  have  the  custody 
and  charge  of  its  property,  and  occupy  the  relation  of  trustees  of 
the  stockholders.  They  have  no  right  to  enter  into  or  partici- 
pate in  a  combination  as,  in  this  case,  with  a  holder  of  a  few  bonds 
secured  by  a  mortgage  of  the  property  ol  the  corporation,  a  rail- 
road company,  who  had  obtained  a  judgment  upon  his  bonds  in 
a  state  court  and  entered  into  an  agreement  with  certain  officers 
to  have  a  sale  of  the  property  in  an  obscure  place  unknown  to 
others  interested  and  buy  in  the  property,  the  object  of  which 
combination  is  to  divest  the  corporation  of  its  property  and  obtain 
it  for  themselves  at  a  sacrifice,  or  at  the  lowest  price  possible. 
To  seek  their  own  profit  at  the  expense  of  the  corporation,  its 
stockholders,  or  even  its  bondholders,  is  forbidden  by  their  rela- 
tion to  the  corporation.8  It  being  the  duty  of  a  director  of  a  cor- 
poration to  know  its  financial  condition,  he  cannot  avail  himself 
of  any  dereliction  of  sucn  duty  to  secure  a  personal  advantage 
over  other  creditors  of  the  corporation.4  Directors  acting  hon- 
estly for  wnat  they  esteem  the  best  interests  of  the  corporation, 
and  not  willfully  perverting  their  powers,  but  only  misjudging 
them,  will  not  be  held  to  account  for  money  expended  in  such 
case.6  The  directors  of  a  corporation  created  for  the  sale  of 
lands  may  reject  offers  fo»  the  lands,  this  being  within  their  dis- 
cretion, and  though  imprudently  done,  if  there  be  no  fraud,  they 
will  not  be  liable  for  any  loss  resulting  therefrom.6  Where 
expenditures  may  be  made  by  directors  of  a  corporation  in  carry- 
ing out  its  prime  object,  even  if  such  expenditures  be  ultra,  mresy 
stockholders  knowing  of  them  and  not  objecting  until  long  after 
their  completion,  cannot  compel  the  directors  of  the  corporation 

1  Port  v.  Russell,  36  Ind.  60.  account  for  all  moneys  and  profits  re- 

9  Guild  v.  Parker,  43  N.   J.  Law,  ceived  by  them  out  of  the  property  or 

430.  its  use. 

8  Jackson  t>.  Ludeling, (1874)  21  Wall.  4  Clay  v.    Towle,   78  Me.  86;  s.  c., 

616,  ordering  the  setting  aside  and  can-  2  Atl.  Rep.  852. 

celing   as    fraudulent    and    void    the  5  Watts'  Appeal,  (1875)  78  Pa.  St. 

sale  and  purchase  of  the  property  by  370. 

these  conspirators  and  holding  them  to  6  Ibid. 


§  182]  FRAUDULENT  ACTS  OF  OFFICERS.  245 

to  account  for  the  moneys  expended.1  When  the  act  of  direct- 
ors of  a  corporation  complained  of  is  to  be  followed  by  large 
expenditure  of  money  a  stockholder  should  not  only  make  his 
protest  within  a  reasonable  time,  but  should  follow  it  up  by  active 
jiivvi'iitivr  measures.  Six  years',  for  instance,  omission  to  pro- 
ceed will  effectually  bar  a  stockholder's  right  to  an  action  against 
diivctors  for  the  misuse  of  corporate  property.2  A  court  of  equity 
will  set  aside  the  sale  of  corporate  property  sold  for  much  less 
than  its  value,  on  a  sale  by  trustees  of  a  corporate  mortgage,  if 
sh<i\vn  that  one  of  the  trustees  had  accepted  a  bribe.8  A  contract 
in  the  name  of  a  corporation,  by  its  board  of  directors,  is  not  void, 
if  otherwise  unassailable,  simply  because  some  of  the  directors 
constituting  a  minority  may  use  their  position  with  the  effect,  or 
even  for  the  purpose,  of  advancing  their  personal  interests  to  the 
injury  of  the  corporation  they  assume  to  represent.4  The  courts 
will  refuse  to  enforce  an  agreement  between  a  director  of  a  cor- 
poration and  a  third  party  whereby  the  director  agrees  to  use  his 
vote  and  influence  to  the  disadvantage  of  the  corporation.5 
Directors  of  a  corporation,  as  they  are  managing  the  funds  as 
trustees  of  the  stockholders,  have  no  right  to  use  or  appropriate 
the  funds  of  their  ceatui  que  trust  to  themselves.  They  have  no 
power  to  waste,  destroy,  give  away  or  misapply  it,  and,  therefore, 
where  there  is  no  salary  provided  for  their  services  they  are  not 
authorized  to  vote  one  to  themselves  or  to  any  one  of  their 
number.8  A  court  of  equity  will  scrutinize  with  vigorous  and 
jealous  observation  any  attempt  of  directors  of  a  corporation  to 
make  a  pledge  of  its  assets  in  favor  of  themselves.7  Directors 
and  officers  of  a  corporation  from  their  position  of  trust,  which 
requires  that  they  act  in  the  utmost  good  faith,  will  not  be  allowed 
to  deal  with  corporate  funds  and  property  for  their  private  gain.8 
The  application  of  the  corporate  assets  of  an  insolvent  corpora- 

1  Ibid.  •  Holder  r.  La  Fayette.  Blooming- 

•  Ibid.  ton  &  Mississippi  Ry.  Co..  (1878)  71 

•  White     Mountains     Railroad     e.  111.  106;  Gridley  t>.  La  Fayette,  Bloom- 
White  Mountains  (N.  H.)  Railroad,  50  ington  &  Mississippi  Ry.  Co.,  (1878)  71 
N.  II.  60.  111.  200. 

4  Jesup  r.  Illinois  Central  R.    Co.,  '  Chouteau  t.  Allen,  (1879)  70  Mo. 

(1890)  48  Fed.  Rep.  488.  Jl»u 

•  Attaway  t>.  Third  National  Bank,  •  Ward  P.  Davidson,  (1886)  89  Mo. 
(1887)  98  Mo.  486;  s.  c.,  6  8.  W.  Rep.  446. 

16. 


246  FRAUDULENT  ACTS  OF  OFFICEE8.  [§  182 

tion  to  debts  due  the  officers,  to  the  exclusion  of  other  creditors, 
by  such  officers  will  not  be  permitted.1  A  trustee  of  a  corpora- 
tion can  make  no  agreement  for  the  appropriation  of  the  prop- 
erty of  the  corporation,  authorized  by  his  own  vote,  that  will  be 
valid  against  the  corporation.  And  where  an  action  is  brought 
against  a  trustee  to  compel  him  to  account  to  the  corporation  for 
its  property  thus  appropriated,  he  cannot  defend  on  the  ground 
that  he  was  a  creditor  of  the  corporation  and  voted  as  one  of  its 
trustees  to  transfer  the  property  of  the  corporation  to  himself  as 
a  creditor  to  pay  the  debt  of  the  corporation  due  to  him,  and 
then,  at  a  subsequent  meeting  of  the  board,  by  his  own  vote,  car- 
ried a  resolution  to  ratify  such  disposition  of  the  property.2  In 
a  case  where  the  controlling  directors  of  two  corporations  were 
the  same  persons  it  was  held  that  a  preferential  mortgage  given 
by  one  to  the  other,  as  security  for  payments  and  liabilities  result- 
ing from  an  acceptance  of  drafts  by  the  latter  for  the  accommo- 
dation of  the  former,  was  invalid  because  it  operated  to  protect 
the  officers  of  the  accepting  company  against  personal  liability  for 
their  maladministration  in  accepting  paper  for  accommodation.8 
A  corporation  having  been  officially  declared  insolvent  by  its 
directors,  and  they  having  determined  to  wind  up  its  affairs  with 
a  view  of  paying  its  debts,  the  directors  cannot  deliver  the  assets 

1  McNeill  v.  Lacey,  (1890)  33  ill.  officer  to  loan  money  to  a  corporation 

App.  310.  In  Hart  v.  Brockway,  57  and  take  a  mortgage  to  secure  the 

Mich.  189;  s.  c.,  23  N.  W.  Rep.  725,  loan  upon  the  same  terms  and  in  the 

where  the  directors  of  a  railway  cor-  same  manner  as  other  persons,  see 

poration  had  collected  subscriptions  Mullanphy  Savings  Bank  v.  Schott 

and  taken  aid  notes  to  be  used  in  build-  (1890)  135  111.  655;  8.  c.,  26  N.  E.  Rep. 

ing  the  road  and  in  discharging  exist-  640,  affirming  34  111.  App.  500.  Cases 

ing  obligations,  the  court  held  that  an  in  which  the  transactions  of  the  corpo- 

individual  director  could  not  apply  ration  with  its  directors  were  held  to 

such  funds  as  he  had  collected  to  the  be  valid.  Hannerty  r.  Standard 

payment  of  his  own  personal  share  of  Theater  Co.,  (1891)  109  Mo.  297;  s.  c., 

any  obligation  made  jointly  with  the  19  S.  W.  Rep.  82;  In  re  Pyle  Works, 

other  directors.  (1891)  1  Ch.  ,173.  What  class  of  con- 

*  Gildersleeve  v.  Lester,  (1893)  tracts  made  by  directors  with  each 

68  Hun,  532;  s.  c.,  22  N.  Y.  Supp.  other  are  voidable.  Mallory  t.  Mallory- 

1026.  Wheeler  Co.,  (1891)61  Conn.  131;  s.  c., 

3  Hutchinson  T.  Sutton  Manufactur-  23  Atl.  Rep.  708.  An  illustration  of  a 

ing  Co.,  (1893)  57  Fed.  Rep.  998.  See,  case  in  which  a  director  cannot  sell  to 

also,  Lippincott  v.  Carriage  Co.,  25  himself.  Green  v.  Hugo,  (1891)  81 

Fed.  Rep.  577;  Howe  v.  Tool  Co.,  44  Tex.  452;  s.  c.,  17  S.  W.  Rep.  79.  As 

Fed.  Rep.  231.  As  to  the  right  of  an  to  acts  by  directors  where  their  inter- 


§  183]  FRAUDULENT  ACTS  OF  OFFICERS.  247 

of  the  corporation  to  one  of  the  board  in  payment  of  his  debt,  to 
the  exclusion  of  its  other  creditors.1 

§183.  Breaches  of  trust.— Should  direr-tors  pay  ,.\.-r  the 
funds  of  a  corporation  in  their  hands  or  in  it-  treasury  to  an  indi- 
vidual upon  a  pretended  claim  which  they  know,  or  mu>t  Ix?  pre- 
sumed to  know,  is  wholly  unfounded  in  law,  they  will  IK- guilty  of 
a  breach  of  trust.8  Directors  of  a  bank  are  personally  resjxmsi- 
ble  for  damages  resulting  to  the  bank  from  their  acts  or  neglect.8 
The  measure  of  damages  in  an  action  against  them  would  IKJ  the 
extent  of  the  injury.1  ( )hxicers  of  a  bank  are  the  airent>  of  the 
corporation,  and  will  be  held  liable  for  the  abuse  of  their  trust 
wltBrever  the  agents  of  an  individual  will  be.5  Directors  are 

««t  is  adverse  to  the  corporation,  see  $15,000,  for  81 7,250,  to  an  irrosponsi- 

"Waite  r.  Mining  Co.,  38  Vt.  1H;  Waite  blc  person,  and  with  the  connivance  of 

r.  Mining  Co..  37  Vt.  608.  his  son,  who  was  the  cashier  of  the 

1  Williams  r.    Jackson  County    Pa-  bank,  this  irresponsible  pretended  pur- 

trons  of  Husbandry,  (1886)  33  Mo.  App.  chaser  of  stock  hypothecated  the  stock 

K5~.  fora  loan  of  the  largest  amount  named 

'Butts  r.  Wood,  (1862)  38 Barb.  181.  above,  and  received  bills  of  the  bank 

In  this  case  one  who  was  secretary  and  for  the  same.     It  was  charged  in  the 

treasurer  of  the  corporation,  as  well  as  action  that  this  was  a  conspiracy  be- 

one  its  directors,  presented  a  claim  to  tween  these  parties  by  which  the  bank 

the  ooard  of  directors  for  compensa-  was  to  be  crippled  and  the  president  to 

tion  for  his  services  as  secretary,  and  realize   for  his  stock   from  the  bank 

the  claim  was  allowed  and  ordered  to  more  than  its  real  value.     It  was  held 

be  paid  by  the  vote  of  the  three  di-  that     whether    the    transaction    was 

rectors  present,  himself  being  one  of  treated  as  a  willful   violation  of  the 

them,  his  father  another,  and  a  relative  duty  which   the  president  and  cashier 

the  third.    The  Supreme  Court  of  New  owed  to  the  bank,  growing  out  of  their 

York,     in   General    Term,    speaking  official   relations  to  it,  or  as  a   direct 

through    JOHNSON.    J.,    said:    "The  conspiracy  to  cripple  and  defraud  it. 

transaction  challenges  the  most  jealous  the  parties  concerned  in  it  were  liable 

and  seven-  scrutiny,  even  if  there  was  to  the  bank  for  the  damages  which  it 

legal  color  for  the  claim.     But  as  there  had  sustained  in  consequence  of  their 

was  in  fact  no  legal  claim  the  court  is  acts.     Further,  that  in  such  a  case  no 

in  duty  bound  to  pronounce  this  dis  Im-hr*  on  the  part  of  the  bank,  short 

position  of  the  funds  of  the  company,  of  the  Statute  of   Limitations,   would 

thus   made,    fraudulent   and    void    as  constitute  a  defense  to  the  action, 
against  the  other  stockholders.     It  isa       'Austin  r.   DanieK  <  I*l7i    I  l>enio. 

clear  abuse  of  trust,  and  should  not  be  -JUU.     In  this  case  tin-  otlicers  of  the 

allowed  to  stand."  bank  purchased  state  stocks  to  carry 

1  Percy  r.  Millaudon.  3  La.  568.  on  a    private   undertaking    in   which 

4  Ibid.      In    Ilion    Bank    r.    Carver,  they  were  enirsiired.  and  signed  a  con 
(1857)81  Barb.  230.  it  appeared  that  a  tract  oliligini;  the  bank  to  pay  for  tin- 
director  of  the  bank,  its  president,  pre-  stock,  and  then  took  money  from  the 
tended  to  sell  his  slock,  amounting  to  bank  to  fulfill  their  engagement.  They 


248  FRAUDULENT  ACTS  OF  OFFICERS.  [§  183 

authorized  to  manage  and  conduct  the  business  of  a  corporation, 
to  audit  and  pay  its  debts  and  make  such  contracts  as  are  within 
the  ordinary  scope  and  business  of  the  corporation.  They  are 
not,  however,  authorized  to  vote  away  the  funds  of  the  stockhold- 
ers upon  claims  known  by  them  to  be  fictitious  or  unfounded,  for 
such  would  be  a  breach  of  their  trust.  They  have  not  the  power, 
as  directors,  to  mortgage  or  consolidate  the  corporation  with  any 
other  corporation,  or  compel  stockholders  to  surrender  up  the 
stock  owned  by  them,  or  to  accept  stock  in  another  corporation. 
This  power  exists  only  in  the  stockholders.1  Directors  of  a  cor- 
poration knowingly  issuing  bonds  of  the  corporation  falsely  pur- 
porting to  be  "  first  mortgage  bonds,"  and  placing  them  in  the 
hands  of  an  agent  who  sold  them  to  a  purchaser  who  was  igtio- 
rant  of  the  fact  that  they  were  not  first  mortgage  bonds,  have 
been  held  liable  to  the  purchaser  of  the  bonds  who  suffered  by 
the  deception  of  the  indorsement  upon  the  bonds  that  they  were 
k'  first  mortgage  bonds/'2  It  is  beyond  doubt  that  the  directors 
of  a  banking  or  other  corporation  are,  in  the  management  of  its 
affairs,  only  trustees  for  its  creditors  and  stockholders,  and  are 
bound  to  administer  its  affairs  according  to  the  terms  of  its  char- 
ter and  in  good  faith.  If  they  fail  in  either  respect  they  are 
liable  to  the  party  in  interest  who  is  injured  by  it  for  a  breach  of 
trust,  and  may  be  made  to  account  with  him  in  a  court  of-  chan- 

were  held  liable  to  the  receiver  of  the  150;  citing  Blatchford  r.  Ross,  54  Barb, 

bank  for  the  money  so  taken.     The  42. 

money,  it  appeared  further,  was  taken       *  Clark  P.  Edgar,  (1884)  84  Mo.  106, 

for  this  purpose  by  the  cashier  with  affirming  s.  c.,  12  Mo.   App.  345.     In 

the  assent  of  the  president,  the  Jinan-  Bartholomew  v.  Bentley,  (1852)  1  Ohic 

cial  officer  of  the  bank.     It  was  further  St.  37,  the  Supreme  Court  of  Ohio,  in 

held  that  this  assent  of  the  president  which  a  verdict  had  been  rendered  in 

did  not  protect  the  cashier,  as  it  ap-  the  Supreme  Court  on  circuit  in  favor 

peared  that  he  was  a  party  to  the  pri-  of  a  holder  of  bills  of  a  bank  against 

vate  enterprise  in  which   the  money  its  managing  officers  under  the  statute 

was  to  be  used.     As  to  the  liability  of  of   that    state,   allowing    a    recovery 

the  directors  of  a  moneyed  institution  against  unauthorized  bankers,  and  the 

for  improperly  obtaining  and  dispos-  case  reserved  to  the  Supreme  Court  on 

ing  of  the  funds  or  property  of  the  a  motion  for  a  new  trial,  the   court 

corporation,  see  Franklin  Fire  Insur-  denied  the  motion,  holding  that  the 

ance  Co.  ?•.  Jenkins,  3  Wend.  130.    As  fraud  upon  the  charter,  and  the  com- 

to  the    degree  of  diligence,  required  bination  to  defraud  the  public  would 

from  directors  of  a  corporation  in  the  prevent  those  participating  in  it  from 

case  of  its  corporate  affairs,  see  Scott  claiming  any  protection  under  its  pro- 

v.  Depeystcr,  1  Edw.  513.  visions  to  escape  private  responsibility. 
'Kelsey  r.   Sargent,  (1886)  40  Hun, 


§  1S4]  FRAUDULENT  ACTS  OF  OFFICERS.  249 

•  •••rv.1  Should  a  bank  allow  its  stockholders  to  withdraw  its  funds 
to  tin-  amount  of  their  sub-criptions,  and  to  \\-t-  them  without 
security,  in  their  private  bu>ine>s,  >udi  conduct  will  he  a  fraud 
on  it-  creditors  which  would  render  its  director.-,  liable  in  equity 
for  the  amount  BO  withdrawn,  and  each  agent  who  participated  in 
the  fraud  individually  responsible  for  the  amount  traced  to  his 
hands  and  all  profits  made  from  its  use.2  It  was  further  held  in 
this  case  that  the  surrender  to  the  bank's  agent  of  its  notes,  and 
the  acceptance  from  him  of  his  draft  on  a  third  jrerson,  was  but 
the  substitution  of  one  security  for  another,  and  did  not  extin- 
guish the  original  liability  on  the  notes,  unless  the  draft  was 
drawn  in  good  faith  and  accepted  as  an  absolute  payment  and  di- 
charge  of  the  notes ;  and  even  if  it  was  through  the  fraud  of  the 
agent  accepted  as  an  absolute  payment,  the  fraud  would  pn 
it  from  so  operating.3  Directors  of  a  moneyed  corporation  who 
release  shareholders  from  the  payment  in  full  of  their  shares, 
would  be  guilty  of  a  breach  of  trust.4 

§  184.  Officers  interested  in  contracts  with  a  corporation. 
-Under  the  general  authority  giving  to  the  president  and 
cashier  of  a  bank  entire  control  of  all  financial  matters  of  the 
bank,  unrestricted  by  the  by-laws  or  rules  of  the  board  of 
directors  or  stockholders,  the  Supreme  Court  of  Minnesota  has 
held  they  could  not  bind  the  hank  by  any  contract  to  which  they, 
or  either  of  them,  were  parties.5  A  contract  made  between  a 

1  Bank  of  St.   Marys    ».    St.    John,  own  private  business,  in  payment  for 

Powers  &  Co.,  (18o4)  25  Ala.  566;  cit-  u  purchase  made  for  his  own  benefit, 

ing  Attorney-General    v.     Aspinall,  2  A  general    authority   to  transact  the 

Myl.   &  Cr.  625;  Attorney-General  r.  business  and  manage  the  finances  of 

Kell,  2  Beav.  575;  Attorney -General  r.  the  bank  would  not  authorize  such  a 

Corp.  of  Leicester,  7  Beav.  176.  use  of  its  property.     Nor  do  we  see 

*  Bank  of    St.    Maryg    r.  St.  John,  that  the  case  of  defendant  is  in  any 
Powers  &  Co.,  (1854)  25  Ala.  566.  way  aided  by  trying  to  make  out  of  it 

•  Ibid  a  satisfaction    of    the    note  by  sub- 
4  Walton  r.  Hake,  (1881)  9  Mo.  App.    stitutiug   for  it  the    promise  of  [the 

:,;»:,  president]  to  the  cashier  that  he  would 

•Rhodes,  Assignee,  r.  Webb,  (1877)  pay  to  the  bank    the  amount  of  tin- 

24  Minn.    292.     GII.FILLAN.    Ch.    J.,  note;    for    general   authority    in    the 

said:  "  The  transaction  [in  this  case],  president  and  cashier  to  make    «MI 

briefly  stated,  was  an  attempt  by  tin-  tracts  on  behalf  of  the  bank  would  be 

president  to  use  the  property  of  the  subject  to  the    rule  of  law  that  an 

bank,    this    note,    [upon     which    the  agent  or  trustee  cannot  birul  his  prin- 

aasignee's    suit  was   brought],  in    his  cipal,  or  <;*t>n '  </uf  (runt,  by  a  contract 


250 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  184 


corporation  and  one  of  its  directors  to  the  pecuniary  advantage 
of  that  director,  if  made  at  a  meeting  of  the  board  of  directors 
when  he  is  present  and  takes  part  in  the  proceedings,  is  void.1 
Directors  of  a  railway  corporation,  to  whom  it  has  been  confided 


made  by  him  on  behalf  of  his  prin- 
cipal, or  ceslui  que  tiiist,  with  himself. 
General  authority  in  these  officers  to 
make  discounts  would  not  authorize 
them  to  bind  the  bank  by  discounting 
their  own  notes.  Such  authority  to 
the  president  of  a  bank  to  certify 
checks  drawn  on  it  does  not  extend  to 
checks  drawn  by  himself.  [Citing] 
Claflin  v.  Farmers  &  Citizens'  Bank. 
25  .N.  Y.  293.  This  restraint  upon 
agents,  and  those  occupying  fiduciary 
positions,  is  essential  to  secure 
absolutely  fair  dealing  and  adequate 
protection  to  those  whose  interests  are 
confided  to  them."  In  Adams  v. 
Kehlor  Milling  Co.,  (1888)  36  Fed. 
Rep.  212,  a  preference  was  granted  by 
the  directors  of  the  corporation  known 
to  be  insolvent  to  the  estate  of  one 
who  was  a  director  and  its  president, 
deceased.  The  board  at  the  time  con- 
sisted of  three  persons  ;  two  of  whom 
were  brothers  of  deceased,  and  one  of 
them  his  agent  voting  his  stock  at 
corporation  meetings.  One  of  the 
brothers  was  a  creditor  of  the  estate 
preferred.  It  was  held  that  the  pref- 
erence under  the  circumstances  was 
illegal,  and  that  an  unsecured  judg- 
ment creditor  of  the  corporation  was 
entitled  to  recover  of  the  two  directors 
who  were  brothers  of  the  deceased, 
who  had  voted  for  the  preference, 
such  percentage  of  his  debt  as  he 
would  have  received  if  the  sum 
wrongfully  paid  by  way  of  preference 
had  been  divided  pro  ratti  among  all 
the  unsecured  creditors  ;  but  the  other 
director,  not  being  present  at  any 
of  the  meetings  of  the  directors, 
and  not  voting  for  any  of  the 


resolutions  relating  to  this  pref- 
erence, was  held  not  to  be  liable 
personally,  to  the  judgment  creditor. 
^Cases  bearing  more  or  less  upon  the 
non-enforceability  of  contracts  of  di- 
rectors with  the  corporation.  Conro 
v.  Port  Henry  Iron  Co.,  12  Barb.  27; 
Buffalo,  etc.,  R.  R.  Co.  v.  Lampson, 
47  Barb.  533;  Morrison  v.  Ogdensburg 
&  L.  C.  R.  Co.,  52  Barb.  173;  Alford 
v.  Miller,  32  Conn.  543;  Coons  v.  Tome, 
9  Fed.  Rep.  532;  Stout  v.  Yaeger,  13 
Fed.  Rep.  802;  Gray  ».  New  York  & 
Virginia  S.  Co.,  3  Hun,  388;  Mayor  of 
Griffin  r.  Inman,  57  Ga.  370;  Bestor  v. 
Wathen,  60  111.  138;  Harts  /-.  Brown, 
77  111.  226;  Paine  v.  Lake  Erie  &  L.  R. 
Co.,  31  Ind.  283;  First  National  Bank 
v.  Gifford,  47  Iowa,  575;  Cumberland 
Coal  &  Iron  Co.  v.  Parish,  42  Md.  598; 
Redmonds.  Dickerson,  9N.  J.  Eq.  515; 
Gardner  ».  Butler,  30  N.  J.  Eq.  702; 
Claflin  v.  Farmers',  etc.,  Bank,  25  N. 
Y.  293;  U.  S.  Rolling  Stock  Co.  r.  At- 
lantic &  Great  Western  R.  Co.,  34 
Ohio  St.  450;  McAleer  v.  McMurray,  •> 
Pa.  St.  126;  West  St.  Louis  Sav.  Bank 
v.  Shawnee  County  Bank,  95  U.  S. 
557;  Cook  v.  Berlin  Woolen  M.  Co.,  43 
Wis.  433.  In  Hubbard  v.  New  York, 
N.  E.  &  W.  Investment  Co.,  (1882)  14 
Fed.  Rep.  675,  676,  NELSON,  D.  J., 
said:  "  A  director  of  a  corporation  is 
not  absolutely  prohibited  by  law  from 
entering  into  a  contract  with  the  cor- 
poration through  his  co-directors. 
Whether  such  a  contract  is  binding 
upon  the  corporation  must  depend 
upon  its  terms  and  the  circumstances 
under  which  it  was  made.  Owing  to 
the  peculiar  relation  which  the  direct- 
ors owe  to  the  corporation,  being 


1  Atlanta  Hill  Mining  Co. v.  Andrews,    Butts -r.  Wood,  37  N.    Y.  317;  Kelsey 
(1887)  55  N.  Y.  Super.  Ct.  93;  citing    c.  Sargent,  40  Hun,  150. 


I  184] 


M:.M  i>i  I.I.N  i   A.  i-  Of  OKI  n  i  KS. 


to  purchase  the  right  of  way  for  its  road,  will  not  be  allowed  to 
r.\l>ciid  tin.-  fiunls  of  the  corporation  in  expensive  erections  upon 
land  necessary  for  the  purpose,  and  at  tin-  same  time  to  purchase 
or  hire  the  land  in  their  individual  right  and  avail  themselves  of 
the  tit  It-  thus  acquired  to  make  extortionate  demands  of  the  cor- 
poration for  the  use  of  the  land,  and  in  default  of  submission  to 
such  demands,  to  destroy  the  erections  they  may  have  made  as 
agents  for  and  at  the  expense  of  the  corporation.1  That  some  of 
the  directors  and  stockholders  of  a  corporation  who,  as  such, 
voted  for  a  resolution  authorizing  the  execution  of  mortgages  of 
its  property  to  secure  certain  debts  may  have  been  guarantors 
and  indorsers  upon  most  of  them  will  not  invalidate  the  mort- 
gages.2 It  appeared  in  a  case  in  the  federal  courts  that  the 


strictly  trustees,  and  their  position  be- 
ing in  every  sense  fiduciary,  their  con- 
tracts with  the  corporation  should  be 
scanned,  if  not  with  suspicion,  at  least 
with  the  most  scrupulous  care.  The 
validity  of  such  a  contract  must,  there- 
fore, depend  upon  the  nature  and 
terms  of  the  contract  itself,  and  the 
circumstances  under  which  it  is  made. 
The  motives  of  the  parties  are  not 
necessarily  material,  but  the  effect  of 
the  provisions  of  the  contract  must  be 
especially  regarded,  and  if  they  are 
pernicious  and  tend  to  work  a  fraud 
on  the  rights  of  the  corporation  and 
stockholders,  in  such  case  the  directors 
must  be  regarded  as  having  no  au- 
thority to  enter  into  it."  Applying 
these  rules  to  the  case  in  hand,  the 
court  held  a  contract  made  by  a  di- 
rector with  the  corjMjration,  granting 
to  him  enormous  commissions  without 
regard  to  the  debts  or  other  liabilities 
of  t  lie  corporation,  to  affect  injuriously 
the  rights  of  the  stockholders  and  to 
give  this  director  a  right,  without  re- 
gard to  the  rights  of  the  creditors  or 
the  liabilities  of  the  corporation,  to  be 
unreasonable  and  beyond  the  powers 
of  his  co-directors  to  make  with  him. 
1  Blake  r.  Buffalo  Creek  R.  R.  Co., 
(1874)  56  N.  Y.  485.  RAPALI.O.  .1.. 
speaking  for  the  court,  said:  "  Well- 


settled  rules  forbade  their  [the  direct- 
ors] acquiring  for  themselves  the  prop- 
erty which  it  was  their  duty  to  acquire 
for  the  company,  and  which  was  nec- 
essary for  its  purposes.  Such  a  deal- 
ing would  be  equally  objectionable  as 
purchasing  from  the  company  land 
which  it  was  their  duty  to  sell  on  its 
behalf.  In  respect  to  this  last  class  of 
d  ealings  directors  of  corporations  stand 
upon  the  same  footing  as  ordinary 
trustees.  Citing  Aberdeen  Railway  Co. 
r.  Blakie,  1  MacQueen,  461;  Hoffman 
Coal  Co.  r.  Cumberland  Coal  &  Iron  Co. , 
16  Md.456;  Cumberland  Coal  «fe  Iron  Co. 
t>.  Sherman,  30  Barb.  553.  It  is  a  rule 
of  equity  of  universal  application  that 
no  person  can  be  permitted  to  pur- 
chase an  interest  in  property  when  he 
has  a  duty  to  perform  in  relation  to 
such  property  which  is  inconsistent, 
with  the  character  of  a  purchaser." 
[Citing]  Hingo  t.  Binns,  10  Pet.  269; 
Van  Epps  r.  Van  Epps,  9  Paige,  28S; 
Torrey  r.  Bank  of  Orleans,  !»  Pai^f. 
649;  8.  c.,  on  appeal,  7  Hill.  1W;  Car 
ter  f.  Palmer,  1  Dru.  &  Walsh.  ?•»•.': 
York  Buildings  Co.  r.  Macken/ie.  * 
Bro.  P.  C.  4',';  Gardner  r.  Ogden.  •.>•.> 
N.  Y.  :«7;  Anderson  r  Li-m.ui  -  N 

y   -.>:;.; 

I'.tuwn    r.    Qrnnd    Rapids    Parli-r 
Furniture  Co.,  58  Fed.  Hep.  286;  8.  c., 


252  FRAUDULENT  ACTS  OF  OFFICERS.  [§  184: 

directors  of  a  manufacturing  corporation  and  one  other  stock- 
holder conceived  the  idea  that  more  extensive  works  for  their 
business  should  be  erected.  When  submitted  the  proposition 
failed  to  receive  the  approval  of  the  majority  of  the  stockholders. 
Thereupon  these  parties,  with  their  own  funds,  erected  such 
buildings  for  the  purpose  of  carrying  on  the  same  business.  The 
corporation,  through  its  meetings,  afterwards  determined  to  pur- 
chase this  property  of  these  directors  and  their  associate.  The  latter 
sold  it  at  a  profit  to  the  corporation,  but  not  for  an  unconscionable 
price.  The  directors  had  refrained  from  voting  in  the  meeting 
of  stockholders  which  determined  to  purchase  until  it  was  ascer- 
tained by  them  that  a  majority  of  the  stock  represented  favored 
the  purchase.  After  a  lapse  of  two  years  a  stockholder  sought 
to  make  these  directors  account  for  the  profits  they  had  made  to 
the  corporation.  It  was  held  in  the  United  States  Circuit  Court 
for  the  western  district  of  Pennsylvania  that  neither  the  stock- 
holder nor  the  corporation  was  entitled  to  such  relief,  there  hav- 
ing been  shown  no  fraud,  nor  other  conduct  contrary  to  their 
duty  growing  out  of  their  fiduciary  character  on  the  part  of  these 
directors  in  the  transaction.1  It  appeared  in  another  case  in  the 
federal  court  that  one,  acting  as  agent  for  the  promoters  who 
subsequently  organized  a  corporation  and  became  its  original 
stockholders,  made  a  contract  with  another  corporation  for  a 
safety  vault  for  the  use  of  the  corporation  the  promoters  of  which 
lie  represented.  It  was  to  be  furnished  for  $7,250  cash ;  the 
agent  induced  them  to  give  him  a  contract  specifying  the  con- 
sideration to  be  $13,000,  and  also  upon  the  statement  a  false 
credit  of  $5,750  as  paid  by  him  ;  for  this  latter  sum  he  received 
from  the  company  he  represented  shares  of  its  stock  at  par  value, 
which  was  issued  to  him  in  consideration  of  his  supposed  pay- 
ment of  that  amount.  In  this  action  the  corporation  contracting 
with  the  agent  was  held  liable  to  the  company  he  represented  for 

7  C.    C.   A.  225,    following  Bank  of  Co.  v.  Kittel,  52  Fed.  Rep.  63;  s.  c.,  2 

Montreal  c.  J.  E.  Potts  Salt  &  Lumber  U.  8.  App.  409;  2  C.  C.  A.  615. 

Co.,  90  Mich.  345;  s.  c.,  51  N.  W.  Rep.  '  Barr  c.  Pittsburgh  Plate  Glass  Co., 

512.     That  a  contract  is  not  made  void  (1892)  51  Fed.  Rep.  33;  affirmed  by  the 

by  the  simple  fact  that  the  president  United  States  Circuit  Court  of  Ap- 

of  a  railroad  corporation,  unknown  to  peals  for  the  third  circuit  in  Barr  v. 

the  other  directors,  has  an  interest  in  a  Pittsburgh  Plate  Glass  Co.,  (1893)  57 

construction  contract  made  with  the  Fed.  Rep.  86;  8.  c.,  6  C.  C.  A.  260. 
corporation,  see  Augusta,  T.  &  G.  R. 


§  185]  FRAUDULENT  ACTS  OF  OFFICERS. 

tin-  amount  which  ho  had  thus  fraudulently  obtained  from  it. 
The  court  also  held  that  the  fact  that  the  agent  was  alao  a  stock- 
holder in  the  plaintiff  corporation  did  not  affect  its  right  to 
recover  for  the  fraud  perpetrated;  and  further,  that  where  the 
t'minlulent  contract  was  made  by  defendant's  president,  who  was 
its  managing  officer,  and  made  its  contracts,  the  defendant  could 
not  escape  liability  on  the  ground  that  this  transaction  was  con- 
ducted by  the  president  without  its  knowledge  or  concurrence.1 

§  185.  Directors  of  an  insolvent  corporation  preferring 
themselves  to  other  creditors. — The  majority  of  the  directors 
of  a  manufacturing  corporation  organized  under  the  laws  of 
Illinois,  with  knowledge  of  its  insolvency,  paid  off  certain  debts 
of  the  corporation,  for  which  they  were  liable  as  guarantors,  and 
took  a  judgment  note  of  the  corporation  therefor,  due  one  day 
after  date,  without  grace,  under  which  judgment  was  confessed 
in  favor  of  such  directors,  and  all  the  property  of  the  company 
was  levied  on  by  execution  issued  on  that  judgment.  The 
Supreme  Court  of  Illinois  held  that  the  acts  of  the  directors  in 
attempting  to  secure  themselves  at  the  expense  of  other  creditors 
were  fraudulent  and  void,  and  were  properly  set  aside  at  the 
instance  of  such  other  creditors.8  The  directors  of  an  emlmr- 

1  Grand  Rapids  Safety  Deposit  Co.  ing  the  solvency  of  the  corporation, 

«.  Cincinnati  Safe  &  Lock  Co.,  (1891)  the  directors  are  the  agents  or  trustees 

45  Fed.  Rep.  671.  of  the  stockholders,  and  owe  no  duties 

*  Roseboom  v.  Whktaker,  (1890)  132  or  obligations  to  others,  but  that  the 
111.  81.  BAILEY,  J.,  for  the  court,  in  instant  the  corporation  becomes  insol- 
support  of  this  holding,  said:  "  There  vent,  their  relations  and  duties  become 
can  be  no  doubt  of  the  propriety  of  so  materially  changed.  The  assets  of  the 
much  of  the  decree  as  declares  the  corporation  then  become  a  trust  fund 
judgment  by  confession  to  be  fraudu-  for  the  payment  of  its  creditors,  and 
lent  and  void  as  against  the  creditors  the  directors  can  no  longer  deal  with 
of  the  corporation,  and  orders  it  to  be  them  for  their  own  advantage,  or  in 
vacated.  This  precise  question  was  such  way  as  to  gain  priority  for  thnn 
fully  and  elaborately  discussed  by  this  selves  over  other  creditors.  They  are 
court  in  Beach  r.  Miller,  180  111.  162,  then  within  the  scope  of  that  wise  and 
and  the  rule  tlu>re  laid  down  must  be  equitable  rule  adopted  by  courts  of 
held  to  control  the  present  case.  We*  equity  for  the  protection  of  eettui  qua 
there  held  that,  so  long  as  a  corpora-  tnutent  or  beneficiaries,  which  pro- 
tion  remains  solvent,  its  directors  may,  Dibits  trustees  and  persons  standing  in 
with  the  knowledge  of  the  stockhold-  similar  fiduciary  relations  to  exercis- 
ers, deal  with  the  corporation,  loan  it  their  powers  or  manage  or  appropriate 
money,  take  security  or  buy  property  the  property  of  wlii<  h  they  liave  con- 
of  it,  the  same  as  a  stranger;  that,  dur-  trol  for  their  own  profit  or  emolument, 


254 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§185 


rassed  corporation,  holding  claims  against  it  which  they  wished 
to  protect,  had  the  notes  of  the  corporation  payable  to  themselves 
drawn  and  antedated,  and  had  them  discounted  by  a  bank.  The}' 
then  caused  to  be  executed  a  deed  of  trust  conveying  all  the 
assets  of  the  corporation  as  security  for  these  notes,  among  others. 
It  was  held  in  the  United  States  Circuit  Court  for  the  western 
district  of  Missouri,  in  a  proceeding  by  unsecured  creditors  to  set 
it  aside,  that,  being  a  security  for  debts  upon  which  the  directors 
were  themselves  liable  as  indorsers,  it  was,  in  effect,  a  preference 
to  themselves,  and  fraudulent  and  void.1 


or,  as  it  is  sometimes  expressed,  shall 
not  take  advantage  of  their  situation 
to  obtain  any  personal  benefit  to  them- 
selves at  the  expense  of  the  cestui  que 
trust." 

1  Consolidated  Tank  Line  Co.  v.  Kan- 
sas City  Varnish  Co.,  (1891)  45  Fed. 
Rep.  7.  PHILIPS,  J.,  after  referring 
to  the  apparent  insolvency  of  the  cor- 
poration, said:  "  When  a  corporation, 
in  its  business  affairs,  is  thus  inarticulo 
mortis,  whatever  may  yet  be  main- 
tained on  divided  opinions  as  to  its 
right  to  dispose  of  its  property  so  as 
to  give  a  preference  to  some  general 
creditor,  the  law  is  too  well  settled,  at 
least  in  this  jurisdiction,  to  admit  of 
extended  discussion  that  its  directors 
cannot  make  a  disposition  of  the  assets 
so  as  to  secure  themselves,  directly  or 
indirectly,  a  preference  over  general 
creditors.  This  is  the  rule  of  the  Mis- 
souri courts.  Williams  v.  Jones,  23 
Mo.  App.  132;  Mill  Co.  r.  Kampe,  38 
Mo.  App.  229;  Roan  r.  Winn,  93  Mo. 
503;  s.  c.,  4  S.  W.  Rep.  736.  It  is  not 
too  much  to  say  that  it  is  the  estab- 
lished doctrine  of  the  federal  courts. 
It  is  strongly  maintained  by  Judge 
THAYER  in  the  eastern  district  of  this 
state.  White,  etc.,  Manufacturing  Co. 
r.  Pettes  Importing  Co.,  30  Fed.  Rep. 
865;  Adams  r.  Milling  Co.,  35  Fed. Rep. 
433.  See,  also,  Lippincott  v.  Carriage 
Co.,  25  Fed.  Rep.  577;  Koehler  v.  Iron 
Co.,  2  Black,  715-721;  Railroad  Co.  v. 
Howard.7  Wall. 392;  Twin-Lick  Oil  Co. 


v.  Marbury ,  91  U.  S.  587.  In  Graham  v. 
Railroad  Co.,  102  U.  S.  161,  Mr.  Jus- 
tice BRADLEY  said:  'When  a  corpora- 
tion becomes  insolvent,  it  is  so  finan- 
cially dead  that  its  property  may  be 
administered  as  a  trust  fund  for  the 
benefit  of  its  stockholders  and  cred- 
itors. A  court  of  equity,  at  the  in- 
stance of  the  proper  parties,  will  then 
take  those  trust  funds,  which,  in  other 
circumstances,  are  as  much  the  abso- 
lute property  of  the  corporation  as 
any  man's  property  is  his.  The  most 
recent  discussion  of  this  question  is  to 
be  found  in  the  very  able  opinion  of 
Judge  WOODS,  in  Howe  r.  Tool  Co.,  44 
Fed.  Rep.  231.  I  cannot  better  ex- 
press the  strength  of  the  reason  why  a 
director  should  not  be  permitted  to 
prefer  himself,  under  circumstances 
like  those  under  review,  than  by  quot- 
ing his  language:  'A  sound  public 
policy  and  a  sense  of  common  fairness 
forbid  that  the  directors  or  managing 
agents  of  a  business  corporation,  when 
disaster  has  befallen  or  threatens  the 
enterprise,  shall  be  permitted  to  con- 
vert their  powers  of  management  and 
their  intimate,  or,  it  may  be,  exclusive, 
knowledge  of  the  corporate  affairs  into 
means  of  self-protection,  to  the  harm 
of  other  creditors.  They  ought  not  to 
be  competitors  in  a  contest  of  which 
they  must  be  the  judges.  The  neces- 
sity for  this  limitation  upon  the  right 
to  give  preferences  among  creditors, 
when  asserted  by  a  corporation,  may 


KKAUnULKNT  ACTS  OF  OFFICERS. 


$  186.  Directors  contracting  with  a  syndicate  composed 
of  themselves  —  when  such  a  contract  cannot  be  rescinded. 

•  .if  the  late  case-  liefoiv  the  New  York  Court  of  Appeal* 
•it-  a-  fact-  that  a  railroad  corporation  <>f  that  .-fate,  through 
it.-  director-,  reru^ni/intr  the   importance  <>f  a  connection  l»y  rail 
with  another  point,  proniott-.l  the  luiilding  of  a  street  line  of  rail- 
way  to   accomplish   this   purjMisc.      The   directors  of    this  road 


not  1m ve  been  perceived  in  earlier 
times,  but  the  growing  importance  ami 
variety  of  m.xlern  corporate  enter- 
prises and  interests,  I  think,  will  com- 
pel its  recognition  and  adoption. 
*  *  *  Whether  or  not  such  prefer- 
ences are  fairly  given  is  an  impractica- 
ble inquiry,  because  there  can  be,  in 
ordinary  cases,  no  means  of  discover- 
ing the  truth,  and  consequently  the 
presumption  to  the  contrary  should  in 
every  case  be  conclusive.  Concede 
that  it  is  a  question  of  proof,  and  that 
a  preference  in  favor  of  a  director  will 
be  deemed  valid  if  fairly  given,  and  it 
may  as  well  be  declared  to  be  a  part  of 
the  law  of  corporations  that,  in  cases 
of  insolvency,  debts  to  directors,  and 
liabilities  in  which  they  have  a  special 
interest,  may  lirst  be  discharged. 
That  will  be  the  practical  effect,  and 
the  example's  will  multiply  of  indi- 
vidual enterprises  prosecuted  under 
tin'  Bruise  of  corporate  organizations 
for  the  purpose,  not  only  of  escaping 
tin-  ordinary  risks  of  business  done  in 
the  owner's  name,  which  may  be  legiti- 
mate enough,  but  of  enabling  the  pro- 
moters and  managers,  when  failure 
comes,  to  appropriate  the  remains  of 
the  wreck  by  declaring  themselves 
favored  creditors.  Besides,  in  consist- 
ency with  that  equality  which  equity 
loves,  such  favors  involve  too  many 
possibilities  of  dishonesty  and  success- 
ful fraud  to  be  tolerated  in  an  enlight- 
eiieil  system  of  jurisprudence.'  The 
flame  thought  was  in  the  mind  of  Mr. 
Justice  MII.I.KK,  in  Sawyer  r.  Hoag, 
H  Wall.  620.  when  he  obscr\c.l 
'  When  we  consider  the  rapid  develop- 


ment of  corporations  as  instrumentali- 
ties of  the  commercial  and  business 
world,  in  the  last  tew  years,  with  the 
corresponding  necessity  of  adapting 
legal  principles  to  the  new  and  vary 
ing  exigencies  of  this  business,  it  is  n<> 
solid  objection  to  such  a  principle  that 
it  is  modern,  for  the  occasion  for  it 
could  not  sooner  have  arisen.'  It  was 
insisted  on  behalf  of  the  hanks  that, 
although  the  deed  of  trust  might  be 
voidable  as  against  the  directors,  yet 
the  banks  were  to  be  regarded  as  borni 
fide  purchasers.  To  this  it  was  said: 
'  Hut  are  the  banks  such  purchasers? 
In  the  first  place,  they  parted  with 
nothing  on  the  faith  of  the  deed. 
They  loaned  the  money,  as  their  evi- 
dence shows,  on  the  indorsement  of 
the  directors.  They  never  asked  for 
this  deed.  They  did  not  know  of  its 
existence  until  after  it  was  executed 
and  recorded.  They  may  IMJ  accorded 
the  presumption  of  the  law  in  their 
favor  that  where  such  a  deed  is  for 
their  benefit,  they  are  presumed  to  ac- 
cept its  provisions.  But  it  is  apparent 
on  the  face  of  the  deed,  and  from  the 
facts  known  to  the  banks,  that  the 
deed  inured  to  the  benefit  of  the  di- 
rectors as  indorsers  of  the  notes  held 
by  the  banks.  The  hanks  could  not, 
therefore,  take  without  being  privy  to 
the  wrong  attempted  by  the  directors. 
It  the  law  were  otherwise,  the  rule 
could  be  of  no  avail  which  seeks  t» 
prevent  Mich  .tire,  tors  'from  prefer 
rinir  debts  in  the  payment  of  which 
they  have  a  personal  interest,' as  de- 
clared in  Adams  r.  Milling  Co.,  85 
Fed.  Hep.  435."" 


256  FRAUDULENT  ACTS  OF  OFFICERS.  [§  180 

became  the  directors  of  the  new  corporation,  and  they  arranged 
a  plan  by  which  the  construction  of  the  road  was  to  be  done  by 
a  syndicate  composed  of  themselves,  and  when  completed  a  con- 
tract of  lease  of  this  connecting  road,  which  had  $1,000,000  of 
bonds  issued  upon  it  and  $500,000  of  shares  of  stock,  the  lessee 
company  guaranteeing  interest  of  seven  per  cent  upon  the  bonds 
and  dividends  of  seven  per  cent  upon  the  shares  of  stock,  as  a 
rental  for  the  road.  The  main  corporation,  the  lessee,  going 
through  insolvency,  the  hands  of  a  receiver,  and  finally  into  a 
new  corporation,  it  having  been  sold  to  a  purchasing  committee, 
and  reorganized,  continued  to  use  the  property  leased.  At  the 
suggestion  of  the  receiver  the  shares  of  the  stock  of  the  lessor  com- 
pany were  purchased  by  the  successors  of  the  lessee  company  to 
such  an  amount  as  would  give  them  control  of  the  company,  as  a 
means  of  reducing  the  rental  of  this  desirable  and  indispensable 
connection.  The  successors  then  suspended  the  payment  of  the 
guaranteed  dividend  upon  the  shares.  This  resulted  in  the  bring- 
ing of  this  action  by  the  few  individual  holders  of  the  stock 
against  the  company  then  using  the  property  under  the  lease  to 
enforce  a  specific  performance  of  the  contract  of  guarantee  of 
dividends.  The  one  question  as  to  the  liability  of  the  successor 
of  the  lessee  company  remaining,  in  the  opinion  of  the  court,  was 
whether  the  taint  of  original  fraud  in  the  procurement  of  the 
lease  operated  to  prevent  the  enforcement  of  the  obligations  of 
that  instrument.  In  discussing  the  question,  GRAY,  J.,  deliver- 
ing the  opinion,  said  :  "  That  the  contract  of  lease  was  voidable 
and  quite  indefensible  because  of  the  immoral  conduct  of  the 
directors,  who  abused  their  trust  in  procuring  its  execution,  I 
quite  concede.  The  proofs  could  lead  to  no  other  finding  than 
that  the  lease  and  the  rental  guarantee  were  the  work  of  a  com- 
bination or  syndicate  composed  of  members  from  the  boards  of 
directors  of  the  two  companies,  who  caused  the  same  to  be  made 
by  the  [lessee  company]  for  purposes  of  their  own  individual  gain 
and  in  fraud  of  that  company's  rights.  The  identity  of  certain 
of  the  directors  of  each  company  when  the  lease  was  made,  the 
interest  of  four  of  these  common  directors  in  the  contract  for  the 
construction  of  the  [lessor  company's]  road,  and  in  the  stock  and 
bonds  to  be  guaranteed,  as  a  condition  of  the  leasing  of  the 
road,  stamped  the  whole  transaction  as  a  fraud  upon  the  [lessee 
company],  and  brought  it  under  the  condemnation  of  the  rule 


§187]  FRAUDULENT  ACTS  OF  OFFICERS.  -     ~ 

wl i id i  forbids  those  who  fill  fiduciary  pfi-iti.ms  from  making  u-«- 
of  tlii'in  to  benefit  their  personal  interests."  '  Hut  while  holding 
this  contract  of  lease  by  the  lessee  railroad  corporation  and  a 
guaranty  of  interest  on  bonds  and  dividends  upon  stock  to  be 
tainted  with  fraud  by  reason  of  the  original  transaction  and 
voidable  at  the  option  of  the  lessee  corporation,  the  Court  of 
Appeals  held  that  by  acquiescence  and  use  of  the  property  for  so 
long  a  time  the  complainant,  successor  to  the  original  lessee,  had 
so  far  ratified  the  contract  that  it  could  not  ask  of  a  court  of 
equity  to  rescind  it.2 

§  187.  Directors  issuing  shares  of  stock  to  themselves.— 
A  Kansas  corporation,  an  agricultural  society,  had  been  organized 
with  a  capital  stock  of  $5,000,  divided  into  1,000  shares  of  $5 
each,  and  590  shares  of  said  stock  were  subscribed,  but  no  notice 
was  ever  given  and  published  where  books  of  subscription  would 
be  open.  The  corporation  continued  in  existence  seven  years, 
and  became  possessed  of  valuable  real  estate,  and  afterwards  sold 
the  same.  After  this  sale,  the  officers  and  directors  of  the  cor- 
poration, without  the  knowledge  or  consent  of  the  other  stock- 
holders, issued  to  themselves  the  remaining  stock  at  par  value, 
and  then  declared  a  dividend  upon  the  entire  stock  issued  of  $25 
per  share.  In  an  action  by  a  stockholder  to  enjoin  these  officers 
and  directors  from  paying  out  such  dividend  and  to  cancel  the 
stock  issued  to  themselves,  the  Kansas  Supreme  Court  held  that 
the  action  of  the  officers  and  directors  was  without  authority  and 
in  fraud  of  the  rights  of  the  other  stockholders  and  a  plain  breach 
of  duty  upon  the  part  of  such  officers.3 

1  Barr  r.  New  York,  L.  E.  &  W.  R.  that  the  corporation  has  no  power  to 

R.  Co.,  (1891)  125  N.  Y.  263,  274;  s.  C.,  prescribe  the  character  or  qualification 

26  N.  E.  Rep.  145.  of  its  stockholders;  that  the  policy  of 

*  Ibid.  the  law.  as  declared  by  express  terms 

*  Arkansas  Valley  Agricultural  So-  of  the  statute,  is  to  make  corporations 
ciety  t.  Eichholtz,  (1801)  45  Kans.  164.  open  to  all   persons  alike  to  become 
The  directors  claimed  before  the  court  members  and  stockholders,  etc.     The 
that  the  taking  of  stock  in  a  corpora-  Supreme  Court  said:  "This  rule,  as 
tion    stood  upon  a  different  footing  applied  to  the  directors  or  officers  of  a 
than   ordinary  contracts  of   corpora-  corporation,  cannot  be  upheld.     The 
tions  in  prosecuting  the  business  en-  principle    of    public     policy    forbids 
terprises  for  which  they  are  organi/.rd:  transactions  of  this  kind.     It  appears 
that  any  person  has  a  right  to  sub-  from  the  evidence  that   the  property 
scribe  for  stock  in  any  corporation,  so  owned  by  this  corporation  had  been 
long  as  there  are  shares  to  be  taken;  sold,  and  the  proceeds  [of  the  sale] 

33 


258  FRAUDULENT  ACTS  OF  OFFICERS.  [§  188 

§  188.  Officers  profiting  by  their  relation  to  the  corpora- 
tion.—  The  directors  of  a  corporation  cannot  speculate  with  the 
funds  or  credit  of  the  corporation  and  appropriate  to  themselves 
the  profits  of  the  speculation ;  neither  can  they  make  sales,  as 
purchasers  for  the  corporation,  and  take  advantage  of  their  posi- 
tion as  directors,  and  either  directly  or  indirectly  speculate  upon 
the  corporation.1  Holding  the  fiduciary  relation  they  do  to  the 
stockholders  of  the  corporation,  its  directors  and  managers  cannot 
be  permitted  to  acquire  interests  adverse  to  such  relation.2  Thus, 
a  director  contracting  with  certain  parties  for  the  construction  of 
a  railroad  for  the  corporation  he  represents,  cannot  receive  or 

held  by  its  officers.  The  assets  at  the  not  permit  directors  to  manage  the 
time  of  the  sale  belonged  to  the  then  affairs  of  a  corporation  for  their  per- 
stockholders,  and  the  directors  and  sonal  and  private  advantage,  and  this 
officers  had  no  right  to  subscribe  for  rule,  we  think,  applies  to  the  disposi- 
the  remaining  stock  at  par,  and  enrich  tion  of  unsubscribed  stock,  as  well  as 
themselves  to  the  detriment  and  loss  to  other  contracts.  The  character  and 
of  the  other  shareholders.  The  direct-  relation  of  directors  and  officers  of 
ore  cannot  lawfully  benefit  or  favor  a  corporation  require  of  them  tho 
any  particular  shareholder  or  class  highest  and  most  scrupulous  good 
of  shareholders.  Every  authority  faith  in  their  transactions  for  the  cor- 
possessed  by  them  is  a  power  and  poration  and  the  stockholders."  Hair- 
discretion  in  the  directors,  who  are  T.  Bridge  Co. ,  8  Kans.  466,  and  author- 
trustees  for  the  benefit  of  all  the  ities  there  cited;  Ryan  r.  L.  A.  &  N. 
shareholders  alike,  which  is  to  be  W.  Ry.  Co.,  21  Kans.  365;  Hentig  9. 
exercised  for  the  benefit  of  all  of  them.  Sweet,  33  Kans.  244.  As  to  what 
1  Waterman  on  Corp.  620;  Harris  «?.  directors  may  do,  see  Holder  «.  La 
N.  D.  Rid.  Co.,  20  Beav.  384.  The  FayetteR.  R.  Co.,  71  111.  106;  Rollins 
effort  on  the  part  of  the  directors  and  v.  Clay,  33  Me.  132;  Abbott  v.  Ameri- 
officers  of  a  society  to  obtain  the  un-  can  Hard  Rubber  Co.,  33  Barb.  578; 
subscribed  stock  at  par,  when  they  Bedford  R.  Co.  v.  Bowser,  48  Pa.  St. 
knew  that  each  share  of  the  stock  29;  Taylor  v.  Miami  Export  Co.,  5 
already  issued  was  worth  eighteen  Ohio,  162;  19  Cent.  Law  J.  305-310; 
times  its  face  value,  was  clearly  a  18  Cent.  Law  J.  130;  Union  Mut. 
fraud  upon  the  rights  of  the  other  Life  Ins.  Co.  v.  Frear  Stone  Mfg.  Co., 
stockholders,  and  a  flagrant  violation  97  111.  537;  Burke  v.  Smith,  16  Wall, 
of  their  duties  as  directors  and  officers  390;  Penobscot  R.  Co.  v.  Dunn,  39  Me. 
of  such  association.  The  officers  and  587. 

directors  of  a  corporation  are  trustees  '  Redmond  v.  Dickerson,  (1853)  9  N. 
of  the  stockholders,  and  in  securing  J.  Eq.  507.  As  to  president  and  di- 
to  themselves  an  advantage  not  com-  rectors  not  being  allowed  to  speculate 
mon  to  all  the  stockholders,  they  com-  in  claims  against  the  corporation,  sec 
mit  a  plain  breach  of  duty.  Koehler  McDonald  T.  Haughton,  (1874)  70  N.  C. 
r.  Iron  Co.,  2  Black,  715;  Shorb  *.  393. 

Beaudry,  56  Cal.  446;  1  Morawetz  *  European  &  North  American  Ry. 
Private  Corp.  §  518.  The  law  does  Co.  r.  Poor,  59  Me.  277. 


§  188]  FRAUDL'I.KNT  ACTS  OF  OFFICERS.  259 

ru(;iin  :un  j>;irt  of  the  profit.-  ;iri>in^  f nun  tin-  contract  for  his 
••mil  ii.-i-  and  liciiufit.1  Where  directors  of  a  ferry  company, 
in  their  individual  names  bought  a  steamboat,  and  then,  as  dim-t- 
ors pun-liu.-ed  it  of  themselves  for  the  corporation  at  a  large 
advance  on  its  cost  and  value,  the  transaction  was  held  to  be  a 
fraudulent  one ;  it  was  held,  also,  that  the  profits  made  by  the 
directors  inured  to  the  benefit  of  the  corporation,  and  that  the  latter 
could  recover  the  profits  from  them,  with  interest.2  The  rule  gen- 
erally is  that  one  acting  in  a  representative  or  fiduciary  capacity  is 
not  allowed  so  to  deal  with  the  subject-matter  of  his  agency  or  trust 
as  to  benefit  himself  privately,  and  an  agent  or  trustee  who  thus 
makes  a  profit  out  of  his  agency  or  trusteeship  must  account  for  the 
same  to  his  principal  or  cestui  que  trust  y  and  it  may  be  conceded 
that  the  rule  applies,  as  a  principle  of  public  policy,  without  regard 
to  the  actual  fairness  of  the  transaction,  or  the  merits  of  the.services 
rendered,  or  the  price  paid,  in  case  of  a  sale  or  purchase.8  Where 
it  was  represented  by  promoters  of  a  mining  corporation,  who 
afterwards  became  its  trustees,  that  it  would  take  the  proceeds  of 
the  whole  of  its  capital  stock  to  purchase  certain  mining  proper- 
ties, and  the  trustee,  to  whom  the  whole  stock  was  turned  over 
for  the  purpose,  actually  purchased  it  with  the  payments  made 
for  certain  shares  of  stock,  less  than  half  the  issue,  and  appropri- 
ated the  rest  of  the  shares  of  stock  to  himself  and  others,  without 
actually  paying  any  money,  and  concealed  the  facts  from  the 
stockholders  who  had  paid  for  their  shares,  it  was  held  that 

1  Ibid.  for  the  company,  was  not  precluded 

*  Parker    r.    Nickerson,    (1878)    112  from   making  such  contracts  in  his 

Mass.  105.  own  name,  but,  having  done  so,  he 

8  Bristol  r.  Scranton,  (1893)  57  Fed.  using  all  the  facilities  afforded  by  the 

Rep.  70,  78;   citing  Bugden  v.  Cross-  company  in  performing  them,  would 

land,  3  Smalt*  &  G.  192;  McKay's  Case,  not  be  allowed  to  make  profit  out  of 

2    Ch.    Div.    5;     Pearson's    Case,    3  such  use,  but  would  be  held  to  account 

Ch.    Div.    807;    Parker   r.  McKenna,  to  the  company  for  all  that  he  received 

L.   R,   10  Ch.  App.  96;    Iron  Works  for  the  services  performed  by  it.     For 

Go.  v.   Grave,  12  Ch.  Div.  738,  746;  an  illustration  of  what  will  not  be  held 

Railway  Co.  r.  Blukic,  1  Macq.  461;  a  fraudulent    sale    to  a  corporation, 

Wardell  v.   Railroad   Co.,   103  U.   8.  where  parties  purchasing  property  at 

651,  658.     In  Keokuk  Northern  Line  a  low  figure  before  the  organization 

Packet  Co.  e.  Davidson,  95  Mo.  467;  of  a  corporation  sold  it  at  a  much 

a.  c.,  8  8.  W.  Rep.  545,  it  was  held  larger  figure  to  the  corporation,  but 

tlml  the  president  of  the  packet  com-  there  was  some  evidence  of  fraud  or 

puny,  after  having  endeavored  to  ob-  deception,  see  Stewart  t.  St.  Louis, Fort 

tain  contracts  for  carrying  the  mails  Scott   &  W.  R,  Co.,  41  Fed.  Rep.  T8&, 


260 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§188 


this  defendant  occupied  a  fiduciary  relation  to  the  corporation 
and  the  subscribers,  and  could  not,  nor  could  his  associates,  who 
were  also  familiar  with  the  facts,  make,  through  concealment  from 
the  subscribers,  any  profit  from  the  transaction,  and  they  should 
be  held  accountable  for  the  stock  which  they  had  retained,  or  its 
proceeds.1  The  law  will  not  permit,  for  instance,  one  in  whose 
person  are  vested  the  offices  of  vice-president  and  treasurer  of  a 
corporation  with  the  management  and  control  of  the  corporation 


1  Brewster  v.  Hatch,  (Sp.  Term  Sup. 
Ct.  1881)  10  Abb.  N.  C.  400;  citing 
Blake  «.  Buffalo  Creek  R.  R.  Co.,  56 
N.  Y.  485;  Cumberland  Coal  &  Iron 
Co.  «.  Sherman,  30  Barb.  553;  Bag- 
nail  v.  Carlton,  L.  R,  6  Ch.  Div.  371; 
Erlanger  v.  New  Sombrero  Phosphate 
Co.,  L.  R.,  3  App.  Cas.  1218;  Simons 
«.  Vulcan.  Oil  &  Mining  Co.,  61  Pa. 
St.  202.  In  East  New  York  & 
Jamaica  R.  R.  Co.  v.  Elmore,  (1875)  5 
Hun,  214,  it  appeared  that  the  corpo- 
ration had  subscribers  for  seventy-two 
shares  of  its  stock,  who  had  agreed  to 
pay  par  value  for  it.  All  the  shares 
within  its  power  to  issue  having  been 
already  issued,  the  treasurer  and  presi- 
dent purchased  the  number  of  shares 
at  a  price  far  below  par,  and  trans- 
ferred them  to  those  subscribers  on  the 
corporation's  books,  charging  the  cor- 
poration par  value  for  them.  In  an 
action  against  the  treasurer  to  recover 
the  profits  he  made  in  the  transaction, 
it  was  held  that  the  treasurer  could 
not,  by  charging  over  the  stock  at  its 
par  value,  make  the  corporation  his 
debtor,  and  thus  extinguish  his  lia- 
bility for  moneys  received  by  him  or 
its  treasurer.  For  an  illustration  of 
when  a  purchase  by  one  trustee,  and, 
at  the  same  time  treasurer,  of  a  corpo- 
ration in  his  own  behalf  will  inure  to 
the  benefit  of  the  corporation,  see 
Einsphar  et  al.,  Trustees  First  Ger- 
man Lutheran  Zion  Church  of  Adams 
Co.  v.  Wagner,  (1882)  12  Neb.  458.  As 
to  when  and  the  circumstances  under 
which  a  mortgage  of  the  personal 


property  of  a  corporation  executed  to 
its  president,  who  was  also  a  director, 
by  his  vote  and  that  of  another  of  the 
three  directors,  will  be  held  fraudulent, 
see  Burley  «.  Marsh.  (1881)  11  Neb.  291. 
As  to  officers  and  stockholders  con- 
tracting with  corporation,  see  Charter 
Gas-Engine  Co.  ®.  Charter,  47  111. 
App.  36;  Central  Trust  Co.  v.  Bridges, 
57  Fed.  Rep.  753;  s.  c.,  6  C.  C.  A.  539; 
Barr  v.  Pittsburgh  Plate  Glass  Co. ,  57 
Fed.  Rep.  86;  8.  c.,  6  C.  C.  A.  260; 
Foster  v.  Belcher's  Sugar  Refining  Co., 
118  Mo.  238;  s.  c.,  24  S.  W.  Rep.  63; 
Wile  &  Brickner  Co.  V.  Rochester  & 
K.  F.  Land  Co.,  4  Misc.  Rep.  570;  s.  » 
c.,  25  N.  Y.  Supp.  794;  Milbank  r. 
Welch,  74  Hun,  497;  s.  c.,  26  N.  Y. 
Supp.  705.  As  to  directors  dealing 
with  themselves  or  acting  in  matters 
where  they  are  interested,  see  Coleman 
v.  Second  Avenue  R.  R.  Co.,  38  N.  Y. 
201;  Blatchford  r.  Ross,  5  Abb.  Pr. 
(N.  S.)434;  s.  c.,  37  How.  Pr.  110;  54 
Barb.  42;  Ogden  v.  Murray,  39  N.  Y. 
202;  Bliss  v.  Matteson,  45  N.  Y.  22. 
As  to  various  rules  governing  con- 
tracts in  which  directors  have  an  inter- 
est, see  Duncomb  v.  New  York,  Housa- 
tonic  &  Northern  R.  R.  Co.,  84  N.  Y. 
190;  Western  R.  R.  Co.  v.  Bayne,  11 
Hun,  166;  Barnes  v.  Brown,  80  N.  Y. 
527.  As  to  a  contract  with  a  corpora- 
tion entered  into  at  a  special  meeting 
of  directors  being  void  because  of 
absent  directors  not  having  notice,  see 
Hill  v.  Rich  Hill  Coal  Min.  Co.,  (Mo. 
1894)  24  S.  W.  Rep.  223;  Minneapolis 
Times  Co.  t>.  Nimocks,  53  Minn.  381. 


188] 


FRAUDULENT  ACTS  OF  OFFICERS. 


261 


also  allowed  liiin,  to  so  manage  the  affairs  of  the  corporation  as 
suit  to  his  own  pecuniary  advantage.  And  iu  case  such  an 
otliccr  speculate  in  the  funds  of  the  corporation,  or  buy  claims 
against  it  at  a  discount,  he  will  be  required  to  account  to  the 
civilitors  or  stockholders  of  the  corporation  for  any  profit  that 
results  from  Midi  transactions.1  The  contract  made  by  a  director 
of  a  corporation  to  secure  a  personal  advantage  to  himself  will  be 


1  Thomas  v.  Sweet,  (1887)  87  Kans. 
183;  8.  C.,  14  Pac.  Hep.  54-5.  For  a 
Strong  opinion  on  the  subject  of  the 
duties  of  officers  to  the  corporation,  see 
Ryan  c.  L.,  A.  &  N.  W.  Ry.  Co.,  21 
Kans.  365.  In  Powell  t>.  Willamette 
Valley  R.  R.  Co.,  (1887)  15  Or.  393; 
B.  c.,  15  Pac.  Rep.  663,  where  the  at- 
torney, who  was  also  a  director  in  an 
insolvent  corponition,  hud  been  em- 
ployed by  third  parties  to  buy  up  the 
claims  of  creditors  of  the  corporation 
with  a  view  to  its  reorganization,  it 
was  held  that  his  relation  to  the  com- 
pany required  of  him  the  utmost  good 
•faith  towards  the  creditors  of  the 
company  in  his  dealings  with  them  in 
the  mutter,  but  where  they  had  re- 
ceived all  that  their  claims  were  worth, 
the  fact  that  he  had  not  informed 
them  of  the  contemplated  reorganiza- 
tion would  not  constitute  a  fraud  upon 
the  creditors  upon  this  attorney  and 
director's  part.  In  Smith  t>.  Los 
Angeles  Immigration  &  Land  Co- 
operative Assn.,  (1889)  78  Cal.  289;  s. 
c.,  20  Pac.  Kep.  677,  a  resolution  of  a 
quorum  of  four  directors,  authorizing 
renewal  of  notes  of  the  corporation  in 
favor  of  two  of  the  four  directors,  was 
held  to  be  void  and  of  no  effect.  In 
Rudil  c.  Robinson,  (1889)  54  Hun,  339; 
8.  c.,  7  N.  Y.  Supp.  535,  the  corpora- 
tion had  been  formed  under  the  laws 
of  New  York,  and  succeeded  to  the 
business  of  a  linn.  One  holding  a 
claim  against  this  firm  was  a  trustee 
of  the  corj>oration,  and  with  two  others 
of  the  board  ronstituted  a  majority. 
These  two,  it  was  shown,  represented 


the  first  named,  or  acted  in  concert  with 
him  in  any  matters  in  which  he  was 
interested.  He  had  from  time  to  time 
aided  with  money  the  corporation 
upon  call.  Finally  he  had  had  action 
taken  by  the  board  of  trustees,  by 
which  he  had  himself  paid  a  debt  out 
of  the  corporation's  funds  which  he 
held  against  the  firm  which  it  suc- 
ceeded. The  Supreme  Court  of  New 
York  held  that  he  should  account  to 
the  receiver  of  the  corporation  for  this 
money  received  for  this  debt  of  the 
firm,  together  with  interest  upon  it, 
and  also  for  all  excess  of  interest  over 
and  above  legal  interest  which, through 
the  action  of  himself  and  other  trus- 
tees, he  had  received  upon  moneys  ad- 
vanced to  the  corporation,  as  also  the 
profits  he  had  received  in  certain  trans- 
actions and  "ventures "in  which  he 
had  advanced  the  money  and  arranged 
for  a  division  of  the  profits  between 
himself  and  the  corporation,  upon  the 
ground  that  he  had  no  right  to  sham, 
in  the  profits  of  the  business  which  be- 
longed exclusively  to  the  corporation 
itself.  An  illustration  of  when  the 
profits  of  a  director  must  inure  to  the 
benefit  of  the  corporation:  Paducah 
Land,  Coal  &  Iron  Co.  v.  Hays,  (Ky. 
1893)  24  8.  W.  Rep.  287.  As  to  the 
effect  of  laches  of  a  stockholder  in 
complaining  of  a  profit  made  by  a  di- 
rector in  connection  with  a  sale  of  the 
stock  of  a  corporation,  and  an  illustra- 
tion of  what  a  director  might  do  for 
which  he  would  not  be  held  account- 
able, see  Keeney  v.  Converse,  (1894)99 
Mirh.  316;  s.  c.,  58  N.  W.  Rep.  835. 


262 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§188 


held  to  be  void  or  to  inure  to  the  advantage  of  the  corporation.1 
An  agreement  made  by  a  majority  of  the  directors  of  a  corpora- 
tion among  themselves,  privately  and  unofficially,  that  they  should 
be  paid  a  percentage  upon  all  the  money  raised  upon  the  credit 
of  a  bond  of  indemnity,  signed  by  them,  against  the  future 
indebtedness  of  the  corporation,  has  been  held  not  to  be  binding 
upon  the  corporation.2  Directors  or  other  officers  of  a  corpora- 
tion contracting  with  another  for  work  and  material,  paying  an 
excessive  price  for  the  same,  and  reserving  to  themselves  a  dis- 
count or  commission,  will  be  held  to  an  accountability  to  the  cor- 
poration for  what  they  have  profited.8  Where  directors  own  all 


1  Sargent  v.  Kansas  Midland  R.  R. 
Co.,  (1891)  48  Kans.  672;  s.  c.,  29  Pac. 
Rep.  1063. 

2  Butler  v.  Cornwall  Iron  Co  ,  (1853) 
22  Conn.  335. 

3  Perry  v.  Tuskaloosa  Cotton  Seed 
Oil  Mill  Co.,  (1890)  93  Ala.  364;  s.  c., 
9  So.  Rep.    217.     In  Farmers  &  Mer- 
chants'   Bank    of    Los    Angeles    v. 
Downey,  (1879)  53  Cal.  466,  where  a 
director  of  the  bank  who  had  taken 
from  the  borrowers  a  note  running  to 
the  bank  for  the  principal  sum  loaned, 
at  a  rate  of  interest  therein  stipulated, 
but  at  the  same  time,  and  as  part  of 
the  same  transaction,  made  an  agree- 
ment with  the  borrowers  that  they 
should  permit  him  to  participate  with 
them  in  the  profits  of  a  purchase  and 
sale  of  certain  lands,  it  was  held  that 
he  could   not  be  permitted  to  retain 
for  himself  the  profits  thus  contracted 
for,  but  must  surrender  those  profits  to 
the  bank  for  the  benefit  of  all  the  stock- 
holders.    As  to  a  city  treasurer  making 
profit  on  public  funds,  see  City  of  Chi- 
cago v.  Gage,  95  111.  593.    As  to  officers 
accounting  to  the  corporation  or  stock- 
holders or  creditors  of  the  corporation 
for  profits  growing  out  of  transactions 
in  behalf  of  the  corporation  in  which 
they  are  interested,  see  Ward  «.  David- 
son, (1890)  89  Mo.  445;  s.  c.,  1  S.  W. 
Rep.  846.     In  Hutchinson  v.  Bidwell, 
(1893)  24  Or.  219;  s.  c.,  33  Pac.  Rep. 
560,  it  appeared  that  the  directors  of 


an  insolvent  milling  company  leased 
the  corporate  property  to  themselves 
and  operated  the  plant  at  a  profit. 
The  Supreme  Court  held  that  the 
directors  were  liable  to  account  to  the 
creditors  of  the  corporation  for  the 
profits  under  the  lease.  In  McClure 
t>.  Levy,  (1894)  79  Hun,  235;  8.  c.,  29 
N.  Y.  Supp.  352,  it  appeared  that  one 
who  had  secured  his  election  as  presi- 
dent of  a  life  insurance  association 
and  secured  a  board  of  directors  sub- 
servient to  his  will,  had  gained 
possession  of  certain  notes  of  the 
association  which  he  had  full  knowl- 
edge could  not  be  paid  out  of  the  re- 
serve fund  of  the  association.  He  had 
this  board  order  the  payment  of  the 
notes  by  drawing  all  the  funds  the 
association  had  in  bank  properly  be- 
longing to  the  reserve  fund  in  his 
favor.  The  Supreme  Court  of  New 
York  in  General  Term  held  that  the 
receiver  of  the  association  was  enti- 
tled to  recover  from  him  the 
money  thus  wrongfully  misappro- 
priated through  his  and  other  willing 
directors'  action.  That  a  president 
and  vice-president  of  a  railroad  com- 
pany who  had  arranged  to  use  certain 
bonds  of  the  company  secured  by 
mortgages  for  their  own  private  use 
instead  of  improving  the  railroad 
property,  has  been  held  to  be  such  a 
fraud  on  the  mortgage  trustee  and 
the  bondholders  as  would  enable  a 


KKArWI.F.NT  ACTS  OF  OFF!' 


the  .-tuck  i.f  u  corporation  they  are  not  within  the  rule  prohibit- 
ing persons  in  a  fiduciary  relation  from  contracting  for  their  own 
advantage  in  the  name  of  their  <-cstui  que  trust} 


court  of  equity,  at  the  suit  of  one  of 
the  bondholders,  to  compel  them  to 
appropriate  tin-  proceeds  of  the  bonds 
thus  unlaw  fully  diverted  to  the  pur- 
pose specified  in  the  mortgage.  Bel- 
den  0.  Burke,  72  Hun,  51;  8.  c.,  25  N. 
Y.  Supp.  601.  It  was  held  in  IV 
ducah  I  ..and,  Coal  &  Iron  Co.  o.  Mul- 
hollaud,  (Ky.  1894)  24  8.  W.  Rep.  624, 
that  stock  which  was  returned  to 
directors  purchasing  land  for  the  cor- 
poration to  be  used  for  their  own  per- 
sonal benefit,  should  be  surrendered 
for  cancellation  unless  in  the  hands  of 
bona fide  purchasers  for  value.  Fora 
case  holding  that  the  acts  of  the  presi- 
dent and  trustees  of  a  corporation  in  a 
reorganization,  of  the  same,  were  not 
fraudulent,  although  a  large  personal 
profit  accrued  therefrom  to  the  presi- 
dent who  was  the  principal  promoter 
of  the  reorganization,  see  Symmes 
r.  Union  Trust  Co.,  60  Fed.  Rep.  830. 
•McCracken  e.  Robison,  57  Fed. 
Rep.  375;  s.  c.,  6  C.  C.  A.  400.  That 
directors  in  u  private  corporation  have 
no  right,  under  any  circumstances,  to 
use  their  official  position  for  their  own 
individual  benefit,  sec  Hoffman  r. 
Keit-hert,  (1888)  147  111.  274;  Oilman, 
Clinton  &  Springfield  R.  R.  Co.  r>. 
Kelly,  77  111.  426,  434;  Hoyle  r.  Platts- 
burg  &  Montreal  R.  R.  Co.,  54  N.  Y. 
814;  Oliver  r.  Piatt,  3  How.  888; 
Speidel  v.  Henrici,  120  U.  8.  877,  386; 
Railroad  Co.  r.  Durant,  95  U.  S.  :>7r,; 
Van  Epps  r.  Van  Epps.  9  Paige,  2H. 
Contracts  of  corporations  made  with 
officers.  President,  etc.,  r.  Ry.  Co.,  44 
Cal.  106;  Pickett  r.  School  District, 
•-.'.I  Wis.  552;  Cumberland  Coal  Co.  r. 
Sherman,  30  Barb.  558;  Port  r.  Un- 
sell,  36  Ind.  64;  Railway  Co.  r.  Poor, 
•v.i  Mr.  277;  Gardner  r.  Butler.  :: 
Eq.  702;  Davis  r.  Mining  ('•>..  .")  Cnl. 
859;  Copelaud  r.  Manufacturing  Co., 


47  Hun,  235;  Thomas  r.  Railway  Co., 
1  M.Crary,  892.  That  they  are  not 
absolutely  void:  Bundy  r.  Jackson,  24 
Fed.  Rep.  628;  Bank  -  Patterson,  7 
Cranch,  299;  Canal  Brid-rr  ".  Gordon,  1 
Pick.  296;  Harts  r.  Brown,  77  111.  226. 
What  may  make  them  valid:  1  Beach 
on  Priv.  Corp.  402;  Battelle  t>.  North- 
11  (Vimnt  Co.,  37  Minn.  89; 
Pneumatic  Gas  Co.  r.  Berry,  113  U.  8. 
322;  Knowles  r.  Duffy,  40  Hun,  485; 
Santa  Cruz  Co.  P.  Spreckles,  65  CaL 
198:  Hill  r.  Nisbet,  100  Ind.  341; 
Richardson  9.  Green,  133  U.  8.  80; 
Union  Mut.  Life  Ins.  Co.  r.  White, 
106  111.  68;  Smith  r.  Smith,  62  III. 
493;  Addison  r.  Lewis,  75  Va.  701; 
Stratton  v.  Allen,  16  N.  J.  Eq.  229. 
As  to  the  effect  of  directors  or  other 
officers  of  corporation  being  interested 
in  contracts,  see  County  Court  r.  Balti- 
more &  Ohio  R.  R.  Co.,  35  Fed.  Rep. 
161;  Holt  >:  Bennett,  146  Mass.  436; 
s.  c.,  16  N.  E.  Rep.  5;  Hancock  r.  Hoi- 
brook,  40  La.  Ann.  53;  s.  c.,  3  So.  Rep. 
351;  Wasatch  Min.  Co.  r.  Jennings, 
5  Utah,  385;  s.  c. ,  16  Pac.  Rep.  399.  As 
to  a  director  dealing  with  the  corpora- 
tion for  his  own  profit,  see  Schetter  r. 
Southern  Oregon  Improvement  Co., 
(1889)19  Or.  192;  8.  c..  24  Pac.  Rep. 
25.  As  to  a  president  and  trustee 
joining  in  voting  hinisclf  compensa- 
tion for  services,  see  Copeland  ».  John- 
son Manufacturing  Co.,  (1890)47  Hun, 
235.  Transactions  by  officers  with 
corporations:  Raymond  r.  San  Gabriel 
Val.  Uml  &  Water  Co.,  M  Fed.  Rep. 
888;  Langan  r.  Kmiu-klyn,  29  Abb. 
X.  C.  1112;  s.  <..  •-'"  N  V  Supp.  404; 
Minn  9.  I1H1.-  Mi-  Ice  Co..  98  Mich. 
97;  H.  <  ..  :.:;  N  \V  R,.p.  -.MS;  Beers  r. 
New  York  Life  Ins.  Co.,  flfl  Hun.  75; 
H.  c.,  20  X.  Y.  Supp.  TSH:  Main  .T.-lliro 
Mountain  Coal  Co.  r.  Lotspeich.  (Ky. 
1894)  20  8.  W.  Rep.  377;  Prince 


264  FRAUDULENT  ACTS  OF  OFFICERS.  [§  189 

§  189.  Repudiating  or  avoiding  contracts  made  by  officers 
with  themselves. —  A  contract  made  by  a  director  of  a  corpora- 
tion with  himself  may  be  repudiated  by  the  corporation  at  the 
instance  of  the  stockholders.1  If  the  directors  of  a  corporation 
exceed  their  authority  or  are  recreant  to  their  trust,  the  corpora- 
tion may  repudiate  their  fraudulent  contracts.2  Contracts  made 
by  the  directors  of  a  corporation  with  one  of  their  number  are 
voidable  at  the  election  of  the  corporation,  without  reference  to 
the  question  whether  or  not  they  are  beneficial  to  the  corpora- 
tion.3 This  doctrine  may  be  applied  where  the  contract  is  made 
by  nominal  directors  who  are  in  fact  the  mere  instruments  of  the 
other  contracting  party,  and  act  under  his  directions  and  as  he 
wishes,  in  pursuance  of  a  scheme  planned  by  him  by  which  they 
were  placed  in  office,  and  a  contract  thus  made  would  be  void- 
able at  the  election  of  the  corporation  without  proof  of  unfair- 
ness or  fraud.4  In  order  to  defeat  a  contract  entered  into  by  its 
directors  or  in  its  behalf,  in  which  one  or  more  of  them  had  a 
private  interest,  a  corporation  is  not  bound  to  show  that  the 
influence  of  the  director  or  directors  having  the  private  interest 
determined  the  board's  action.5 

Manufg.  Co.  v.  Prince's  Metallic  Paint  inquiiy,  in  an  action  by  the  trustee  in 

Co.,  20  N.  Y.  Supp.  462;  Hannerty  T.  his  private  capacity  to    enforce    the 

Theater  Co.,  109  Mo.  297;  Societe  ties  contract  in  the  making  of  which  he 

Mines  D' Argent  et  Fonderies  de  Bing-  participated.     The  value  of  the  rule 

ham  P.  Mackintosh,  7  Utah,  35.  of  equity,  to  which  we  have  adverted, 

1  Gardner  t.  Butler,    30  N.   J.  Eq.  lies  to  a  great  extent  in  its  stubborn- 
702 ;  Guild  v.  Parker,  43  N.  J.  Law,  ness  and    inflexibility.      Its    rigidity 
430.  gives  it  one  of  its  chief  uses  as  a  pre- 

2  Metropolitan  Elevated  Ry.   Co.  r.  ventive  or  discouraging  influence,  be- 
Manhattan     Ry.      Co.,     (Spl.     Term  cause  it  weakens  the   temptation   to 
Sup.    Ct.    1884)   14  Abb.   N.  0.  103,  dishonesty  or  unfair  dealing  on  the 
212.  part  of  trustees,  by  vitiating,  without 

3  Central  Trust  Co.  v.  N.  Y.  City  &  attempt  at  discrimination,  all  trans- 
Northern     R.    R.     Co.,    (Spl.    Term  actions  in  which  they  assume  the  dual 
Sup.  Ct.  1887)  18  Abb.  N.  C.  381.  character  of  principal  and  representa- 

4  Ibid.  tive.     This  rule  has  been  declared  and 
*Munson    r.    Syracuse,    Geneva  &   enforced  in  a  great  variety  of  cases, 

Corning  R.   R.  Co.,  (1886)  103  N.  Y.  but  in  none  perhaps  with  more  vigor 

58  ;  s.  c.,  8  N.  E.  Rep.  355,  affirming  and  completeness,  but  upon  principle 

29  Hun,  76;    s.  c.,  16  N.  Y.  Wkly.  and  authority,  than  in  the  leading  case 

Dig.  212.     ANDREWS,  J.,  said:  "The  of  Davoue  v.  Fanning,  2  Johns.  Ch. 

law   cannot  accurately    measure    the  251,  252.     But  the  case  of  Aberdeen 

influence  of    a  trustee  with   his   as-  Railway      Company     r.     Blakie     & 

sociates,    nor    will  it  enter   into  the  Others,  2  Eq.    1281,   decided  by  the 


'»0]  FRAUDULENT  ACTS  OF  OFFICERS.  265 

.  190.  Rules  as  to  such  contracts.  —  The  relation  as  a 
director  and  otlici-r  to  a  corporation  does  not  preclude  him  frpm 
filtering  into  contracts  with  it,  making  loans  to  it  and  taking  its 
bonds  as  collateral  security;  but  courts  of  equity  regard  such 
jM-r.-onal  transactions  of  a  party  in  either  of  these  positions  not, 
perhaps,  with  distrust,  hut  with  a  large  measure  of  watchful  care, 
and  unless  satisfied  by  the  proof  that  the  transaction  was  entered 
into  in  j^ood  faith,  with  a  view  to  the  benefit  of  the  company,  as 
well  as  of  its  creditors,  and  not  solely  with  a  view  to  his  own 


of    Lords,  is   in  many  of  its  application    to  the    particular   case." 

f  futures  similar  to  the  present  one.  VAN    BRUNT,     J.,     in    Metropolitan 

In  that  case  it  appeared  that  the  plain-  Elevated   Ky.   Co.   r.  Manhattan  R\  . 

tiffs  were  a  manufacturing  firm,  and  Co.,   (Spl.   Term   Sup.   Ct.    1884)    14 

that  one  of  them  was  also  a  manager  Abb.  N.  C.  103,  272,  said  :  "  The  un- 

of  the  Aberdeen    Railway  Company,  doubted  rule  of  law  in  this  state  is, 

the  defendant,  and  the  chairman  of  the  that  every  contract  entered  into  by  a 

board.     At  a  meeting  of  the  managers,  director  with  his  corporation  may  be 

they   by   resolution  authorized    their  avoided  by  the  corporation  within  a 

engineer  to  contract    for  iron  chairs  reasonable  time,   irrespective    of  the 

needed  by  the  company.     The  agent  merits  of  the  contract  itself.    *    *    * 

contracted    with    the    plaintiffs'  firm.  I  can  see  no  difference  in  principle  be- 

lt did  not  appear  that  the  member  of  tween  the  case  of  a  director  contract  - 

the  firm,  who  was  also  a  manager  and  ing  with  his  corporation  and  that  of 

the  chairman  of  the  company,  inter-  directors  of  one  corporation  contract- 

meddled  with   the    dealing  on  either  ing  with   themselves  as  directors  of 

side,    further    than    that    it    may   be  another  corporation.     The  evils  to  be 

assumed  he  was  at  the  meeting  which  avoided  are  the  same,  the  temptations 

authorized  the  engineer  to  procure  a  to  a  breach  of  trust  are  the  same,  the 

supply     of    chairs.      The    plaintiffs  want,  of  independent    action    exists, 

brought  their  suit  to  enforce  specifi-  and  the  divided  allegiance  is  just  as 

cally  the  performance  of  the  contract,  apparent."      As    to    rules  governing 

or  in  the  alternative  to  recover  dam-  where  directors  act  in  their  own  inter- 

ages  for  its  non-performance.     After  a  est.   see  March   r.  Eastern   Railroad, 

decision  in  their  favor  in   the  lower  48  N.   H.   515  ;     Fisher    r.   Concord 

court,  the  company   appealed  to  the  Railroad,  50  N.   II.  200;  Richards  r. 

House  of  I/ords,  where  the  ruling  was  New  Hampshire  Ins.   Co.,  43  N.   H. 

unanimously  reversed  on  the  ground  2»53  ;  Ashuelot  Railroad  r.  Elliott,  57 

that  the  contract  was  condemned  by  N.  H.  397.     As  to  the  acts  of  school 

the  rules  of  equity,  as   having  been  trustees,  so   far    as    they    should    be 

made  between  the  company  of  which  iH'iicficial  to  themselves,  being  void. 

one  of  the  plaintiffs  was  a   nwnaircr  see  Rhodes  r.  McDonald,  2  Cushman. 

and  a  private  firm  of  which  he  was  a  (Miss.)  418.     As  to  contracts  between 

member.     The  opinions  of  Lord  Chan-  a  dim-tor    and  a  corporation,    being 

crellor     CKANWOKTH     and     of   Lord  voidable  only,  seo  Stewart  t>.  Lehigh 

BROUOIIAM    vindicate    upon  impreg-  Valley  R.  R.  Co.,  (1876)  88  N.  J.  Law, 

nable  grounds  the  general  rule  and  its  505. 
34 


266  FRAUDULENT  ACTS  OF  OFFICERS.  [§  190 

benefit,  they  refuse  to  lend  their  aid  to  its  enforcement.1  In  this 
case,  plaintiff's  testator  loaned  to  a  railway  corporation  $100,000 
upon  its  notes,  and  received  from  it  1,250  shares  of  paid-up  stock 
as  a  bonus,  and  200  mortgage  bonds  of  the  corporation,  and  the 
practical  control  of  its  board  of  directors.  After  this,  he 
demanded  of  this  board  100  more  bonds,  as  further  collateral, 
and  they  agreed  to  it.  Subsequently,  this  board  allowed  him  to 
have  300  more  bonds,  as  collateral  security  for  further  advances 
of  money,  but  he  made  no  such  further  advances  of  money 
to  the  corporation.  These  400  bonds  he  obtained  at  a  time 
when  he  was  acting  as,  and  claiming  to  be,  the  treasurer  of 
the  corporation.  After  the  corporation  became  insolvent  he 
claimed  to  hold  these  400  bonds,  individually,  as  collateral  for 
his  debt.  The  Supreme  Court  of  the  United  States  held  that,  as 
between  him  and  the  creditors  of  the  railway  corporation,  he 
could  not,  under  the  circumstances,  hold  them  as  collateral  for 
his  debt.2  Promoters  of  a  corporation,  not  representing  it  in  any 
relation  of  agency,  have  no  authority  to  enter  into  preliminary 
contracts  binding  the  corporation,  when  it  shall  come  into  exist- 

1  Mr.  Justice  LAMAR,  in  Richard-  he  can  be  regarded  as  standing  in  the 
son's  Executor  v.  Green,  (1890)  183  U.  position  of  a  legal  and  equitable 
8.  30;  s.  c.,  10  Sup.  Ct.  Rep.  280.  pledgee,  or  that  he  ever  acquired,  as 

*  Ibid.  Speaking  for  the  court,  Mr.  such  pledgee,  a  lien  on  the  400  bonds. 
Justice  LAMAR  said:  "We  do  not  But  even  if  there  could  be  any  doubt 
deny  that  cases  may  arise  in  which,  if  on  this  point,  Richardson,  himself,  by 
everything  were  admitted  to  be  fairly  his  own  act,  has  removed  it.  He 
done,  with  the  knowledge  and  acqui-  waived  and  abandoned  all  claim  to 
escence  of  the  company,  such  a  per-  any  lien,  as  a  pledgee,  by  his  volun- 
sonal  possession  as  that  which  Rich-  tary  surrender  and  delivery  of  the 
ardson  obtained,  although  not  such  an  bonds  to  the  sheriff  of  the  county  of 
actual  delivery  as  the  board  had  in-  Xew  York,  as  the  property  of  the 
tended  and  directed,  might  be  consid-  company,  to  be  sold  under  execution, 
ered  as  equivalent  to  a  legal  delivery.  If  the  400  bonds  were  not  delivered  to 
But  under  the  special  circumstances  Richardson,  as  we  think  the  court  be- 
of  this  case,  in  view  of  the  unfair  low  correctly  held,  it  follows  that  the 
means  employed  by  Richardson  to  unissued  bonds  were  not  subject  to 
have  the  entire  body  of  the  company's  attachment  or  to  execution  as  valid 
bonds  transferred  from  the  custody  of  and  binding  obligations  against  the 
Ferry  [the  treasurer]  into  his  own  cus-  company,  and  that  Richardson's  pur- 
tody,  and  the  clandestine  manner  in  chase  at  the  sheriff's  sale  vested  in  him 
which  he  took  out  the  400  bonds  from  no  title  or  ownership  to  them."  See, 
that  body,  not  only  without  notice  of  as  to  the  title  of  Richardson  to  these 
the  fact  to  the  company,  but  with  an  bonds,  and  their  sale  under  execution, 
implied,  if  not  an  expressed,  denial  of  Sickles  v.  Richardson,  (1881)  23  Hun, 
the  transactions,  we  do  not  think  that  559. 


§  101  ]  FRAl  I>1  I.KNT  ACTS  OF  OFFICERS.  --'''7 


,  and  if  the  sanction  of  the  corporation  to  such  a  contract  i.< 
by  the  act  or  co-operation  of  a  director  who  has  a  pri- 
vate interest,  the  corporation  may  resist  an  action  for  specific 
performance,  at  least,  in  a  case  where  it  has  not  accepted  the 
consideration,  or  taken  the  benefit  of  the  contract.1 

§  191.  Circumstances  under  which  the  directors  cannot 
avail  themselves  of  the  defense  of  the  invalidity  of  the 
contract.  —  It  appeared  in  an  action  in  the  federal  court  upon 
a  contract,  that  a  railroad  company,  a  corporation  in  form 
only,  by  its  president,  entered  into  a  construction  contract, 
whereby  the  contractors  agreed  to  complete  the  superstructure  of 
the  road,  furnish  materials  and  equip  it  by  a  certain  date,  and  in 
payment  therefor  certificates  for  a  fixed  amount  of  its  full  paid-up 
stock  and  the  same  amount  of  first  mortgage  bonds  were  to  be 
delivered  to  them.  Contemporaneously  with  the  making  of  this 
contract,  and  on  the  same  day,  the  contractors  agreed  with  one 
acting  on  behalf  of  certain  directors  who  were  the  actual  stock- 
holders, that  if  the  contract  were  complied  with  by  the  company, 
they  would  pay  to  him  one-half  of  the  net  profits  realized  from 

1  Munson    t.   Syracuse,    Geneva   &  advantages  or  disadvantages,  whether 

Corning  R.  R.  Co.,  (1886)  103  N.  Y.  a  contract  made  under  such  circum- 

58;  s.  c.,  8  N.  E.  Rep.  355,  affirming  stances  shall   stand  or  fall."     As  to 

29  Hun,  76;  s.  c.,   16  N.  Y.   Wkly.  contracts   of    officers    dealing    with 

Dig.  212.     ANDREWS,  J.,  referring  to  themselves  being  voidable  at  the  op- 

tiii.s  director,  said:  "He  stood  in  the  tion  of  the  corporation,  see  Meeker  r. 

attitude  of  selling  as  owner  and  pur-  Winthrop  Iron  Co.,  17  Fed.  Rep.  48. 

chasing  as  trustee.     The  law  permits  In  Pneumatic  Gas  Co.  -n.  Berry,  (1885) 

no  one  to  act  in  such  inconsistent  rela-  113  U.  S.  322;  8.  c.,  5  Sup.  Ct.  Rep. 

tions.     It    does    not    stop  to  inquire  525,  a  release  by  the  corporation  to 

whether  the  contract  or  transaction  one  of  its  directors  of  all  claims,  «-qui- 

was  fair  or  unfair.     It  stops  the  in-  table    or    otherwise,    arising    out    of 

quiry  when  the  relation  is  disclosed,  transactions  under  a  contract  between 

and  sets  aside  the  transaction  or  re-  the  corporation  and  the  director,  made 

fuses  to  enforce  it,  at  the  instance  of  in  excess  of  its  corporate  powers,  was 

the  party  whom  the  fiduciary  under-  held   to  be  valid,   if  made   in    good 

took  to  represent,  without  undertak-  faith,  and  without  fraud  or  coiu-ctil- 

ing    to    deal    with    the    question    of  ment.     As  to  contrails  in   \\  hi<  -h  tin- 

abstract  justice  in  the  particular  case,  interest  of  directors  are  adverse  to  the 

It  prevents  frauds  by  making  them,  corporation  being  voidable,  at  the  op- 

as  far  as  may  be,  impossible,  knowing  tion   of   the  corporation   or.  upon  its 

.that  real  motives  often  elude  tli«-  nn»t  refuel.  l>\  :i  minority  c.f  stockholders, 

searching     inquiry,    and    it    lenve*,  »<  •«•   Craves   r    Mono  Lake  Hydraulic 

neither  to  judge  nor  jury,  tin-  rk'lit  to  Mining  Co..  (1890)  81  Cal.  808;  8.  c., 

determine,  upon  a  ronsidrr.it  ion  <>f  its  ••.'-  1'nc.  Uep.  665. 


268  FKAUDULENT  ACTS  OF  OFFICERS.  [§  191 

the  contract,  out  of  the  stocks  and  bonds.  The  road  was  com- 
pleted and  it  was  agreed  between  the  parties  that  the  share  of 
the  directors  in  the  net  profits  should  be  fixed  at  $150,000,  for 
which  the  contractors  were  to  give  these  notes.  The  latter  paid 
$50,000  on  this  substituted  contract,  and  this  action  was  to  recover 
of  them  the  balance.  SHIPMAN,  C.  J.,  for  the  United  States  Circuit 
Court  of  Appeals,  refers  to  the  defense  made  in  these  words : 
"  The  defense  made,  as  a  matter  of  law,  was  the  invalidity  of  the 
contracts  [original  and  substituted],  because  by  the  original  con- 
tracts four  directors  had  secretly  provided  for  one-half  of  the 
profits  which  should  arise  out  of  the  construction  of  the  road,  and 
it  was  claimed  there  could  be  no  recovery,  because  the  contract 
being  void,  no  action  could  be  maintained  upon  it  or  upon  its 
successor."  It  was  held  that  the  principle  which  denounces  the 
action  of  directors  of  a  corporation  who,  professing  to  be  its 
agents,  and  to  be  contracting  in  its  behalf,  secretly  agree  for  a 
private  and  personal  benefit  to  themselves,  or  agree  to  sell  their 
official  influence  for  personal  gain,  was  not  available  as  a  defense 
by  the  directors  in  this  particular  case.1 

1  Robison  v.  McCracken,  (1892)  52  by  courts.  The  corporation  which  en- 
Fed.  Rep.  726.  SHIPMAN,  C.  J.,  said:  tered  into  the  construction  contract 
' '  The  decisions  of  the  courts  of  the  was  one  in  form  only,  and  the  agree- 
United  States  have  been  most  strenu-  ment  for  construction  and  division  of 
ous  in  demanding  that  the  directors  of  the  profits  was,  in  fact,  made  by  all 
corporations  shall  act  disinterestedly  the  stockholders,  if  Mason  [another  of 
in  contracts  which  they  make  in  be-  the  original  subscribers]  was  not  a 
half  of  the  corporation  for  which  they  stockholder.  But,  assuming  the  exist- 
act,  and  in  setting  aside  tainted  con-  ence  of  Mason's  character  as  a  stock- 
tracts  between  a  director  or  an  agent  holder,  and  that  an  exorbitant  contract 
and  a  third  person  for  the  sale  of  offl-  of  the  entire  body  of  stockholders  for 
cial  influence.  Wardell  v.  Railroad  their  own  pecuniary  benefit  can  be 
Co.,  103  U.  S.  651;  Thomas  v.  Rail-  seasonably  attached  [attacked  ?]  by 
road  Co.,  109  U.  S.  522;  s.  c.,  3  Sup.  existing  creditors,  it  is  well  settled 
Ct.  Rep.  315;  Woodstock  Iron  Co.  v.  that,  as  a  general  rule,  contracts  of  a 
Richmond  &  Danville  Extension  Co.,  corporation,  which  which  were  made 
129  U.  S.  643;  s.  c.,  9  Sup.  Ct.  Rep.  by  directors  who  obtained  a  personal 
402;  West  r.  Camden,  135  U.  S.  507;  pecuniary  benefit  thereby,  are  not,  on 
s.  c.,  10  Sup.  Ct.  Rep.  838;  Providence  that  account  alone,  void,  but  are  void- 
Tool  Co.  v.  Norris,  2  Wall.  45."  The  able  at  the  election  of  the  parties  who 
present  case  was  there  distinguished  are  affected  by  the  fraud.  This  is 
from  those  just  cited:  "  It  is  manifest  clearly  announced  in  Barnes  v.  Brown, 
that  the  facts  in  this  case  are  of  a  dif-  SON.  Y.  527;  Barra.  Railroad  Co.,  125 
ferent  character  from  those  which  N.Y.  263;  s.  c.,26N.E.Rep.  145;  Twin-' 
have  ordinarily  marked  contracts  Lick  Oil  Co.  v.  Marbury,  91  U.  S.  587, 
which  are  the  subject  of  just  rebuke  and  Thomas  v.  Railroad  Co.,  109  U.  S. 


§  192]  FRAUDULENT  ACTS  OF  OFFICERS. 

§  192.  Purchase  by  officers  of  debts  due  by,  or  property 
of,  corporations. —  A  director  may  trade  with,  borrow  from  or 
loan  money  to  a  corporation  on  the  same  terms  and  in  like  man- 
ner as  other  persons.  In  loaning  money  to  the  corporation,  how- 
ever, he  must  act  fairly  and  be  free  from  all  fraud  and  oppres- 
sion ;  and  in  so  doing  must  act  for  the  interest  of  the  corporation 
and  impose  no  unfair  or  unreasonable  terms.1  Directors  may 
purchase  the  bonds  issued  by  a  corporation  or  other  of  its 
indebtedness  in  whatever  form  it  exists.  And  if  such  bonds  or 
indebtedness  is  secured  by  a  trust  deed,  for  instance,  they  have  a 
right  to  proceed,  if  necessary,  to  sell  the  property  for  the  satis- 
faction of  such  indebtedness  as  any  other  person.3  If  the  cor- 
poration has  money  or  property  which  can  be  converted  into 
money  with  which  to  redeem  its  property  from  a  judicial  sale  or 
from  the  lien  of  the  trust  deed,  a  purchase  of  the  bonds  or  other 
indebtedness  by  directors,  as  a  means  of  acquiring  through  a  sale 
the  property  of  che  corporation,  would  be  in  bad  faith,  and  a 

522;  s.  c.,  8  Sup.  Ct.  Rep.  315.  In  is  an  executed  one;  the  defendants  re- 
the  latter  case  it  is  said,  in  substance,  ceived  and  sold  the  entire  stock  and 
that  those  for  whom  the  agent  was  bonds  of  the  company  and  have  the 
acting  have  the  option  to  avoid  such  a  fruits  of  the  contract,  a  part  of  which 
contract,  but  until  they  exercise  their  they  have  paid,  and  the  residue  of 
option,  and  reasonably  show  that  it  is  which  they  refuse  to  pay,  upon  the 
their  purpose  not  to  submit  to  the  act  ground  that  the  contract  was  illegal  in 
of  the  agent,  the  contract  is  in  exist-  its  relations  to  the  corporation.  Cases 
ence,  and  is  not  a  nullity.  In  this  case,  may  arise  where  a  court  will  have 
Mason,  the  remaining  stockholder  at  nothing  to  do  with  the  controversies 
the  time,  has  not  dissented,  but  desires  in  regard  to  the  proceeds  of  a  business 
to  enjoy  the  contract.  The  corpora-  of  an  inherently  corrupt  and  wirkitl 
tion  has  never  dissented.  [The  con-  character,  but  this  is  not  one  of  them, 
tractors]  to  whom  the  whole  stock  The  weakness  of  the  defendants'  posi- 
was  issued,  made  both  contracts,  paid  tion  is  clearly  disclosed  in  McBlair  r. 
$50.000  upon  the  [substituted]  con-  Gibbes,  17  How  232;  Brooks  v.  Mar- 
tract,  the  last  payment  being  nine  tin,  2  Wall.  TO;  Planters'  Bank  o. 
months  after  its  date.  Neither  cred-  Union  Bank.  16  Wall.  483,  and  Rail- 
itors  nor  the  present  stockholders  IKIVC  road  Co.  p.  Durant,  95  U.  8.  579.  In 
ever  dissented.  The  case  clearly  falls  the  bitter  case  the  court  said:  '  The 
within  the  general  rule  whirh  has  appellee  cannot  claim  adversely  to 
been  cited.  It  contains  no  circum-  those  for  whom  he  acquired  and  holds 
stances  which  create  an  exception,  and  the  property.  The  rights  of  otlu-rs,  if 
make  the  contract  one  which  is  abso-  such  rights  exist,  do  not  concern  him. 
lutely  void.  The  condition  of  the  He  cannot  vicariously  assert  them.'" 
defendants  is  this:  They  made  a  void-  '  Harts  r.  Brown,  (1875)  77  111.  22C. 
able  contract  with  the  plaintiff,  which  *  Ibid, 
has  not  been  avoided.  The  contract 


2TO  FRAUDULENT  ACTS  OF  OFFICERS.  [§  192 

purchase  by  them  of  the  property  under  such  circumstances 
would  not  be  sustained.1  And  if  a  sale  were  necessary  by  reason 
of  a  lack  of  means  on  the  part  of  the  corporation  to  relieve  the 
property  from  the  liens  and  prevent  a  sale  of  property  beyond  the 
amount  necessary  to  pay  the  debts  secured  by  the  trust  deed, 
though  made  with  the  assent  and  by  direction  of  the  directors, 
and  they  purchase  it,  the  sale  in  this  respect  would  be  void,  as  it 
would  be  a  sale  to  that  extent  in  which  the  directors  would  be  the 
vendors,  and  they  could  not  purchase  of  themselves.2  A  trustee 
of  a  corporation  may  purchase  with  his  own  funds  a  judgment 
which  has  been  recovered  against  the  corporation  for  less  than 
the  amount  due  thereon,  and  in  case  he  assigns  it  to  a  third  per- 
son, the  assignee  may  enforce  the  judgment  against  the  corpora- 
tion for  the  full  amount  due  upon  it.3  In  case  a  director  or  trus- 

1  Ibid.  company.     By  fair  dealing  and  in  the 

2  Ibid.  legitimate  business  of  the  company  he 

3  Inglehart  v.  Thousand  Island  Hotel  may    become    one    of    its    creditors. 
Co.,  (1884)  32  Hun,  877.     The  Supreme  Transactions  of  this  character  between 
Court  of  l^ew  York  in  General  Term  an  officer  of  the  company  and  the  corn- 
have  said  upon  this  subject:  "That  a  pany  itself  are  of  frequent  occurrence, 
trustee    of    a    corporation    organized  and  have  received  the  approval  and 
under  the  general  laws  of  this  state  sanction  of  the  courts  as  appropriate 
acts  in  a  fiduciary  character,  is  not  a  and  not  inconsistent   with   the  duty 
subject  of  doubt,  as  he  is  intrusted  which  a  trustee  owes  to  the  stock- 
with  power  and  authority  to  be  exer-  holders  and  creditors  of  the  company, 
cised  in  the  interest  of  the  stockhold-  [Citing]  Duucomb  v.  N.  Y.,  H.  &  N. 
ers  and  creditors  of  the  company.     In  R.  R.  Co.,  84  N.  Y.  190;  Twin-Lick 
dealing  with  its  property  and  in  the  Oil  Co.  v.  Marbury,  91  U.  S.  588.     So 
management  of  its  affairs  he  is  subject  also  a  trustee  or  director  may,  with  his 
to  the  obligations  and  disabilities  inci-  own  money,  purchase  for  himself  of  a 
dent  to  that  relation,  and  he  must  so  third  person  a  valid  and  subsisting 
act  as  not  to  permit  himself  or  his  own  outstanding  debt  owing  by  the  corn- 
private  interests  to  interfere  or  com-  pany  and  secure  a  perfect  title  thereto, 
pete  with  his  duty  to  the  company.  Such  a  transaction  is  not  even  a  ground 
[Citing]  Hoyle  v.  Plattsburgh  &  Mon-  for  entertaining  the  suspicion  that  it  is 
treal  R.  R.   Co.,  54  N.  Y.  314;  Cum-  in  violation  of  any  duty  which  he  owes 
berland  Coal  Co.  v.  Sherman,  30  Barb,  the  corporation,  and  there  is  no  pre- 
553;  Twin-Lick  Oil  Co.  v.    Marbury,  sumption  of  law  against  its  fairness. 
91   U.    S.    588.     It    is  not,    however,  If  the  obligation  is  valid  the  owner 
deemed  to  be  inconsistent  with  the  may  sell  and  transfer  it  to  any  one 
duties  which  a  trustee  owes  a  com-  who  is  willing  to  become  a  purchaser, 
pany  to  loan  and  advance  to  it  moneys  and  he  thereby  secures  an  unquestion- 
to  be  used  in  transacting  its  legitimate  able  title.    [Citing]  cases  supra  ;  Clark 
business    and    to    meet   its   financial  ?;.Flint&PereMarquetteR.Co.,5  Hun, 
wants  and  receive  security  therefor  by  556.     The  other  question  to  be  con- 
mortgage  or  pledge  of  the  assets  of  the  sidered  in  this  connection  is,  will  the 


§  192]  FBAUDULENT  ACTS  OK  OFFICERS.  271 

>f  a  corporation  geek  tho  enforcement  of  a  judgment  against 
it  owned  by  himself  by  a  sale  of  the  proj>ertyor  assets  of  the  cor- 
poration, it  would  be  incumbent  upon  him  to  act  with  the  great- 
«--t  fairness  and  publicity  and  to  do  everything  reasonable  within 
life  power  to  .-ecu re  the  highest  price  for  the  property  sold;  and 
if  he  should  be  guilty  of  any  improper  conduct  by  which  he 
secures  to  himself  the  property  of  tho  corporation  for  less  than  its 
fair  market  value,  the  sale  may  be  set  aside  on  the  application  of 
any  of  the  parties  intended.1  One  of  the  appellate  courts  of 
Missouri  reversed  a  judgment  in  the  court  Ixilow,  and  held  that 
tho  president  of  a  corporation  who  had  voluntarily  purchased  a 
small  debt  against  the  corporation  should  lx?  enjoined  from  levy- 
ing an  execution  for  the  payment  of  a  balance  on  the  claim  where 
he  had  already  taken  valuable  property  of  the  corporation  in  part 
payment  of  it. 

trustee  or  director  be  permitted  to  eu-  of  his  speculating  in  either  its  assets 
force  a  collection  of  the  debt  thus  uc-  or  its  indebtedness,  for  his  own  benefit, 
quired  for  its  entire  amount,  or  shall  at  the  expense  of  the  corporation, 
he  be  limited  to  the  sum  which  he  He  is  a  trustee,  and  as  such  can  never 
actually  paid  for  the  debt  or  obliga-  be  permitted  to  create  such  a  relation 
tion  ?  I  am  unable  to  discover  any  between  himself  and  the  trust  prop- 
good  reason  why  he  should  not  be  per-  perty  as  will  make  his  own  interest 
mitted  to  enforce  judgment  for  the  necessarily  and  effectually  antago- 
full  amount,  nor  can  I  find  any  de-  nistic  to  that  of  his  beneficiary.  In 
cision  limiting  the  trustee  to  the  sum  Covington  &  Lexington  liuilroad  Co.  v. 
actually  paid.  In  these  times  a  large  Howlcr,9  Hush  (Ky.),468,  a  director  had 
proportion  of  the  mercantile,  com-  purchased  at  a  judicial  sale  the  rail- 
mrnial  and  manufacturing  business  road  belonging  to  his  corporation.  It 
<>f  the  country  is  carried  on  by  cor-  was  held,  upon  the  principle  just 
porations,  and  many  of  them  issue,  in  stated,  that  the  corporation  had  aright 
large  amounts,  securities  in  the  form  to  have  its  road  surrendered  to  it  upon 
of  negotiable  instruments,  payable  in  placing  the  director  in  statu  quo. 
the  future,  which  are  purchased  and  *  *  *  In  McAllen  r.  Woodcock,  a 
held  as  investments  by  capitalists  and  suit  in  ejectment,  60  Mo.  174.  it  was 
others,  and  it  has  never  been  ques-  held  that  where,  under  execution 
tioned  but  that  a  director  in  a  cor-  against  a  corporation,  its  land  waspur- 
poration  of  this  character  might  pur-  chased  by  one  who  was  a  stockholder 
chase  the  same  of  a  third  person  at  a  and  treasurer  of  the  company,  the  pur- 
discount,  and  collect  from  the  com-  chase  must  be  re garded  as  having  been 
pany  the  entire  sum  secured  thereby."  made  for  the  benefit  of  the  association. 

1  Inglehart  ••  Thousand  Island  Hotel  and  that  the  title  thus  acquired  could 

<  ,  ,  (iss  1 1  :;-,>  Hun,  877.  not  be  considered  as  hostile  thereto." 

•Brewster  r.  Stratnian,  (1877)4  Mo.  In  Lingle  e.  National  Insurance  Co., 

App.  41.  LKWIH.  P.  J.,  said:  "The  4T>  Mo.  109.  the  Supreme  Court  of 

fiduciary  position  held  by  the  presi-  Missouri  a  dinned  the  judgment  of  the 

dent  of  a  corporation  does  not  admit  court  below  awarding  out  of  the  asset* 


272  FRAUDULENT  ACTS  OF  OFFICEES.  [ 

§  193.  Purchase  and  sale  of  property  of  corporation  by 
officers. —  Where  a  sale  of  the  property  of  a  corporation  to  raist- 
money  to  pay  its  debts  may  become  necessary  on  account  of  the 
mismanagement  of  its  affairs  by  the  directors,  and  those  directors 
for  that  purpose  sell  it  to  one  of  their  number,  the  sale  may  be 
set  aside.1  For  a  sale  and  purchase  under  such  circumstances  to 
stand,  it  must  be  shown  that  there  was  a  necessity  for  the  sale 
and  that  the  property  of  the  corporation  was  bought  by  the  direct- 
ors in  open  market  at  a  fair  price  and  without  any  undue 
advantage,  in  good  faith  and  without  the  slightest  unfairness.2 
A  director  of  an  insolvent  corporation,  buying  its  property  at  a 
sale  under  execution  to  which  he  is  not  a  party,  will  be  liable  to 
the  corporation  for  the  value  of  the  property  less  what  he  may 
have  paid  for  it.3  In  case  directors  of  a  corporation  divert  its 
property  from  the  payment  of  its  debts,  by  which  diversion  cred- 
itors may  be  deprived  of  the  opportunity  to  enforce  their  debts 
the  injured  creditors  may  have  relief  through  a  court  of  equity.4 
Should  such  a  diversion  of  the  corporate  property  charged  to  be 
injurious  to  the  creditors  be  a  sale  of  such  property  to  one  of  the 
directors  taking  part  in  the  transaction  as  buyer  and  seller,  the 
directors  must  establish  both  the  good  faith  of  the  transactions 
and  that  the  sale  was  for  the  full  value  of  the  property.  If  these 

of  the  company  to  its  president,  upon  company  who  suffered  by  the  acts  of 

a  judgment  which  he  had  purchased  its  officer.     But,  in  a  case  like  this, 

against   the  corporation,  the  amount  the   creditors    whose    rights  are  im- 

he    actually   paid.     The    court    said:  paired  should  be  permitted  to  make 

"At  the  time  [appellant]  purchased  the  objection."     As   to  the  incompe- 

the  judgment  he  was  president  of  the  tency  of  a  director  in  a  corporation  to 

company  and  acting  for  the  company,  become  the  purchaser  of  a  portion  of 

The  company's    interest    and  his,  in  its  property,  who  has  actively  partici- 

the    transaction,   were  identical,  and  pated  in    all    measures    pending  the 

could    not    be    separated.     Whatever  completion  of  the  arrangements  for  its 

advantage    he  gained  inured    to    its  sale,  with  full  knowledge  of  all  the  cir- 

benefit.    To  permit  the  chief  managing  cumstances  attending  their  progress, 

officer  of  a  company  in  such  a  man-  see  Hoffman  Steam  Coal  Co.  v.  Cum- 

ner  to  speculate  for  his  private  gain  berland  Coal  &  Iron  Co.,  16  Sid.  456. 

would  be  detrimental  to  the  company  l  Crescent  City  Brewing  Co.  v.  Flan- 

and  the  other  stockholders,  and  would  ner,  (1892)  44  La.  Ann.  22;  8.  c.,  10 

lead  to  fraud,    injustice  and  wrong.  So.  Rep.  384. 

Public  policy  and  morality  alike  for-  *  Ibid. 

bid  that  such  a  proceeding  should  be  3  Tobin  Canning  Co.  «.  Fraser,  (1891) 

sanctioned.     It  is  true  that  in  ordinary  81  Tex.  407;  s.  c.,  17  S.  W.  Rep.  25. 

cases  no  person  would  have  a  right  to  4  Wilkinson  t>.  Bauerle,  (1887),  41  N. 

complain  of  the  transaction  but  the  J.  Eq.  635;  s.  c.,  7  Atl.  Rep.  514. 


§  193]  FRAl  1-1  I  I  NT  ACTS  OF  OFFICERS.  273 

facts  be  not  established  the  directors  taking  part  in  the  sale  will 
be  held  answerable  to  the  creditors  for  their  y  the  diversion 

of  the  corporate  property.1  Where  a  railroad  company  had 
become  insolvent  and  discontinued  its  operations,  and  a  director 
of  the  company  had  purchased  certain  railroad  ties  from  the  con- 
tractor furnishing  them  to  the  company,  it  was  attempted  to 
enforce  an  execution  in  favor  of  creditors  of  the  corporation  upon 
this  property.  ANDREWS,  J.,  for  the  New  York  Court  of  Appeals, 
said  :  "  Assuming  that  the  plaintiff  was  disabled  by  the  rule  in 
equity  from  purchasing  the  ties  on  his  own  account  or  from  hold- 
ing them  as  against  the  company,  nevertheless  the  legal  title  was 
vested  in  him  by  the  purchase,  and  the  property  could  not  be 
taken  from  his  possession  under  an  execution  against  the  corpora- 
tion. *  *  *  The  purchase  by  a  trustee  of  trust  property  is 
voidable,  not  void.  The  company  could  only  claim  the  benefit 
of  the  purchase  by  the  plaintiff  on  reimbursing  the  sum  expended 
by  him  in  obtaining  the  title." 2  A  director,  for  instance,  pur- 
chasing the  lands  of  a  corporation  for  one-tenth  of  their  value, 
there  would  be  raised  against  him  a  presumption  of  fraud,  and  he 
would  be  required  to  show  affirmatively  that  the  transaction  was 
a  perfectly  fair  one.8  The  Civil  Code  of  California,  section  2228, 
requires  the  highest  good  faith  from  a  trustee  towards  his  bene- 
ficiary, and  section  2230  prohibits  the  trustee  from  taking  part  in 
any  transaction  adverse  to  the  beneficiary.  Under  these  sections 
the  Supreme  Court  of  that  state  has  held  a  secretary  of  a  corpo- 
ration, at  the  same  time  its  general  manager,  to  whom  all  its 
affairs  were  intrusted,  to  have  been  guilty  of  a  fraud  upon  the 
corporation  in  secretly  purchasing  its  property  in  his  own  name 
when  sold  under  execution  or  at  tax  sales.4  A  director  may  loan 
money  to  the  corporation,  take  a  mortgage  to  himself  securing 
the  loan,  and  upon  foreclosure  of  the  mortgage  may  purchase  the 
property  and  obtain  title  to  the  property  mortgaged.5  A  director 

'Ibid.  •  Preston    «.    Loughran.    (1890)    68 

•Cornell  ».  Clark,  (1887)  104  N.  Y.  Hun,  210;  8.  c.,  12  N.  Y.  Supp.  818. 

451;  s.  c.,  10  N.  E.  Rep.  888.  As  to  a  purchase  by  a  director  of  the 

1  Woodroof  v.  Howes,  (1891),  88  Cal.  property  of  a  corporation  at  a  fore- 

184;  8.  c.,  26  Pac.  Rep.  111.  closure  mortgage  sale  being  valid, 

4  San  Francisco  Water  Co.  t>.  Pattee,  see  Saltmareh  «.  Spaulding,  (1888)  147 

(1890)  86  Cal.  623;  a.  C.,  25  Pac.  Rep.  Mass.  224;  s.  c.,  17  N.  £.  Rep. 

185.  816. 

35 


274:  FRAUDULENT  ACTS  OF  OFFICERS.  [§  194 

of  a  corporation  cannot,  for  instance,  take  possession  of  corpo- 
rate property  and  set  up  his  individual  possession  to  the  exclusion 
of  the  corporation  of  which  he  is  an  equitable  trustee.1  The 
directors  of  "  a  going  concern,"  though  the  corporation  be  insol- 
vent, will  not  be  held  liable,  as  for  a  breach  of  trust,  for  making 
a  bonajide  advantageous  sale  out  and  out  of  the  corporate  assets, 
all  of  which  assets  may  have  been  attached,  to  one  of  the  attach- 
ing creditors  on  condition  that  he  would  cancel  his  own  debt  and 
discharge  the  debts  of  other  attaching  creditors,  especially  where 
the  directors  have  no  means  with  which  to  control  the  attachment 
suits,  and  the  transfer  be  advised  by  counsel.2 

§  194.  Illustrations  of  a  sale  of  property  to  corporation 
which  was  not  fraudulent.  —  The  corporation,  upon  the  notes 
of  which  this  action  was  brought  in  the  federal  court  of  the  dis- 
trict of  Kansas,  in  its  answer  denied  the  authority  of  the  presi- 
dent and  secretary  of  the  company  to  execute  or  issue  such  notes, 
and  further  claimed  that  the  notes  were  fraudulently  and  wrong- 
fully issued  through  the  collusion  of  the  officers  and  directors  of 
the  company,  and  without  any  consideration  whatever  therefor. 
The  facts  were  that  two  of  the  directors  had,  previously  to  the 
organization  of  the  company,  purchased  a  roadbed  for  a  very 
small  sum  of  money.  They  afterwards  caused  the  defendant 
company  to  be  organized,  and,  while  in  the  relation  of  directors 
with  others  of  the  newly  organized  company,  contracted  with  the 
other  directors  to  sell  the  roadbed  to  the  company  for  $200,000 
cash  or  bonds  and  $3,600,000  of  the  capital  stock.  The  sale  was 
formally  ratified  at  a  meeting  of  the  directors  and  entered  on  the 
records  of  the  company ;  and  afterwards  the  stockholders  unan- 
imously approved  the  purchase.  At  the  time  of  the  sale  there 
were  no  stockholders,  and  the  stock  issued  was  all  that  had  been 
subscribed.  The  company  had  no  property  except  its  charter 
and  the  roadbed,  and  the  notes  [which  were  issued  instead  of 
bonds]  and  stock  issued  to  [the  vendors]  had  no  marketable  value. 

1  Hoffman ».  Reichert,  (1889),  31  111.  movable  property  of  a  corporation 

App.  558.  used  in  its  corporate  business  and  dis- 

*  White,  Potter  &  Paige  Mfg.  Co.  able  the  corporation  from  fulfilling  the 

n.  Henry  B.  Pettes  Importing  Co.,  purposes  for  which  it  was  created, 

(1887),  30  Fed.  Rep.  864.  That  direct-  see  Abbot  ».  American  Hard  Rubber 

ors  have  no  power  to  sell  the  entire  Co.,  33  Barb.  578. 


§194] 


FRAUDl'LENT  ACTS  OF  OFFICERS. 


275 


It  \v;i>  held  that  the  sale  was  not  fraudulent.1  In  a  Kansas  case 
it  was  attrmpti'il  to  make  certain  persons,  directors  of  a  railroad 
corporation,  account  for  the  profits  made  by  them  in  selling  to  it 
a  readied  which  they  had  purchased  before  the  organization  of 
the  railroad  corporation  for  a  small  sum  for  a  much  larger  sum 
than  they  had  paid.  The  Supreme  Court  ruled  that  the  owners  of 


1  Stewart  P.  St.  Louis,  Ft.  8.  &  W. 
R.  Co.,  (1887)  41  Fed.  Rep.  736. 
FOSTER,  .1.,  discussed  the  actions  of 
these  directors  in  the  premises  us  fol- 
lows :  "There  is  no  doubt  but  the  di- 
rectors [the  vendors],  and  perhaps 
[another  director],  while  directors  of 
the  company,  used  their  influence  to 
consummate  this  sale  from  themselves 
as  individuals  to  the  company;  and  it 
is  altogether  probable  they  had  that 
object  in  view  when  they  bought  the 
roadbed  from  [the  vendor  to  them]. 
But  the  question  fjtill  remains,  were 
they  guilty  of  fraud,  deception  or  any 
other  breach  of  good  faith  in  their 
fiduciary  relations  as  directors  ?  At 
the  time  they  bought  the  property 
the  defendant  company  had  not 
been  organized,  and  at  that  time, 
of  course,  they  could  not  have  held 
any  I'nluciary  relations  to  stockholders 
or  any  one  else.  When  the  sale  to  the 
company  was  made  they  did  hold  a 
position  of  trust,  and  were  bound,  in 
their  official  action,  to  faithfully  and 
horn  >tly  execute  their  duties,  and  not 
to  make  a  deal  where  their  personal 
interest  should  be  served  at  the  ex- 
pense of  the  company  they  represented. 
Wardell  r.  Kail  rand  Co.,  103  U.  8. 
651;  Ryan  r.  Railroad  Co.,  21  Kans. 
865;  Koehlcr  c.  Iron  Co.,  2 Black,  715; 
1  Moraw.  Priv.  Corp.  §  517;  Michaud  r. 
Oirod.  4  How.  513.  But  it  docs  not 
follow  that  the  directors  are  prohibited 
under  all  circumstances  from  dealing 
with  a  member  or  members  of  the 
board  as  individuals.  But  there  must 
have  been  a  fair  open  deal.  It  must 
have  been  free  from  fraud  or  col- 
lusion, and  characterized  by  entire 


good  faith."  Hotel  Co.  v.  Wade,  97 
U.  8.  13;  1  Mor.  Priv.  Corp.  §§  292, 
.VJ1.  .>!.->;  Van  Cot t  r.  Van  Brunt.  82 
N.  Y.  535;  Simons  r.  Oil  Co.,  61  Pa. 
St.  202;  Oil  Co.  «.  Densraorc,  64  Pa. 
St.  48;  Rice's  Appeal,  79  Pa.  St. 
168;  Parker  v.  Nickerson,  137  Mass. 
487.  The  judge  then  discussed  the 
particular  facts  of  this  case  in  these 
words:  "It  does  not  appear  in  this 
case  that  there  was  any  deception  or 
fraud  practiced  by  the  parties.  The 
property  was  open  to  inspection,  and 
the  approximate  cost  of  constructing  it 
was  easily  obtainable.  Its  value  to  the 
company  for  the  purpose  desired  was 
not  difficult  to  ascertain.  I  find  no  evi- 
dence of  any  representations  as  to  its 
value  or  cost,  or  purchase  prce,  made 
by  the  parties  selling;  but  there  is 
record  evidence  that  the  board  of 
directors  several  months  after  the 
sale,  and  with  full  knowledge  of  the 
transaction,  formally  approved  and 
ratified  it,  and  not  only  that,  but 
subsequently,  at  a  meeting  of  all 
the  stockholders,  the  transaction 
was  again  ratified.  Now,  who  were 
defrauded  or  deceived  ?  All  parties 
—  directors  and  stockholders — as- 
sented to  it,  and  surely  subsequent 
purchasers  of  the  stock,  or  the  cor- 
poration itself,  cannot  now  object 
to  it.  1  Moraw.  Priv.  Corp.  290.  It  is 
true  the  vendors  got  a  very  large  ad- 
vance on  the  price  they  paid,  but  that 
is  not  alone  the  test  by  which  the  bona 
JUn  Of  the  transaction  is  to  be  tried. 
1  Moraw.  Priv.  Corp.  298.  To  them  as 
individuals  the  property  was  of  little 
or  no  value.  To  the  railroad  company 
it  could  be  made  worth  the  price  paid 


276  FRAUDULENT  ACTS  OF  OFFICERS.  [§  195 

a  graded  roadbed  could  sell  to  a  railroad  corporation,  the  officers, 
directors  and  stockholders  of  which  were  composed  of  these 
owners,  and  receive  in  payment  therefor  shares  in  its  capital  stock 
at  a  time  when  those  selling  the  roadbed  owned  and  controlled  the 
corporation,  and  are  the  absolute  owners  of  all  the  stock  issued 
by  it,  and  where  the  terms  of  sale  and  the  issue  of  the  stock  are 
matters  of  record  on  the  corporation's  books,  and  where  the 
transaction  occurs  months  before  any  other  or  additional  stock  is 
issued  by  the  corporation.1  This  rule  was  based  upon  the  fact 
that  at  the  time  of  the  purchase  of  this  roadbed  by  the  vendors 
of  it  to  the  corporation  the  corporation  really  had  no  corporate 
existence,  and  that  there  could  not  have  existed  any  fiduciary 
relations  between  them  before  that  time,  because  there  was  no 
corporation  in  existence  to  create  them.2 

§  195.  When  a  transfer  of  property  of  corporation  will  be 
upheld. —  These  facts  are  disclosed  in  a  New  York  case.  A 
manufacturing  corporation  was  organized  for  the  purpose  of 
manufacturing  carpets  by  machinery  covered  by  certain  letters 
patent,  and  issuing  licenses  for  the  use  of  the  invention  ;  its  capital 
stock  was  $40,000,  which  was  issued  to  the  defendants,  the 
owners  of  the  letters  patent,  as  the  consideration  for  the  assign- 
ment by  them  of  the  letters  patent  to  the  corporation.  The 
actual  value  of  the  patent  was  much  more  than  the  sum  specified^ 
and  the  transfer  was  made  without  regard  to  its  value,  as  a  con- 
venient mode  of  holding  title,  and  for  the  exclusive  benefit  of 
the  owners,  who,  as  sole  stockholders  and  trustees  of  the  corpora- 
tion, carried  on  the  business  of  issuing  licenses  to  use  the  inven- 

for  it;    and  the  vendors  bent  every  were  deceived  by  misrepresentations 

energy  to  make  the  property  useful  to  of  the  officers,  their  cause  of  action 

the  company,  and  to  make  the  enter-  rests  on  that  deception,  and  not  in  an 

prise  successful,  for  their  chances  of  attack    on    the  original     contract   of 

getting  money  or  any  other  value  for  purchase." 

the   property  depended  very  largely  '  St.  Louis,  Ft.  Scott  &  Witchita  R. 
on  the  result.     As  before   remarked,  R.  Co.  v.  Tiernan,  (1887)  37  Kans.  606; 
parties  having  stock  afterwards  in  the  s.  c.,  15  Pac.  Rep.  544. 
company  cannot  complain  of  the  pur-  *  Ibid.  There  is  a  very  full  discus- 
chase.     The  records  of  the  company  sion  of  the  questions  relating  to  pro- 
show  the  transaction.     It  was  not  kept  moters  of  corporations,  their  rights, 
a  secret.     There  was    no  compelling  duties    and    liabilities,  as    viewed    in 
any   person   or  municipality  to  take  English  and  American  courts,  in  this 
stock  in  the  company  unless  they  vol-  case, 
untarily  chose  to  do  so;    and,  if  they 


1!>5]  FRAUDULENT  ACTS  OF  OFFICEB8.  277 


and  collecting  royalties.     Subsequently,  concluding  to  go 
into  tin-  Imsiness  of  manufacturing,  the  defendants,  as  trustees, 
transferred  back  to  themselves  the  letters  patent,  they  surrender- 
ing the  stock  issued  to  themselves  as  above  stated.     The  stock  of 
the  corporation  was  increased  to  $600,000,  all  of  which  was  issued 
to  defendants,  they  paying  first  $250,000  in  cash,  and  for  the 
iv.-i<lue  granting  to  the   corporation   a  license  to  manufacture 
under  the  patent,  on  payment  of  a  specified  royalty.     It  was 
found  by  the  trial  court  that  this  transaction  was  in  good  faith 
and  with  no  intent  to  defraud  any  future  holder  of  the  stock,  and 
that  $350,000  of  stocks  was  not  an  inadequate  consideration  for 
the   license.     Defendants  thereafter  assigned   to   plaintiff  and 
another  $100,000  of  the  stock,  as  the  consideration  of  their  assign- 
ment to  the  corporation  of  certain  other  letters  patent.     These 
assignees  were  informed  of  all  the  facts  relating  to  the  retransfer 
to  defendants  and  the  consideration  for  the  issuing  to  them  of  the 
increased  stock.     Stock  was  also  sold  to  another  person  who  had 
knowledge  of  the  facts.     Plaintiff  was  elected  a  trustee.     The 
corporation  erected  manufactories  and  carried  on  the  business  for 
a  time,  which  resulted  in  a  loss.     Defendants  and  another,  com- 
prising a  majority  of  the  board  of  trustees,  as  such,  adopted  a 
resolution  to  sell  the  stock  on  hand,  lease  the  manufactories,  and 
to  secure  defendants  for  advances  made  by  them  by  mortgage 
on  the  property  of  the  corporation  which  was  executed  with  the 
assent  of  two-thirds  in  interest  of  the  stockholders.     Defendants 
were  the  only  creditors  of  the  corporation,  and  the  trial  court 
found  that  the  resolution  above  referred  to  was  adopted  in  good 
faith,  without  intent  to  injure,  and  that  it  did  not  affect  plaintiff, 
and  was  for  the  best  interests  of  the  corporation  and  its  stock- 
holders.    The  mortgage  was  thereafter  foreclosed  and  the  prop- 
erty bought  in  by  one  of  the  defendants.     Plaintiff  brought  his 
action  as  trustee  of  the  corporation  to  set  aside  the  transfers  of  its 
property,  which  he  alleged  had  been  made  or  authorized  by  the 
defendant  trustees  as  such  to  themselves  individually,  and  for  an 
accounting.     The  Court  of  Appeals  of  New  York,  upon  the  fact* 
stated  above,  held  that  the  complaint  was  properly  dismissed.1 

'Skinner  r.  Smith,  (1892)  184  N.  Y.  and  for  their  benefit,  or  a  transfer  of 

240,afflrming  50  Hun,  437.     The  court  its  property   l>y  the  authority  of  the 

siiid:  "A  contract  entered  into  by  it  trustees  to  themselves,   nmy   be   set 

corporation  by  the  authority  or  direr  aside,  in  case  it  injures  any  public 

tion  of  its  trustees,  with  themselves  interest,  or  the  private  inUrcM  of  any 


278  FRAUDULENT  ACTS  OF  OFFICERS.  [§  196 

§  196.  Officers  voting  themselves  salaries  or  compensa- 
tion.—  The  vote  of  a  director  for  his  own  salary  is  manifestly 
illegal.1  An  agreement  of  directors  to  pay  themselves  a  stipula- 
ted sum  for  services  in  the  employment  of  a  corporation  is  void.2 
The  salary  of  the  president  of  a  corporation  having  been  fixed 
by  its  directors,  as  the}r  have  a  right  to  do,  and  accepting  the  office 
under  their  action,  he  cannot,  by  his  vote  as  a  director,  increase 
his  salary.3  Where  the  superintendent  of  a  corporation  is  also  a 
director,  his  compensation  must  be  fixed  by  corporate  action,  a 
record  of  which  should  be  made  upon  the  books  of  the  corpora- 
tion.4 Should  directors,  who  are  not  entitled  to  compensation  for 
their  services  as  directors  by  the  provisions  of  the  charter  of  the 
corporation  or  by  its  by-laws,  or  some  custom  or  usage  allowing 
such  compensation,  make  such  allowance  to  themselves  for  past 
services  and  issue  bonds  or  orders  for  such  allowances,  their  acts 
will  be  void  and  of  no  effect.5  Salaries  voted  by  its  board  of  direct- 
ors to  one  or  more  of  their  number,  who  are  present  and  partici- 
pating in  the  action,  are  not  binding  upon  a  corporation.6  Where 

shareholder  or  creditor,  even  though  for  the  purpose  of  protecting  share- 

the  contract  or  transfer  was  executed  holders  from  further  loss,  does  not  ad 

in  good  faith  by  the  trustees.      Dun-  mit,  we  think,  of  doubt.     Treadwell 

comb  t.  N.  Y.,  H.  &  N.  R.  R.  Co.,  84  «.  Salisbury  Mfg.  Co.,  7  Gray,  395." 

N.  Y.  190.      But  this  rule  is  not  broad  Hancock  v.  Holbrook,  9  Fed.  Rep.  353; 

enough  to  condemn   as  void   on  the  Boston  &  P.  R.  R.  Co.  t>.  N.  Y.  &  N. 

ground  of  public  policy  all  contracts  E.  R.  R.  Co.,  13  R.  I.  263;  Buford  v. 

and  transfers   executed  by  a  purely  Keokuk  L.  Packet  Co.,  69  Mo.  611; 

private  business  corporation,  with  or  Morawetz  Corp.,  g§  413  el  seq.  1004. 

to  its  trustees,  in  good  faith,  in  case  '  Davis  Mill  Co.  v.  Bennett,  (1889) 

no  public  or  private  interest  is  harmed  39  Mo.  App.  460. 

thereby.     Such  contracts  are  not  void,  2  Guild  v.  Parker,   43  N.    J.   Law, 

but  voidable,  at  the  election  of  those  430. 

who  are  affected  by  the  fraud.    Twin-  3  Ward  «.  Davidson,  (1886)  89  Mo. 

Lick  Oil  Co.  «.  Marbury,  91  U.  S.  587-  445. 

589;  Thomas  v.  Brownville,  etc.,  R.  R.  4Besch  v.  West.  Carriage  Manufac- 

Co.,  109  U.  S.  522-524;  Risley  «.  In-  turing  Co.,  (1889)  36  Mo.  App.  333. 

dianapolis,  B.  &  W.  R.  R.  Co.,  62  N.  5  Maux  Ferry  Gravel  Road  Co.  «. 

Y.  240;    Barnes  «.  Brown,  80  N.  Y.  Branegan,  (1872)  40  Ind.  361. 

527-536;  Munson  t.  S.,  G.  &  C.  R.  R.  «Kelsey  v.   Sargent,  (1886)  40  Hun, 

Co.,  103  N.  Y.  58-73;  Barr  v.  N.  Y.,  150.     In  Copeland  v.  Johnson  Manu- 

L.  E.  &  W.  R.  R.  Co.,  125  N.  Y.  263-  facturing  Co.,  (1888)  47  Hun,  235,  the 

277."  The  court,  in  the  opinion  in  this  contracts  made  between  one  who  was 

case,  concluded  with  this  statement:  president  and  one  of  the  trustees  of 

"The  right  of  a  manufacturing  cor-  the  corporation,  and  two  of  the  other 

poration  to  discontinue  its  operations  four  trustees  of  the  corporation,  for 

when  they  have  become  unprofitable,  the   payment  to  him    of  fixed    com- 


§  196]  FRAUDULENT  ACTS  OF  OFFICERS.  _'7'» 

a  board  of  directors  had  assigned  to  one  of  their  number  the  per- 
formance of  the  duties  of  treasurer  of  the  corporation,  and  no 
salary  had  been  fixed  for  such  office  by  the  board,  the  Illinois 
Supreme  Court  assumed  that  the  board  chose  to  regard  his  serv- 
ices in  that  capacity  as  a  part  of  his  duty  as  director,  and  held 
that  he  could  not  recover  an  allowance  made  by  them  to  him  for 
such  services.1  The  directors  of  a  corporation  occupying  a  fidu- 
ciary relation  to  it,  should  they  vote  themselves  an  excessive  com- 
pensation for  services  in  disposing  of  its  stock,  such  an  act  would 
be  an  actual,  not  merely  a  constructive  fraud.2  In  a  case  where 
the  treasurer  of  a  corporation  had  appropriated  corporate  funds 
to  his  own  use  as  for  a  salary,  and  the  court  found  the  amount 
was  excessive,  the  money  was  held  to  have  been  obtained  by 
fraud  and  the  treasurer  liable  for  interest  on  the  sum  that  he  had 
thus  appropriated.8  In  a  case  before  the  Supreme  Court  of  New 

pcnsation  for  the  performance  of  R.  Co..  27  Vt.  435;  Butts  «.  Wood,  37 
services  rendered  by  him  for  the  cor-  N.  Y.  817;  Mt-rriek  r.  Peru  Coal  Co., 
poration,  being  dependent  for  their  61  111.  472;  Kockford,  Rock  Island  & 
validity  upon  his  vote,  together  with  St.  Louis  R.  R.  Co.  «.  Sage,  65  111. 
that  of  the  two  directors,  were  held  to  328;  Cheeney  v.  LaFayette,  Blooming- 
be  illegal.  See,  also,  Coleman  t>.  ton  &  Western  Ry.  Co.,  68  111.  570; 
Second  Avenue  R.  R.  Co.,  38  N.  Y.  American  Central  R.  R.  Co.  r.  Miles, 
201.  52  111.  174;  Gridley  r.  LaFayette,  B. 
•Holder  c.  LaFayette,  Blooming-  &  M.  Ry.  Co.,  71  111.  200;  LaFayette, 
ton&  Mississippi  Ry.  Co.,  (1873)  71  B.  &  M.  Ry.  Co.  c  C'heem-y.  s7  111 
111.  106.  It  was  said  by  the  court :  446;  Illinois  Linen  Co.  r.  Hough,  91 
"  [These  directors]  are  managing  a  111.  03. 

fund  as  trustees  for  the  stockholders;  'Freeman    0.   Stine,   (Pa.)  33  Leg. 

and  they    have    no    right  to  use  or  Int.  268;  Fareira  P.  Riter,  (Pa.)  38  Leg. 

apropriate  the  funds  of  their  cestuis  qne  Int.  450. 

trust  to  themselves.  They  have  no  *  Wayne  Pike  Co.  r.  Hammons, 
power  to  waste,  destroy,  give  away  or  (1891)  129  Ind.  368;  s.  c..  27  N.  E. 
misapply  it,  and  when  they  were  Rep.  487.  In  Emporium  Real  1 
elected  by  the  shareholders,  no  pro-  &  Manufacturing  Co.  r.  Emrie,  (1870) 
vision  having  been  made  for  their  54  111.  345,  it  was  held  that  the  presi- 
compensation,  the  stockholders  had  dent  of  the  corporation,  who,  claiming 
a  right  to  suppose  they  wt-re  acting  that  the  corporation  was  indebted  to 
under  the  common-law  rule,  that,  as  him  for  his  salary  as  president  and  for 
trustees,  they  could  not  claim  pay  services  as  attorney  at  law,  had 
ment  for  their  services."  See  Kirk  caused  the  secretary  of  the  corpora- 
Patrick  v.  Penrose  Ferry  Bridge  Co.,  tion  to  assign  to  him  certain  certifi- 
49  Pa.  St.  121;  Loan  Association  r.  cates  of  purchase  of  land  held  by  the 
Stum-met /..  29  Pa.  St.  534;  New  York  corporation,  and  in  their  possession  as 
&  N.  H.  R.  R.  Co.  r.  Ketclmm,  27  officers,  should  surrender  tli«-<c  certifi 
Conn.  170;  Henry  r.  Rutland  &  B.  R.  cates  to  the  corporation.  It  was  said 


280  FRAUDULENT  ACTS  OF  OFFICERS.  [§  196 

York  these  facts  were  shown :  That  the  corporation  had  been  man- 
aged by  the  owners  of  the  stock  in  harmony  and  at  a  small  salary 
until  the  president  of  the  corporation  wanted  a  part  of  the  plain- 
tiffs stock  ;  to  compel  the  sale  a  threat  was  made  to  raise  the 
salaries  of  the  officers.  A  subsequent  raise  of  the  salaries  fol- 
lowed. Again  there  was  the  same  refusal  to  sell,  another 
similar  threat,  and  this  was  followed  by  an  extremely  large 
increase,  and  this  was  followed  by  a  threat  that  there  must  bo 
another  increase  accompanied  by  an  averment  that  there  was  no 
limit  to  the  raise  except  the  will  of  the  trustees.  The  court  held 
that  the  action  of  the  trustees  in  the  matter  of  raising  the  salaries 
of  its  officers  was  a  spoliation  of  the  corporation  for  an  unworthy 
purpose,  and  trustees  would  not  be  permitted  to  act  in  such  a 
manner  with  the  corporation's  funds.1  A  majority  of  the  direct- 
ors, there  being  three,  and  all  stockholders  of  a  corporation,  hav- 
ing combined,  so  managed  the  business  of  the  corporation  as  to 
divert  all  the  profits  of  the  enterprise  from  their  legitimate  desti- 
nation, and  to  appropriate  them  to  their  own  use,  as  by  voting 
to  themselves  extraordinary  salaries,  the  chancellor  held  that  as 
they  had  in  part  executed  their  plan,  and  the  circumstances  ren- 
dered any  change  in  the  personnel  of  the  management  impracti- 
cable, a  proper  case  had  arisen  for  the  intervention  of  the  court 
to  make  a  division  of  the  assets.  He  also  held  that  such  a 

by  the  court :  ' '  The  claim  of  the  appearing  that  he  dissented  to  this 
president  hud  not  been  allowed  by  the  action,  could  be  recovered  of  him  by 
board  of  directors  or  by  a  committee  the  receiver  of  the  corporation  on  the 
appointed  by  them.  In  effect,  the  general  ground  of  equity  controlling 
president  audited  his  own  demand,  the  actions  of  directors  or  officers  of  a 
and  then  seized  upon  property  for  its  corporation  as  holding  a  fiduciary 
payment.  This  can  never  be  per-  position  in  connection  with  voting  or 
mitted  to  the  officers  of  corporations,  granting  anything  to  their  personal 
The  toleration  of  such  practice  would  advantage.  As  to  the  action  of  three 
be  destructive  of  the  rights  of  of  five  directors  of  a  corporation  in 
creditors  and  of  stockholders.  The  voting  a  salary  to  one  of  the  three  as 
assets  would  be  at  the  mercy  of  the  secretary  being  void,  see  Martin  v. 
officers,  who  have  no  legal  or  equita-  Santa  Cruz  Water  Storage  Co.,  (Ariz, 
ble  rights  to  control  them,  except  for  1894)  36  Pac.  Rep.  36. 
the  benefit  of  the  company."  In  '  Ziegler  t.  Hoagland,  (1889)  52 
Ashley  v.  Kinnan,  (Sup.  Court,  Spl.  Hun,  385;  s.  c.,  5  N.  Y.  Supp.  305, 
Term,  1888)  2  N.  Y.  Supp.  574,  it  was  affirming  the  judgment  restraining 
held  that  the  amount  received  by  an  such  conduct  on  the  part  of  the 
officer  presiding  over  the  board  of  trustees,  citing  to  the  point  Butts  r. 
trustees,  when  the  board  voted  him  a  Wood,  37  N.  Y.  317;  Ogden  v. 
salary  for  certain  services,  and  it  not  Murray,  39  N.  Y.  202. 


§  197]  FRAUDULENT  ACTS  OF  OFFICERS.  281 

trustee,  liaving  committed  a  breach  of  trust  by  deliberately 
extracting  and  •ppropimtmg  to  his  own  use  a  portion  of  the  trust 
fund,  maid  not  cure  the  breach  and  demand  the  further  custody 
of  the  fund  by  simply  restoring  it.1 

§  197.  Interest  upon  exorbitant  salary  voted  officer 
recoverable. —  There  was  a  contention  in  an  Indiana  case  that 
the  damages  assessed  by  the  court  were  too  large.  It  was  based 
upon  the  fact  that  the  court  allowed  interest  on  the  amount,  or 
a  portion  of  the  amount,  appropriated  or  used  by  the  appellants. 
The  argument  was  that  the  money  received  by  the  treasurer 
belonged  to  him  and  that  he  had  the  right  to  use  it  so  long  as  he 
furnished  the  amount  due  when  called  upon  to  do  so.  The 
Supreme  Court  said  of  this:  "The  argument  is  based  upon 
false  premises.  The  treasurer  of  a  private  corporation  does  not 
bear  that  relation  to  the  funds  which  come  into  his  hands  sus- 
tained by  a  public  officer.  A  public  officer,  when  called  upon  to 
account  for  moneys  which  come  into  his  hands,  as  such,  cannot 
excuse  himself  on  the  ground  that  the  funds  have  been  stolen,  or 
destroyed  without  his  fault,  because,  by  legal  fiction,  the  money 
is  supposed  to  belong  to  him,  and  he  must  bear  the  loss.  Such 
fiction  is  thought  to  be  necessary  for  the  safety  of  the  public 
funds.  But  it  is  not  so  with  the  treasurer,  or  agent,  of  a  private 
corporation.  If  the  funds  in  his  hands  are  lost,  or  destroyed, 
without  his  fault,  the  loss  is  the  loss  of  the  principal  and  not  the 
loss  of  the  treasurer  or  agent.  Mowbray  v.  Antrim,  123  Ind.  24. 
A  large  portion  of  funds  involved  in  this  suit  was  allowed  to  the 
secretary  and  treasurer,  as  salary,  and  presumably  he  used  the 
sum  so  allowed  him.  The  court  found  that  such  salary  was 
exorbitant  and  unreasonable  and  required  the  appellants  to 
account  for  all  the  funds  used  in  that  way  over  and  above  a 
reasonable  compensation  for  the  services  of  the  secretary  and 
treasurer.  If  these  funds  were  so  used,  we  know  of  no  good 
reason  why  those  who  used  them  should  not  account  for  the 
interest.  We  do  not  think  the  court  erred  in  charging  the 
appellants  with  interest  on  the  funds  which  came  into  their 
hands,  and  which  were  used  by  the  secretary  and  treasu/er  in  his 
private  business,  under  the  guise  of  an  exorbitant  salary.'** 

11  Fougcray  r.  Cord,  (1892)  50  N.  J.       '  Wayne    Hke  Company    r.    Ham- 
Eq.  185;  s.  c.,  24  All.  Rep.  499.  mons,  (1891)  129  Ind.  886,  378.  879. 

36 


282 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  198 


§  198.  Contracts  between  corporations  having  the  same 
directors  in  part. —  Where  the  managers  of  a  railroad  corpora- 
tion, acting  in  its  interests,  buy  a  controlling  interest  in  the  stock 
of  a  connecting  railroad  for  the  purpose  of  making  with  them- 
selves as  controlling  managers  of  the  connecting  road  contracts 
more  favorable  to  the  former,  and  accomplish  their  purpose,  the 
question  whether  the  contracts  are  fair  and  just  is  immaterial  in 
a  stockholder's  injunction  suit  to  restrain  the  execution  of  the 
contracts.1  A  construction  company  contracted  with  a  railway 


1  Pearson  v.  Concord  Railroad  Cor- 
poration, (1883)  62  N.  H.  537.  It 
was  said  by  the  court,  in  the  opinion: 
"A  director  of  a  railroad  corporation, 
though  not  technically  a  trustee,  stands 
in  a  fiduciary  relation  to  the  corpora- 
tion, and  is  under  the  disability  of  a 
trustee.  Practically,  the  directors  are 
trustees,  and  the  stockholders  are  the 
cestuis  que  trust.  Like  all  other  per- 
sons where  this  relation  exists,  he 
cannot,  as  buyer  for  his  corporation, 
buy  of  himself  against  the  objection  of 
his  cestui  que  trust,  nor  as  seller  for  the 
corporation  become  the  purchaser,  nor, 
being  its  agent  and  trustee,  contract 
with  himself  or  secure  to  himself  ad- 
vantages not  common  to  other  stock- 
holders, because  such  contracts  and 
relations  are  likely  to  bring  him  in 
conflict  with  his  duty  and  self-iuterest, 
and  tempt  him  to  be  unfaithful  to  the 
superior  obligations  he  has  assumed. 
[Citing]  Pierce  on  Railroads,  36;  Mo- 
raw,  on  Corp.,  §  215;  Ang.  &  Ames  ou 
Corp.  §  233.  note  a,  §  312;  Butts  v. 
Wood,  37  N.  Y.  317;  Hoyle  t>.  Rail- 
road, 54  N.  Y.  315,  328;  Blake  ». 
Railroad,  56  N.  Y.  485,  490;  Barnes  v. 
Brown,  80  N.  Y.  527,  535;  Duncomb 
t\  Railroad,  84  N.  Y.  190,  198;  Robin- 
son v.  Smith,  3  Paige,  222,  232;  Koeh- 
lerfl.  Iron  Company,  2  Black,  715,  721; 
Bliss  v.  Matteson,  45  N.  Y.  22;  1  Per. 
Tr.  §  207;  Booth  «.  Robinson,  55  Md. 
419,  436,  440.  *  *  *  In  England 
parliament  has  declared  by  statute  (8 
&  9  Viet.  chap.  16)  that  no  person  in- 


terested in  any  contract  with  a  corpo- 
ration shall  be  capable  of  being  a 
director  thereof,  and  if  any  director 
shall  directly  or  indirectly  be  concerned 
in  any  contract  with  the  corporation, 
his  office  shall  become  vacant.  The 
office  becomes  vacant,  although  in  a 
suit  at  law  between  the  parties  upon 
such  a  contract  the  contract  is  not  held 
void.  Foster  v.  Railway  Co. ,  13  C.  B. 
200.  Such  contracts  are  voidable  in 
equity  at  the  suit  of  a  stockholder. 
We  have  no  such  statute;  but  reason 
and  common  sense,  and  all  the  analo- 
gies of  the  law,  forbid  that  a  person 
should  act  in  a  position  of  trust  when 
self-interest  conflicts  with  duty.  The 
consciences  of  men  in  such  positions 
will  not  stand  the  strain  of  self-inter- 
est. We  approve  the  remarks  of 
WELCH,  J.,  in  Goodin  v.  Canal  Co.,  18 
Ohio  St.  169:  'A  director  whose  per- 
sonal interests  are  adverse  to  those  of 
the  corporation  has  no  right  to  be  or 
act  as  a  director.  As  soon  as  he  finds 
that  he  has  personal  interests  which  are 
in  conflict  with  those  of  the  company, 
he  ought  to  resign.  No  matter  if  a 
majority  of  the  stockholders  as  well  as 
himself  have  personal  interests  in  con- 
flict with  those  of  the  company.  He 
does  not  represent  them  as  persons,  or 
represent  their  personal  interest.  He 
represents  them  as  stockholders,  and 
their  interests  as  such.'  Rolling  Stock 
Co.  v.  Railroad,  34  Ohio  St.  465,  was  a 
stockholders'  bill  for  an  injunction. 
The  plaintiffs  board  of  five  directors 


§198] 


FRAUnri.KM   ACTS  OF  OFFICERS. 


corporation  for  the  construction  of  a  portion  of  its  road,  the  pay- 
ment to  l»e  made  in  the  mortgage  bonds  of  the  latter.  Two  of 
the  directors  of  the  railway  corporation  were  also  parties  in  the 
construction  contract.  The  other  parties  in  the  construction 
contract  agreed  to  assume  the  subscriptions  of  all  the  individual 
directors  of  the  railway  corporation  to  the  capital  stock  of  that 


wore  members  of  the  defendant's  board 
of  thirteen.  The  bill  was  dismissed 
because  not  seasonably  brought;  and 
the  remarks  of  the  court,  to  the  effect 
that  the  agreements  ought  to  be  set 
aside  was  valid  because  executed  by  a 
majority  of  the  board  without  the  in- 
terested directors,  would  seem  to  be 
dicta.  Ashhurst's  Appeal,  60  Pa.  St. 
291,  and  Watts'  Appeal,  78  Pa.  St.  870. 
are  sometimes  cited  to  the  point  that 
contracts  or  sales,  made  by  a  board  of 
directors  with  or  to  some  of  their 
number,  may  be  sustained  in  equity, 
and  the  remarks  of  the  court  are  to  the 
point  that  such  contracts  and  sales 
may  be  upheld  if  their  perfect  fair- 
ness is  shown.  These  cases  were  stock- 
holders' bills  to  set  aside  sales  of  prop- 
erty, upon  the  ground  of  a  violation  of 
fiduciary  duty.  Relief  was  denied  upon 
the  ground  that  the  applications  came 
too  late.  Flagg  v.  Kail  way  Co,  20  Blatch. 
142;  8.  c.,  21  Am.  Law  Reg.  775,  de- 
cides that  where  an  agreement  is  nmde 
by  the  directors  relinquishing  the  right 
to  a  guaranty  of  dividends  to  a  corpo- 
ration by  another  corporation,  the  exe- 
cution of  the  agreement  will  not  be 
enjoined  at  the  suit  of  a  stockholder, 
because  three  of  the  directors  voting 
were  also  stockholders  in  the  guarantor 
corporation,  it  appearing  that,  without 
counting  their  votes,  a  majority  of  the 
directors  voted  for  the  measure.  In 
Butts  0.  Wood,  38  Barb.  181;  s.  <  [mi 
appeal]  87  N.  Y.  817,  the  action  of  the 
majority  of  two  in  a  board  of  three, 
passing  upon  the  claim  of  a  third  <li 
rector,  who  also  voted,  was  ><  t  a-ode 
at  the  instance  of  one  of  the  >t<>ek 
holders.  St-r,  also.  Warden-  of  St. 


James  r.  Rector,  etc.,  Church  of  the 
Redeemer,  45  Barb.  856;  Kitchen  v. 
Railroad,  <>'.)  Mo.  -^i;  Railnmd  9.  Kelly, 
77  111.  420;  Koehler  t.  Black,  etc., 
Iron  Co.,  2  Black,  720;  Moraw.  on  ( 'or p. 
245,  and  cases;  1  Perry  on  Tr.  §  207, 
and  cases;  Pierce  on  Railroads,  36- 
40,  and  cases;  Green  Brice  Ultra  Vir. 
477,  note  (a)  and  cases.  Stockholders 
and  creditors  are  entitled  not  only  to  the 
vote  of  a  director  in  the  board  but  to 
his  influence  and  argument  in  discus- 
sion. Ogden  v.  Murray,  39  N.  Y.  202, 
207;  Railway  Co.  v.  Blakie,  1  Macq. 
(H.  L.  Cas.)  461,  where  the  court  said: 
'  It  was  Mr.  Blakie's  duty  to  give  his 
co-directors,  and  through  them  to  the 
company,  the  full  benefit  of  all  the 
knowledge  and  skill  which  he  could 
bring  to  bear  on  the  subject.'  In 
Barnes  c.  Brown,  80  N.  Y.  527,  536, 
the  court  said:  '  If  he  [plaintiff]  had 
attempted  to  perform  the  contract 
while  he  was  director,  the  stockholders 
could  probably  have  intervened  by 
some  suit  in  equity  adapted  to  the 
nature  of  the  case  to  nullify  the  con- 
tract as  to  him,  or  to  restrain  him  as 
to  the  performance  thereof,  or  to  com- 
pel him  to  elect  to  resign  his  office  of 
director,  or  to  give  up  the  contract.' 
Our  conclusion  upon  this  part  of  the 
case  is.  that  the  directors  of  the  Con- 
cord could  not  make  the  contracts  with 
the  upper  companies,  nor  settle  tin- 
claims  of  those  companies  against  the 
Concord.  For  the  transaction  of  that 
part  of  the  business  of  their  ollicc  they 
\\cre  disabled  by  the  underMandinir 
on  which,  the  purpose  for  which,  and 
i he  interest  in  and  by  which,  th'-y 

were  elected." 


284  FRAUDULENT  ACTS  OF  OFFICERS.  [§  198 

corporation  (which  was  worthless)  and  relieve  the  directors  from 
all  liability  under  it.  This  contract  the  Supreme  Court  of  the 
United  States  held  not  to  be  enforceable  in  equity  when  resisted 
by  stockholders  in  the  railway  corporation ;  and  the  bonds  issued 
under  it  to  the  construction  company  were  held  to  be  voidable  at 
the  election  of  the  parties  affected  by  the  fraud,  while  in  the 
hands  of  parties  who  took  them  from  the  construction  company, 
not  in  the  ordinary  course  of  business,  but  under  circumstances 
.which  threw  doubt  upon  their  being  holders  for  value  or  without 
notice.1  The  stockholders  had  been  allowed  to  come  into  the  suit 
for  foreclosure  of  the  mortgage  and  tiled  their  cross-bill.  The  court 
said :  "  In  this  condition  of  the  case  they  are  amenable  to  the 
rule  that  they  who  seek  equity  must  do  equity.  It  is  just  that 
they  should  pay  a  fair  price  for  what  they  have  received ;  that 
this  mortgage,  given  for  the  construction  of  the  road,  though 
excessive  by  reason  of  the  fraud  in  the  contract,  should  stand  for 
the  reasonable  value  of  what  the  company  actually  received  iu 
the  way  of  construction.  To  permit  these  intervenors  to  defeat 
the  mortgage  on  any  other  ground  would  be  unjust,  and  would 
make  the  court  the  instrument  of  this  injustice."8  In  a  leading 
Missouri  case,  where  a  railroad  corporation  was  not  in  financial 
condition  to  complete  its  road  in  all  its  branches,  which  was  essen- 
tial to  its  proving  profitable,  an  association  of  capitalists  was 
formed,  the  object  of  which,  as  expressed  in  its  articles,  was  the 
purchase  of  the  bonds  of  the  corporation,  and  ultimately,  if  found 
profitable  to  do  so,  the  purchase  of  the  road  itself,  provided  the 
association  could  obtain  control  of  the  company.  The  bonds  of 
the  corporation  were  subsequently  purchased  of  it,  and  the  asso- 
ciation allowed  to  name  a  majority  of  the  directors.  It  was 
insisted  that  this  transaction  was  fraudulent  by  reason  of  the 

'Thomas,    Trustee,   v.   Brownville,  indefensible."    Referring  to  Ward  ell 

Fort  Kearney  &  Pacific  R.   R.   Co.,  ».  Union  Pacific  R.  R.  Co.,  103  U.  8. 

(1883)  109  U.  S.  522;  s.  c.,  3  Sup.  Ct.  651,  and  same  case  in  4  Dill.  330,  as  in 

Rep.  315.     The  court  said:    "In   the  precise  analogy  to  this, 
present  case  the  stockholders  of  the       *  Thomas,    Trustee,    v.    Brownville, 

corporation,    whose   officers  accepted  Fort  Kearney   &  Pacific  R.   R.  Co., 

those  benefits  at  the  hands  of  the  par-  (1883)  109  U.  S.  522;  s.  c.,  3  Sup.  Ct. 

ties  with  whom  they  were,  in  the  name  Rep.  315.    As  to  the  effect  of  a  railway 

of  the  corporation,  making  a  contract  corporation  and  a  construction  com- 

for  over  a  million  of  dollars,  do  de-  pany  having  mainly  the  same  officers, 

nounce  and   repudiate  that  contract,  see  Davidson  r.  Mexican   National  R. 

The  conduct  of  these  directors  is  utterly  Co.,  58  Fed.  Rep.  653. 


§  198]  FRAUDULENT  ACTS  OF  OFFICERS.  i-'->."> 

control  of  the  corporation  being  Minvndm-d  to  the  association, 
and  because  the  latter  looked  to  the  ultimate  acquisition  of  the 
road.  These  facts  were  held  not  to  establish  fraud.1  It  was  also 
in.-i-tr,1  in  this  case  that  the  transaction  was  fraudulent  because, 
at  the  time  of  its  consummation,  three  of  the  tliirtivn  directors  of 
the  railroad  corporation  were  members  of  the  association  pur- 
chasing. The  court  held  that  this,  if  a  fact,  would  not  make  the 
sale  void.8  The  fact  that  shortly  after  the  contract  for  purchase 
of  bonds,  etc.,  was  proposed  to  the  railroad  corporation,  and 
before  its  acceptance,  several  of  the  directors  became  members  of 
the  association  was  held  to  render  the  contract,  when  made,  void- 
able only,  and  not  absolutely  void.8  It  was  further  held  in  this 

1  Kitchen  v.  St.  Louis,  Kansas  City  224;  citing,  as  authority,  Buell  r. 
&  Northern  Ry.  Co.,  (1878)  69  Mo.  Buckingham,  16  Iowa,  284;  Hartridge 
224.  The  court  said:  "There  is  noth-  v.  Rockwell,  R.  M.  Charlton's  Rep. 
ing  inconsistent  with  the  utmost  good  260;  Twin-Lick  Oil  Co.  r.  Marbury, 
faith  in  either  of  these  stipulations  [as  01  U.  8.  587. 

to  purchase  of  the  road  or  securing  con-  *  Kitchen  v.  St.  Louis,  Kansas  City 
trol  of  it].  The  last  might  well  have  &  Northern  Ry.  Co.,  (1878)  69  Mo. 
been  insisted  on  because  the  purchase  224.  The  court  said,  arguendo,  lead- 
ofthe  bonds,  if  made,  involved  and  ing  up  to  the  conclusion  stated  in  the 
would  require  millions  of  money,  text:  "  Viewing  the  transaction  as 
and  the  only  security  which  could  be  one  under  which  the  Missouri  liail- 
relinl  upon  to  save  harmless  those  who  road  Company  wus  to  receive  sufficient 
furnished  it,  would  be  a  faithful  and  money  to  complete  the  road,  as  therein 
honest  application  of  it  to  the  comple-  stipulated,  and  pay  the  interest  on  the 
tion  and  equipment  of  the  road,  first  mortgage  bonds  and  save  the  road 
Hence,  there  was  a  propriety  in  the  from  sale,  we  have  the  highest  author- 
demand  of  these  capitalists  that  they  it y  for  saying  that  it  was  not  void,  as 
should  have  a  controlling  voice  in  the  is  contended  by  plaintiffs.  In  the  case 
directory  in  order  that  the  money  (jir  of  the  Twin-Lick  Oil  Co.  r.  Marbury, 
iiishnl  miiilit  be  thus  applied  and  re-  91  U.  S.  588,  which  is  a  recently  :nxl 
suit  in  giving  thorn  ample  security  for  thoroughly  considered  ciise,  the  court, 
their  investment  in  the  bonds.  So,  in  after  recognizing  to  the  fullest  extent 
regard  to  the  first  stipulation,  '  to  buy  that  a  director  of  a  corporation  occu- 
the  road  ultimately,  if  deemed  profit-  pying  a  fiduciary  relation  in  his  deal- 
able  to  do  so,' it  may  be  said  that  there  ings  with  the  subject-matter  of  his 
was  nothing  illegal  or  fraudulent  in  trust  or  agency,  and  with  the  bene 
that  alone,  as  we  cannot  presume  and  flciary  whose  property  is  confided  to 
infer  from  it,  that  if  they  should  pur-  his  care,  is  viewed  with  jealousy,  and 
chase  they  would  purchase  it  in  iiny  that  his  acts  may  be  set  aside  on 
other  than  a  lawful  manner  and  under  slight  grounds,  declares  '  that  the  gen- 
circumstances  which  would  authorize  eral  doctrine  in  regard  to  contracts  of 
them  to  buy."  this  class  is  not  that  they  are  absolutely 

*  Kitchen  v.  St.  Louis,  Kansas  City  void,  but  that  they  are  voidable  on  the 
&  Northern  Ry.  Co.,  (1878)  69  Mo.  election  of  the  party  whose  interest 


286  FRAUDULENT  ACTS  OF  OFFICERS.  [§  199 

case  that  the  stockholders  in  meeting,  having  had  this  proposi- 
tion made  to  them  for  the  purchase  of  the  bonds  and  obtaining 
control  of  the  road,  etc.,  submitted  to  them  and  making  no  objec- 
tions, it  was  too  late,  after  the  lapse  of  five  years,  for  them  to 
impeach  the  transaction.1  The  mere  fact  that  the  president  of  a 
railroad  company,  unknown  to  the  other  directors,  is  interested 
in  a  construction  contract  let  by  the  company  would  not  make 
the  contract  void  if  it  be  otherwise  free  from  fraud.2 

§  199.  Issue  of  worthless,  or  overissue  of,  stock. —  Directors 
issuing  spurious,  worthless  stock  would  perpetrate  a  wrong  upon 
the  corporation  and  its  stockholders,  and  a  fraud  upon  every  one 
who  might  take  it  as  fully  paid-up  stock,  relying  upon  the  appear- 
ances and  deceived  thereby.3  In  case  an  attempted  organization  by 
failure  to  comply  with  the  statute  for  organizing  corporations  of 
its  kind  does  not  become  a  corporation  dejure,  and  cannot  legally 
issue  stock,  the  issue  of  stock  by  it  will  not  alone  make  the 
directors  liable  for  a  fraudulent  conspiracy  to  issue  worthless 
stock.4  Neither  can  an  intent  to  deceive  on  the  part  of  the 
directors  be  inferred  from  such  issue  of  worthless  stock,  and  the 
fact  that  the  nominal  is  largely  in  excess  of  the  actual  capital.5 
One  who  had  purchased  shares  of  stock  of  a  corporation,  the 
managing  officers  of  which,  president,  vice-president  and  director 
and  treasurer,  had  made  an  overissue  of  stock  for  a  large  amount 

has  been  so  represented  by  the  party  be  given.'    The  same  doctrine  was,  in, 

claiming  under  it.     While  it  is  true  the    strongest    terms,    announced    iu 

that  a  director    of    a    corporation  is  Judge  RYLAND'S  opinion  in  the  case 

bound  by  all  those  rules  of  couscien-  of  The  City  &  County  of  St.  Louis  v. 

tious  fairness  which  courts  of  equity  Alexander.  23  Mo.  528,  and   the  HU- 

have  imposed  as  guides  for  dealing  in  thorities  cited,  upon  which  the  opinion 

such  cases,  it  cannot  be  maintained  is  based." 

that    any    rule    forbids    one  director  '  Kitchen  ®.  St.  Louis,  Kansas  City 

among  several  from  loaning  money  to  &  Northern  Ry.  Co.,  (1878)  69  Mo.  224. 

the  corporation  when  the  money  is  2  Augusta,  Tallahassee  &  Gulf  R. 

needed  and  the  transaction  is  open  and  Co.  ®.  Kittel,  (1892)  52  Fed.  Rep.  63. 

otherwise  free  from  blame.     *    *    *  s  Barnes  v.  Brown,  (1880)  80  N.  Y. 

No  adjudged  case  has  gone  so  fa*  as  527,   534;  citing   Mechanics'   Bank  0. 

this.     Such  a  doctrine,  while  it  would  New  York  &  New  Haven  R.  R.  Co., 

afford  but  little  protection  to  the  cor-  18   N.  Y.  599;  Bruff  ®.  Mali,  36  N.  Y. 

poration  against  actual  fraud,  would  200;  Morgan  v.  Skiddy,  62  N.  Y.  319; 

deprive  it  of  the  aid  of  those  most  Shotwell  v.  Mali,  38  Barb.  445. 

interested  in  giving  aid  and  best  quali-  4  Nelson  v.  Luling,  (1875)  62  N.  Y. 

ned  to  judge  of  the  necessity  of  that  645. 

aid  and  the  extent  to  which  it  might  6  Ibid. 


..'    1  99  J  FRAUDULENT  ACTS  OF  OFFICERS.  287 

and  converted  tin-  proceeds  to  their  own  use,  was  held  to  have 
1  a  good  cause  of  action  in  his  complaint  against  those  officers 
in  alleging  the  ahov.c  facts,  and  the  further  allegation  that  by  the 
ovcri.->ue  of  stock  the  genuine  stock,  including  that  held  by  him- 
self, was  rendered  valueless  and  became  unsalable.1  Officers  of  a 
corporation  issuing  false  certificates  of  stock  authenticated  by 
i hem  as  genuine  and  placed  by  them  on  the  market  with  fraudu- 
lent intent,  are  liable  to  every  holder  into  whose  hands  they  may 
come  by  fair  purchase.2  In  a  Vermont  case,  where  the  treasurer 
of  the  corporation  had  fraudulently  overissued  stock  of  the  cor- 
poration and  sold  the  same  for  money,  it  was  held  that  the  cor- 
poration might  recover  in  general  a->unij»it  from  him  the  money 
he  had  received  for  such  stock,  where  the  spurious  stock  had 
become  so  intermingled  with  the  genuine  as  to  be  indistinguishable 
and  the  corporation  had  been  compelled  to  and  had  treated  it  as 
genuine.3  Further,  that,  although  the  stock,  when  issued,  may 
have  been  absolutely  void,  and  the  issuing  of  it  by  the  treasurer 
a  crime,  the  treasurer  could  not  allege  the  illegality  of  his  act  as 
a  reason  why  he  should  not  pay  over  the  money.4 

•Cazeaux  r.    Mali,   (1857)  25  Barb.        4Ibid.     In  Wright's  Appeal,  (1882) 

578;  H.  c.,  as  Mead  r.  Mali,  15  How.  Pr.  99  Pa.  St.  425,  the  president  of  a  rail- 

347.      See,  also,   Wells  r.   Jewi-tt,  11  way  corporation,  it  appeared,  induced 

How.  Pr.  242;  Hell  r.  Mali,   11  How.  a   stockholder    in  the  corporation  to 

Pr.  254.  surrender  to  him  her  shares  of  stock, 

*  Bruff  r.  Mali,  (1867)  36  N.  Y.  200;  together  with  blank  powers  of  attor 

Seiser  r.  Mali,  6  Abb.   Pr.  270,  note;  ney  to  transfer  the  same,  by  means  of 

Shotwell  «.    Mali,  38  Barb.  445.     For  false  representations   that   they  were 

a  case  illustrating  under  what  circum-  needed  to  aid  the    corporation.     Ho 

stances  the  purchasers  of  stock  eudau-  gave   to  her  his  individual   due   bill, 

gered    thereby    would    not   have    a  transferred  the  stock  and  embezzled 

remedy  in  equity  against  the  fraudu-  the  proceeds.     Subsequently,  by  com- 

lently  acting  directors,  see   Morrison  bination  with  other  officers,  he  fraudu- 

e.  Globe  Panorama  Co.,  28  Fed.   Rep.  lently  issued  stock   in  excess  of   the 

817.    Fraudulent  issue  of  stock:  Clark  charter  limit,  and  of  this  overissue  of 

t».  American  Coal  Co.,  (Iowa,  1894)  53  stock  he  awarded    to  the  use    from 

N.  W.  Hrp.  291;  Citizens'  Nat.  Bank  whence  he    had    secured    the  shares 

of  Cincinnati  r.  Cincinnati,  N.  O.  &T.  which    he    transferred  a  number    of 

R.  Ry.  Co.,  29  Wkly.    Law   Bull.  15;  shares  equal   to  the   number  of  her 

Brown  r.  Duluth,  M.  &  N.   Hy.  Co.,  voted  shares.     In  an  equity  proceed  - 

53  Fed.    Hep.    889;    Florida   Land  &  ing  by  her  to  determine  her  rights  and 

Imp.  Co.  r.  Merrill,  52  Fed.   Rep.  77;  the  corporation's  growing  out  of  this 

8.  c.,  2  C.  C.  A.  629.  trnnstiction,     the     Supreme   Court  of 

1  Rutland    Railroad   Co.    r.   Haven.  Pennsylvania  held   that  site  must  bear 

(1889)  62  Vt.  89;   s.  c.,   19  All.    Hep.  the  loss  resulting  from  the  embezzle 

769.  ineut  by  the  p resident  of  the  funds  re- 


288  FRAUDULENT  ACTS  OF  OFFICEES.  [§  200 

§200.  False   representations   of  officers  —  deceit — The 

directors  of  a  corporation  are  personally  liable  to  persons  who 
may  sustain  loss  in  consequence  of  false  representations  made  by 
the  directors  to  them  or  to  the  public  at  large,  such  representa- 
tions being  fraudulently  and  designedly  made,  or  ignorantly 
made,  concerning  facts  susceptible  of  knowledge,  and  of  which 
it  is  the  official  duty  of  the  directors  to  obtain  correct  informa- 
tion.1 A  stockholder  in  this  Texas  case  had  been  induced  by  the 
representations  of  these  directors  to  deposit  money  with  the  com- 
pany, which  was  then  insolvent,  and  these  directors  had  accepted 
the  deposits  and  applied  them  to  the  payment  of  a  debt  for  which 
they  were  sureties.  The  court  held  that  the  directors  were 
estopped  in  this  action  to  charge  them  personally  to  set  up 
as  a  defense  their  want  of  authority  to  receive  the  deposits.2 
It  was  further  held  that  the  fact  that  the  plaintiff  was  a  stock- 
holder and  had  access  to  the  books  of  the  concern,  and  the  means 
of  knowing  its  true  condition  would  not,  of  itself,  prevent  a 
recovery  against  the  directors.3  Persons  representing  to  the  pub- 
lic that  a  corporation  had  been  regularly  organized,  in  circulars 
signed  by  them  as  regularly  elected  officers,  and  prematurely 
issuing  stock  certificates,  one  purchasing  such  certificates  will  be 
entitled  to  recover  damages  for  his  injury,  the  result  of  such  pur- 
chase, irrespective  of  any  intent  on  their  part  to  defraud  him  in 
particular.4  In  an  action  against  the  directors  of  an  insurance 

suiting  from  a  sale  of  her  valid  shares,  holder  in  a  corporation  has  as  much 

and  that  the  shares  he  issued  to  her  right  to  protection  against  the  fraudu- 

in  excess  of  the  charter  limit  were  lent  acts  of  the  trustees  or  directors  as 

invalid  and  valueless.  The  ground  any  one  else,  if, '  indeed,  he  has  not 

was  that,  under  the  facts  of  the  case,  more  right,  although  on  account  of 

the  president  was  acting  as  her  agent  his  access  to  the  books,  he  may  be 

and  not  as  agent  for  the  corporation,  held  to  greater  care  in  his  dealings 

For  another  case  involving  the  fraudu-  with  the  corporation."  As  to  what 

lent  issue  of  stock  by  this  president  of  would  be  proper  instructions  to  the 

this  railroad  corporation,  see  Mount  jury  in  an  action  of  deceit  to  charge  a 

Holly  Paper  Co.'s  Appeal,  (1882)  12  president  of  a  corporation  with  the 

W.  N.  C.  (Pa.)  228.  debt  of  the  corporation  by  reason  of 

1  Kinkier  v.  Junica,  (1892)  84  Tex.  his  representations  to  a  creditor  as  to 

116;  s.  c.,  19  S.  W.  Rep.  359,  adhering  the  solvency  of  the  corporation,  see 

to  Scale  T.  Baker,  70  Tex.  286;  s.  c.,  7  King  v.  Davis,  (1891)  61  Hun,  627;  s. 

S.  W.  Rep.  742.  c.,  16  N.  Y.  Supp.  427. 

'Kinkier  t>.  Junica,  (1892)  84  Tex.  4Fenn  v.  Curtis,  (1881)  23  Hun, 

116;  s.  c.,  19  S.  W.  Rep.  359.  384. 

slbid.     The  court  said:  "A  stock- 


§  200]  FRAUDULENT  ACTS  OF  OFFICERS. 

corporation  for  damages  incurred  by  one  who  had  been  induced 
by  a  statement  made  by  its  officers  as  to  its  assets,  to  insure 
his  property,  and  had  met  with  a  loss,  which,  by  reason  of  the 
utter  insolvency  of  the  corporation,  he  was  unable  to  make  good 
out  of  the  corporation,  based  upon  the  misfeasance  of  the  direct- 
ors in  fraudulently  permitting  such  statement  to  be  made,  one  of 
tin-  defendants  denied  his  participation  in  the  fraud,  and  all 
knowledge  that  certain  bonds  belonging  to  him  were  represented 
in  the  official  published  statement  as  property  of  the  company. 
The  Supreme  Court  of  Connecticut  held  that  evidence  was 
admissible  on  the  part  of  the  plaintiff  to  show  that  the  president 
and  another  director  of  the  corporation  had,  shortly  before  the 
publication  of  the  statement,  solicited  the  director  denying  his 
liability  to  make  some  arrangement  by  which  the  bonds  could  be 
represented  to  be  the  property  of  the  corporation ;  also,  that  a 
receipt  given  by  him  to  the  corporation,  acknowledging  that  the 
bonds  were  the  property  of  the  corporation,  and  were  held  by 
him  subject  to  its  order,  was  admissible  ;  further,  that  his  acts 
after  the  plaintiff  had  taken  his  policy,  not  in  themselves  inde- 
pendent, but  connected  with  and  growing  out  of  the  previous 
fraudulent  purpose,  were  admissible  to  show  his  knowledge  of, 
and  participation  in,  the  fraud.1  The  United  States  Supreme 
Court  affirmed  the  sustaining  of  a  demurrer  to  a  bill  filed  by 
bondholders  against  the  president  of  a  railroad  corporation  and 
others,  to  make  him  liable  to  them  on  allegations  of  fraudulent 
representations  on  his  part  as  to  the  length  of  the  road,  a  mort- 
gage on  which  was  to  be  a  part  of  the  security  for  the  payment 
of  the  bonds,  and  for  fraudulently  allowing  a  misapplication  of 
the  moneys  realized  upon  the  sale  of  the  bonds  to  them,  etc. 
They  held  that  the  allegation  in  the  bill  that  the  president 
received  money  from  the  sale  of  the  bonds,  but  not  averring  that 
the  bondholders  had  obtained  judgment  against  the  corporation 
upon  their  bonds,  and  that  execution  issued  on  the  judgment 
against  the  corporation  had  been  returned  nulla  boiia,  showed 
nothing  entitling  the  bondholders  to  relief  in  equity  as  a  creditor 
of  the  corporation  ;  further,  that  the  president  of  such  a  corpora- 
tion held  no  fiduciary  relation  to  the  bondholders  of  the  corpora- 
tion which  required  him,  as  their  trustee  or  agent,  to  see  to  the 

1  Salmon  r.  Richardson,  (1862)  30  Conn.  860. 

37 


290  FRAUDULENT  ACTS  OF  OFFICERS.  [§  200 

proper  application  of  the  moneys  received  by  the  corporation 
from  the  sale  of  the  bonds,  or  to  account  to  the  bondholders  for 
any  surplus  from  the  proceeds  of  their  bonds  after  constructing 
the  works  for  which  they  were  issued  ;  that  his  fiduciary  relations 
and  duties  in  these  respects  were  to  the  corporation  and  its  stock- 
holders, and  not  to  the  creditors  of  the  corporation ;  that  the 
representations  made  in  the  circular  issued  under  his  name  were 
the  representations  of  the  corporation,  and  in  no  respect  his  per- 
sonal representations.1  The  president  of  a  manufacturing  cor- 
poration writing  to  induce  one  to  purchase,  and  pay  in  cash  for 
it  $10,000,  value  of  its  stock  at  par,  offered  a  position  for  her  son, 
and  represented  to  her  by  letter  that  the  corporation  was  in  a 
flourishing  condition,  and  that  there  had  been  paid  a  dividend  of 
seven  per  cent  upon  the  stock,  as  she  reasonably  understood  the 
letter,  nine  months  before,  when  in  fact  it  was  paid  one  year 
before  that  date.  This  was  three  months  before  the  close  of  a 
fiscal  year,  and  when  that  period  of  time  was  reached,  she 
expected  a  dividend,  but  was  informed  that  the  condition  of  the 
corporation  was  such  that  the  managers  had  deemed  it  best  to 
withhold  declaring  a  dividend.  This  president,  it  afterwards,  in 
her  action  by  bill  in  equity,  developed,  had  sold  certain  recipes 
and  good  will,  etc.,  for  manufacturing  the  articles  which  they 
manufactured,  which  were  utterly  worthless,  and  for  which  he 
had  been  paid  largely  out  of  the  money  she  paid  in  for  stock 
purchased  under  the  inducements  he  had  held  out  to  her,  and 
upon  his  representations.  Her  bill  was  filed  against  the  corpora- 
tion and  the  president  for  recovery,  account,  etc.,  to  have  the 
assets  of  the  corporation,  in  so  far  as  they  would  be  available  to 
her  claim,  for  the  amount  of  money  she  had,  in  the  mode  pro- 
posed to  her,  contributed  to  the  corporation,  and  for  general 
relief  for  the  deficiency  against  the  president  on  account  of  his 
fraudulent  representations  and  wrongdoings  in  the  management 
of  the  corporation's  finances  in  his  own  interest  by  which  she  was 
damaged.  It  was  contended,  before  the  Supreme  Court  of  the 
United  States,  that  the  court  had  no  jurisdiction  in  equity,  as 
against  him.  The  court  sustained  its  jurisdiction  on  the  various 
grounds  of  equity  as  shown  in  the  allegations  of  the  bill,  and  the 
findings  as  to  the  facts,  and  affirmed  the  decree  in  her  favor  for 
the  deficiency  against  the  president  of  the  corporation  individu- 

1  Van  Wed  r.  Winston,  (1885)  115  U.  S.  228;  s.  c.,  6  Sup.  Ct.  Rep.  22. 


§  200]  FRAUDULENT  ACTS  OP  OFFICERS.  291 

ally.1  An  officer  of  a  corporation  making  false  statements  with 
reference  to  the  financial  status  of  the  corporation,  and  thereby 
inducing  an  exchange  of  property  by  another,  for  such  stock, 
would  be  liable  to  the  latter  in  a  personal  action  for  the  damages 
caused  to  him  by  the  transaction.2  This  would  be  true  even  if 
the  false  statement  be  made  by  the  officers  in  a  statement  as  to 
the  resources  and  liabilities  of  the  corporation,  required  by  stat- 
ute, if  such  statement  is  relied  upon  in  purchasing  the  Stock.8 
Where  several  persons  engage  in  business  jointly,  and,  to  facilitate 
such  business,  use  a  corporate  name  and  issue  stock,  and,  in  the 
promotion  of  the  scheme,  false  representations  are  made  by  those 
holding  themselves  out  as  promoters  and  managers  of  the  busi- 
ness, as  to  the  material  facts  of  inducement  and  as  to  matters 
peculiarly  within  the  knowledge  of  all  the  associates  or  their 
agents,  all  those  engaged  in  the  promotion  of  the  business,  as 
associates  of  those  making  the  false  representations,  are  liable  to 
those  who,  relying  upon  such  representations,  purchase  stock  to 
their  cost  and  injury.4 

1  Tyler  t.  Savage,  (1892)  143  U.  8.  Barb.  121.    See,  also,  Bagshaw  t>.  Sey- 

79;  s.  c.,  12  Sup.  Ct.  Rep.  340.     Mr.  mour,  4  C.  B.  (N.  8.)  873. 

Justice  BLATCIIFOIUJ,  referring  espe-  8  Morse  v.  Swits,  19  How.  Pr.  275. 

daily  to  the  statement  as  to  the  prior  '  Hornblower   c.  Crundall,  (1879)   7 

declaration  of  a  dividend,  in  his  letter  Mo.  App.  220;  affirmed  in  Horublower 

to  complainant,  said:  "  This  supprcs-  v.  Crandall,  (1883)  78  Mo.  581.     It  was 

sion  of  a  material  fact  [the  date  when  said  in  Hornblower  r.  Crandall,  7  Mo. 

the  dividend  was  actually  declared]  App.    220,    232:    "The   doctrine    by 

which  Tyler  [the  president]  was  bound  which  the  defendants  are  here  made 

in  good  faith  to  disclose,  was  equiva-  liable  is  a  well-settled  doctrine.     Per- 

lent  to  a  false  representation.     Stewart  sons  investing  in  stock,  under  circum- 

t.  Wyoming   Ranche  Co.,  128  U.  8.  stances  like  the  present,  have  a  right 

888,  888.     The  effect  of  the  fraud  com-  to  confide  in  those  who  hold  themselves 

mittcd  by  Tyler  inured  directly  to  his  out  as  the  promoters  and  managers  of 

personal  advantage.    Not  only  was  he,  a  business  which  they  are  carrying  on, 

as  a   large    stockholder   and   salaried  so  far  as  concerns  representations  made 

officer,  benefited  by  the  plaintiff's  pay-  by  such  promoters,  or  under  their  au- 

ment  into  the  treasury  of  the  company  thority,  as  to  material  facts  of  induce- 

of  the  $10,000,  but,  as  already  shown,  ment  peculiarly  within  the  knowledge 

$6,200   of  that  sum  went  directly  to  of    the  associates    or    their    agents." 

his  benefit,  and  the  remainder,  he  tes-  Citing  Cross  r.  Sackett,  2  Bosw.  617; 

tifies,  went  to  the  purchase  of  material  Cazeaux  P.  Mali.  25  Barb.  583;  Simons 

and  ordinary  expenses  of  the  company,  r.  Vulcan,  etc.,  Co.,  61  Pa.  St.  202; 

The  latter  amount  enabled  the  com-  Morgan  r.  Skiddy,  62  N.  Y.  819;  Mll- 

pany  to  continue  paying  to  Tyler  his  ler  t>.  Barber,  66  N.  Y.  558;  Bradley 

salary  for  some  time  longer."  r.  Poole.  98  Mass.  169;  New,  etc.,  Co. 

•  Newbery     «.    Garland,    (1860)   81  t .  Erlanger,  4  Cent.  L.  J.  510. 


292  FRAUDULENT  ACTS  OF  OFFICEHS.  '  [§  201 

§  201.  A  leading  English  decision  on  this  subject. —  In  a 
comparatively  late  English  case,  an  action  of  deceit  brought  by  a 
shareholder  against  the  directors  of  a  tramway  company,  based 
upon  statements  in  a  prospectus  which  they  issued,  which  induced 
him  to  purchase  his  shares,  it  appeared  that  the  company  was 
incorporated  with  the  right  to  move  their  carriages  by  animal 
power,  and,  with  the  consent  of  the  board  of  trade  of  the  city,  by 
steam  power.  It  was  stated  in  the  prospectus  that  the  company 
had  the  right  to  use  steam  power  instead  of  horses.  On  the  faith 
of  this  statement  the  plaintiff  purchased  his  shares.  The  board  of 
trade  afterwards  refused  their  consent  to  the  use  of  steam  power 
and  the  company  was  wound  up.  The  justice  before  whom  the 
action  was  first  tried  gave  a  decision  upon  the  case  made  before 
him  in  favor  of  the  directors.  This  decision  was  reversed  by  the 
Court  of  Appeal.1  Upon  appeal  to  the  House  of  Lords,  the  Court 
of  Appeal's  decision  was  reversed  and  the  trial  justice's  decision 
restored.  The  decision  of  the  House  of  Lords  was  that  the  direct- 
ors were  not  liable,  inasmuch  as  their  statement  in  the  prospectus 
as*  to  the  use  of  steam  power  was  made  by  them  in  the  honest 
belief  that  it  was  true.  The  main  opinion  in  the  case  was  by  Lord 
HERSCHELL,  whose  discussion,  treatment  of  and  conclusions  from 
all  the  leading  English  cases  upon  actions  of  deceit  were  accepted 
by  the  others  in  their  opinions.  These  conclusions  were  thus 
summarized  and  stated  by  Lord  HERSCHELL  :  u  First.  In  order  to 
sustain  an  action  of  deceit  there  must  be  proof  of  fraud  and  noth- 
ing short  of  that  will  suffice.-  Secondly.  Fraud  is  proved  when  it 
is  shown  that  a  false  representation  has  been  made  knowingly  or 
without  belief  in  its  truth,  or  recklessly  careless  whether  it  be 
true  or  false.  Although  I  have  treated  the  second  and  third  as 
distinct  cases,  I  think  the  third  is  but  an  instance  of  the  second, 
for  one  who  makes  a  statement  under  such  circumstances  can 
have  no  real  belief  in  the  truth  of  what  he  states.  To  prevent  a 
false  statement  being  fraudulent  there  must,  I  think,  always  be 
an  honest  belief  in  its  truth.  And  this  probably  covers  the  whole 
ground,  for  one  who  knowingly  alleges  that  which  is  false  has 
obviously  no  such  honest  belief.  Thirdly.  If  fraud  be  proved, 
the  motive  of  the  person  guilty  of  it  is  immaterial.  It  matters 
not  that  there  was  no  intention  to  cheat  or  injure  the  person  to 
whom  the  statement  was  made.  *  *  *  In  my  opinion,  mak- 

1  See  Peek  c.  Deny,  37  Ch.  Div.  541. 


§202] 


FRAUDULENT  ACTS  OF  OFFICERS. 


ing  a  false  statement  through  want  of  care  falls  far  short  of,  and 
is  a  very  different  thing  from,  fraud,  and  the  same  may  be  said 
of  a  false  representation  honestly  believed,  though  on  insufficient 
grounds.  *  *  *  1  am  unable  to  hold  that  anything  less  than 
fraud  will  render  directors  or  any  other  persons  liable  in  an  action 
of  deceit." l 

§202.  The  rule  adhered  to  in  England. —  In  a  later  Eng- 
lish case  it  appeared  that  one  who  was  the  principal  partner  in  a 
trading  firm  concurred  in  steps  for  turning  the  partnership  into  a 
company  with  limited  liability.  His  name  appeared  on  the 
prospectus  as  managing  director  of  the  new  company,  with  a  note 
that  he  would  not  join  the  board  till  after  the  transfer  of  the 


1  Derry  t.  Peek,  (1889),  14  App.  Cas. 
887.  Lord  HERSCHEL.L  took  occasion 
to  say  further:  "  At  the  same  time  I 
desire  to  say  distinctly  that  when  a 
false  statement  has  been  made  the 
questions  whether  there  were  reason- 
able grounds  for  believing  it,  and  what 
were  the  means  of  knowledge  in  the 
possession  of  the  person  making  it, 
are  most  weighty  matters  for  consid- 
eration. The  ground  upon  which  an 
alleged  belief  was  founded  is  a  most 
important  test  of  its  reality.  I  can 
conceive  many  cases  where  the  fact 
that  an  alleged  belief  was  destitute  of 
all  reasonable  foundation  would  suf- 
fice of  itself  to  convince  the  court 
that  it  was  not  really  entertained,  and 
that  the  representation  was  a  fraudu- 
lent one.  So,  too,  although  means  of 
knowledge  are,  as  was  pointed  out  by 
Lord  BLACKBUKN  in  Brownlie  v. 
Campbell,  (o  App.  Cas.  at  page  952), 
a  very  different  thing  from  knowl- 
edge, if  I  thought  that  a  person 
making  a  false  statement  hod  shut  his 
eyes  to  the  facts,  or  purposely  ab- 
stained from  inquiring  into  them,  I 
should  hold  that  honest  belief  was  ab- 
sent, and  that  he  was  just  as  fraudu- 
lent as  if  he  had  knowingly  stated 
that  which  was  false.  I  have  arrived 
with  some  reluctance  at  the  conclu- 


sion to  which  I  have  felt  myself  com- 
pelled, for  I  think  those  who  put 
before  the  public  a  prospectus  to  in- 
duce them  to  embark  their  money  in  a 
commercial  enterprise  ought  to  be 
vigilant  to  see  that  it  contains  such 
representations  only  as  are  in  strict 
accordance  with  fact,  and  I  should  be 
very  unwilling  to  give  any  counte- 
nance to  the  contrary  idea.  I  think 
there  is  much  to  be  said  for  the  view 
that  this  moral  duty  ought  to  some 
extent  to  be  converted  into  a  legal 
obligation,  and  that  the  want  of  rea- 
sonable care  to  see  that  statements 
made  under  such  circumstances  are 
true  should  be  made  an  actionable 
wrong.  But  this  is  not  a  matter  for 
fit  discussion  on  the  present  occasion. 
If  it  is  to  be  done  the  legislature  must 
intervene  and  expressly  give  a  right 
of  action  in  respect  of  such  a  depar- 
ture from  duty.  It  ought  not,  I 
think,  to  be  done  by  straining  the  law, 
and  holding  that  to  be  fraudulent 
which  the  tribunal  feels  cannot  prop- 
erly be  so  described.  I  think  mischief 
is  likely  to  result  from  blurring  the 
distinction  between  carelessness  and 
fraud  and  equally  holding  a  man 
fraudulent  whether  his  acts  can  or 
cannot  be  justly  so  designated." 


294  FRAUDULENT  ACTS  OF  OFFICERS.  [§  203 

business  of  the  company  had  been  completed.  lie  did  not  issue 
the  prospectus,  but  furnished  materials  for  it ;  saw  it  in  draft, 
though  not  in  its  final  shape,  and  made  alterations  in  it.  It  was 
held  by  the  Court  of  Appeal  that,  under  the  circumstances,  he 
was  liable  to  the  same  extent  as  if  he  had  been  the  person  issuing 
the  prospectus.  The  prospectus  contained  a  statement  that  the 
business  had  paid  seventeen  per  cent  upon  the  capital  employed 
in  it.  This  statement,  it  appeared,  might  be  true  if  "capital 
employed"  did  not  include  the  business  premises,  or  only  included 
their  value  subject  to  mortgages  upon  them,  but  was  grossly 
untrue  if  the  whole  value  of  the  business  premises  was  taken  as 
part  of  the  capital.  This  action  was  brought  by  one  who  had 
taken  shares  on  the  faith  of  the  prospectus  for  damages  for  mis- 
representations. The  Court  of  Appeal  held  that,  in  order  to  make 
a  person  liable  for  damages  for  misrepresentation,  it  was  not 
enough  that  the  statement  should  be  untrue,  and  made  without 
any  reasonable  ground  for  believing  it  to  be  true,  but  it  must  be 
made  dishonestly  ;  that  the  onus  of  proving  dishonesty  lay  on  the 
plaintiff ;  that  if  the  party  making  the  statement  believed,  how- 
ever unreasonably,  that  it  was  true,  he  was  not  liable.  And  as 
the  plaintiff  in  this  case  had  not  shown  that  the  statement  was 
made  dishonestly,  the  Court  of  Appeal  reversed  the  judgment 
and  dismissed  the  action.1 

§203.  Officers  conspiring  to  wreck  a  corporation. —  The 
power  given  to  a  president  of  a  corporation  to  borrow  money 
will  not  embrace  the  power  to  buy  stock  in  the  corporation,  or 

1  Glasier  v.  Rolls,  (1889)  42  Ch.  Div.  Russ.  297;  Blain  t.  Agar,  1  Sim.  37; 
436,  following  Deny  v.  Peek,  14  App.  Gerhard  v.  Baley,  20  Eng.  Law  &  Eq. 
Cas.  337.  As  to  the  liability  of  cor-  Rep.  130;  Colman  v.  Riches,  29  Eng. 
poration  and  officers  making  them  for  Law  &  Eq.  Rep.  323:  Hichens  v.  Con- 
damages  resulting  to  individuals  from  greve,  4  Russ.  562;  Walburn  t>.  In- 
false  statements  of  such  officers  in  gilby,  1  Mylne  &  K.  61;  Foss  v.  Har- 
prospectuses  or  otherwise,  see  Moffat  bottle,  2  Hare,  461;  Pasley  p.  Free- 
v.  Winslow,  7  Paige,  124;  National  man,  3  Term  Rep.  51;  Shrewsbury®. 
Exchange  Co.  v.  Drew,  32  Eng.  Law  Blount,  2  Scott's  N.  R.  588;  Gallager 
&  Eq.  Rep.  1,  14;  Pontife  v.  Bignold,  r.  Brunei,  6  Cowen,  346;  Allen  v.  Ad- 
3  Man.  &  Gr.  63;  Bagshaw  v.  Sey-  dington,  7  Wend.  9;  Bailey  r.  Mayor, 
mour,  93  Eng.  Com.  Law  Rep.  873;  etc.,  3  Hill.  531;  City  of  Buffalo  t>. 
Johnson  v.  Goslett,  3  C.  B.  (N.  S.)  llolloway,  3Seld.  493;  Culver  p.  Avery, 
569;  Colt  v.  Woolaston,  2  P.  Wms.  7  Wend.  384;  Upton  v.  Vail,  6  Johns. 
154;  Green  v.  Barrett,  1  Sim.  45;  181;  Barney  v.  Dewey,  13  Johns.  224; 
Jones  v.  Garcia  Del  Rio,  1  Tur.  &  Williams  v.  Wood,  14  Wend.  126. 


§  2<>4]  FRAUDULENT  ACTS  OF  OFFICERS. 

other  corporate  stocks  or  such  articles  as  the  corporation  may 
need  in  its  business.  Upon  this  construction  of  such  a  power 
given  to  a  president  of  a  corporation  in  an  Illinois  case  where  it 
appeared  that  the  president  of  a  private  corporation,  who  held  a 
controlling  share  of  the  stock,  was  given  the  power  to  l>orrow 
money,  sold,  as  the  agent  of  his  wife,  her  Mock  t<>  the  company, 
and  gave  her  judgment  notes  payable  on  demand,  for  such  stock, 
upon  which  notes  judgment  was  confessed  in  favor  of  the  wife, 
under  which  judgment  all  the  corporate  property  was  sold,  and 
the  proof  showed  that  the  president,  in  the  transaction,  was  seek- 
ing to  break  down  the  corporation,  and  transfer  its  property 
fraudulently  to  his  wife,  and  there  being  proof  of  a  conspiracy 
on  the  part  of  the  president  and  secretary  to  wreck  the  corpora- 
tion, the  Supreme  Court  held  that  the  sales  of  the  corporate 
property  under  the  judgments  conferred  were  properly  set  aside 
on  the  bill  of  stockholders  and  creditors  filed  for  that  purpose.1 

§  204.  President  conspiring  against  corporation  —  terms 
on  which  the  corporation  could  rescind  the  contract  made 
by  him. —  A  corporation  sought  to  recover  from  defendant  the 
money  which  had,  as  alleged,  been  paid  out  of  its  funds  by  its 
president,  in  carrying  out  a  conspiracy  between  defendant,  a 
holder  of  its  stock,  for  such  stock  at  par  value  when  it  was  only 
worth  seventy-live  per  cent  of  its  par  value,  and  the  corporation 
itself  was  offering  unsubscribed  shares  of  its  capital  stock  at 
eighty  per  cent  of  its  par  value,  on  the  ground  of  fraud,  etc.,  the 
corporation  itself  at  the  time  being  financially  embarrassed  and 
its  then  president  acting  under  threats  from  the  defendant  of 
exposure  of  his  having  embezzled  funds  of  the  corporation.  The 
Supreme  Court  of  California  held  that  the  court  below  properly 
sustained  a  demurrer  to  the  complaint  of  the  corporation  upon 
the  ground  that  it  did  not  state  facts  sufficient  to  constitute  a 
cause  of  action.3 

1  J.  W.  Butler  Paper  Co.  r.  Jeffery,  rescission  of  the  contract  of  sale;  and  to 

(1804)  151  111.  588.  effect  this  it  was  incumbent  upon  [the 

•Bank  of  San  Luis  Oblspo  r.  corporation]  to  act  with  reasonable  dili- 

Wickcrsham,  (1898)  99  Cal.  055;  8.  gem  rniul  ret  urn  or  offer  to  return  to  de- 

c.,  34  Pac.  Rep.  444.  The  court  said,  fendants  tin-  stork  received  from  them 

arguendo:  "The  [corporation]  is  not  under  tin-  contract.  It  cannot  be  per - 

entitled  to  any  relief  because  of  tin-  mined  to  retain  the  shares  of  stock 

alleged  fraud  practiced  upon  it  in  the  thus  received  by  it,  and  at  the  same 

sale  of  the  stock  without  a  complete  time  recover  from  defendants  the 


296 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§205 


§  205.  Promoters  of  corporations  accountable  for  profits. 
—  The  cases  settle  that  it  is  incumbent  upon  a  promoter  of  a  cor- 
poration, if  he  wish  to  sell  property  of  his  own  to  it,  to  make 
full  and  fair  disclosure  of  his  interest  and  position  with  respect  to 
the  property,  and  to  furnish  the  corporation  with  a  board  of 
directors  capable  of  forming  a  competent  and  impartial  judgment 
as  to  the  wisdom  of  the  purchase,  and  the  price  to  be  paid ;  and, 
if  he  do  not,  he  will  not  be  allowed  to  retain  any  profit  lie  may 


money  paid  to  them  as  the  purchase 
price  of  such  stock.  This  would  be 
contrary  to  justice,  ancl  can  receive  no 
countenance  in  a  court  of  equity. 
There  is  no  averment  in  the  complaint 
of  any  offer  on  the  part  of  [the  cor- 
poration] to  return  the  stock  pur- 
chased and  [it]  apparently  rested 
satisfied  with  the  contract  for  more 
than  fifteen  years.  Counsel  for  [the 
corporation]  do  not  dispute  the  gene- 
ral proposition  that,  to  entitle  one  to 
rescind  a  contract,  he  must  restore  to 
the  other  party  every  thing  of  value 
received  from  him  under  such  con- 
tract ;  but  it  is  claimed  by  them  that 
the  stock  was  extinguished  by  the 
sale,  and,  therefore,  cannot  be  legally 
returned,  and  that  all  defendant 
Wickersham  can  justly  claim  is  to  re- 
ceive in  the  statement  of  the  accounts 
demanded  in  the  complaint  a  credit 
for  the  value  of  such  stock  at  the  time 
of  the  sale.  We  do  not  agree  with 
counsel  on  this  point.  The  shares  of 
stock  were  not  extinguished  by  the 
sale  in  such  sense  that  they  could  not 
be  reissued  by  [the  corporation]  to  any 
one  subsequently  subscribing  for 
shares  of  its  capital  stock.  [The  cor- 
poration's] purchase  did  not  reduce 
the  number  of  shares  which  [it]  was 
authorized  to  issue  by  its  articles  of 
incorporation.  The  only  effect  of  the 
transaction  was  to  reduce  the  amount 
of  the  subscribed  capital  stock  leaving 
the  [corporation]  free  to  again  issue 
the  same  number  of  shares  to  any  one 
desiring  to  subscribe  for  its  capital 


stock.  Cook  Stock  &  S.  §§  282,  314; 
1  Moraw.  Priv.  Corp.  §  114;  State  v. 
Smith,  48  Vt.  266;  Williams  t>. 
Manufg.  Co.,  3  Md.  Ch.  451;  Railway 
Frog  Co.  v.  Haven,  101  Mass.  398. 
The  contract  of  sale  was  ultra  tires, 
and  resulted  in  an  illegal  withdrawal 
of  [the  corporation's]  capital  actually 
paid  in,  but  the  stock  was  not  actually 
extinguished,  and  so  long  as  there 
remained  that  number  of  shares  of  its 
capital  stock  unsold  the  [corporation] 
could  at  any  time  have  issued  a  new 
certificate  therefor,  and  tendered  the 
same  to  the  defendants  which  would 
in  legal  effect  have  been  a  tender  of 
the  same  shares  sold  by  them  to  [the 
corporation]."  In  Coal  Co.  v.  Lots- 
peich,  (Ky.)  20  S.  W.  Rep.  378,  the 
president  of  the  coal  company  entered 
into  a  contract  with  one  of  the  stock- 
holders to  deliver  to  him  a  quantity  of 
coal,  the  pay  therefor  to  be  applied  on 
the  payment  of  the  individual  in- 
debtedness of  the  president  to  the 
stockholder.  The  stockholder  brought 
an  action  to  enforce  the  contract  and 
asked  to  be  permitted  to  apply  the 
price  of  the  coal  on  the  debt.  The 
Kentucky  Court  of  Appeals,  in  pass- 
ing upon  the  question,  said:  "The 
pleadings  do  not  present  the  question 
of  fraud  by  way  of  defense,  but, 
nevertheless,  in  construing  a  contract 
made  between  officers  of  a  corpora- 
tion, by  which  a  corporate  liability  is 
attempted  to  be  created  to  the  one 
officer  or  the  other,  that  construction 
should  be  placed  on  terms  most  favor- 


•»5]  FRAUDULENT  ACTS  OF  OFFICERS.  297 

have  made  out  of  the  corporation  in  such  a  sale.1  It  appeared 
in  a  case  reserved  from  the  Superior  Court  for  the  adjudica- 
tion by  the  Supreme  Court  of  Errors  for  Connecticut,  that 
the  promoter  of  a  corporation  had  secretly  agreed  with  a 
patentee  to  form  this  corporation  to  buy  his  patent,  the  patentee 
to  pay  the  promoter  half  of  the  price  paid  for  the  patents.  The 
promoter  induced  subscriptions  to  the  stock  of  the  corporation  by 
stating  that  he  was  subscribing  on  equal  terms  with  the  rest,  and 
being  elected  a  director,  voted  for  the  resolution  to  buy  the 
patents.  The  Supreme  Court  held  that  the  corporation  might 
recover  of  him  (the  promoter)  his  secret  profits,  and  that  it  was 
not  obliged  to  rescind  the  purchase,  and  so  destroy  its  own  reason 
for  being.  The  secret  contract  between  the  promoter  and  the 
owner  of  the  patents  was  held  by  the  court  to  be  void  as  against 
public  policy.3 

able  to  the  corporation;  and  particu-  fiduciary  relation  toward  the  company 

larly  when  the  great  weight  of   the  or  corporation  whose  organization  they 

evidence,  and  in  fact  all  of  it,  shows  seek  to  promote  is  well  settled  by  the 

that   corporate    property    was    being  decisions  of  both  [America  and  Eng 

held,  by  reason  of  this  contract,  to  land].     Lord  COTTON  prefers  to  call 

pay  an  individual  debt  of  one  director  them  "  trustees."    Bagnall «.  Carlton, 

to  the  other."  6  Cb.  Div.  385.     Sir  GEORGE  JESSKI., 

1  Plaquemines  Tropical  Fruit  Co.  r.  M.  R.,  in  a  case  (Phosphate  Co.  r.  Er- 

Buck,  (N.  .1.  Eq.   1893)  27  Atl.  Rep.  langer,  5  Ch.  Div.73)  said:  "  Promoters 

1094,  in  which  the  chancellor  reviews  stand  in  a  fiduciary  relation  to  that 

the  cases  and  discusses  the  subject  at  company    which    is  their   creature." 

large.  In  Erlanger  r.  Phosphate  Co.,  L.  R.,  tf 

•Yale  Gas  Stove  Co.  r.  Wilcox,  App.  Cas.  1218,  the  lord  chancellor  said 
(1894)  64  Conn.  101;  s.  c.,  29  Atl.  Rep.  of  promoters:  "  They  stand,  in  my 
303.  The  court  reviewed  a  number  of  opinion,  undoubtedly  in  a  fiduciary 
cases  to  which  the  defendant's  counsel  position.  They  have  in  their  hands 
had  cited  it,  and  then  discussed  the  the  creation  and  molding  of  the  corn- 
relations  of  promoters  to  the  corpora-  pany.  They  have  the  power  of  defin- 
tions  which  they  helped  to  form,  us  ing  how,  and  when,  and  in  what  shape, 
follows:  "A  'promoter'  has  been  de-  and  under  what  supervision,  it  shall 
fined  to  be  a  person  who  organizes  a  start  into  existence,  and  begin  to  act 
corporation.  It  is  said  to  be  not  a  as  a  trading  corporation.  If  they  are 
legal,  but  a  business  term,  '  usefully  doing  all  this  in  order  that  the  com 
summed  up  in  a  single  word,  a  num-  pany  may,  as  soon  as  it  starts  into  life, 
tier  of  business  operations  familiar  to  become,  through  its  managing  direct- 
the  commercial  world  by  which  a  com-  ors,  the  purchasers  of  the  property  of 
pany  is  generally  brought  into  exist-  themselves  (the  promoters)  it  is,  in  my 
ence.'"  Bo  WEN,  J.,  in  Printing  Co.  r.  opinion,  incumbent  upon  tho  pro- 
Green.  28  Wkly.  Rep.  (Q.  B.  Div.  1880)  moters  to  take  care  that,  in  forming 
351,  352.  That  such  persons  occupy  a  the  company,  they  provide  it  with  an 
38 


298 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  206 


§  206.  Promoters  obtaining  stock  of  corporation  for 
nothing. —  In  a  case  in  the  federal  court  it  appeared  that  two 
individuals,  as  promoters  of  a  projected  corporation,  entered  into 
an  agreement  with  the  owners  of  certain  patents  and  this  pro- 
posed corporation,  by  which  a  certain  number  of  shares  were  to 


executive;  that  is  to  say,  with  a  board 
of  directors,  who  shall  both  be  aware 
that  the  property  which  they  are  asked 
to  buy  is  the  property  of  the  pro- 
moters, and  who  shall  be  competent 
and  impartial  judges  as  to  whether  the 
purchase  ought  or  ought  not  to  be 
made.  I  do  not  say  that  the  owner  of 
property  may  not  promote  and  form  a 
joint-stock  company  and  then  sell  his 
property  to  it;  but  I  do  say  that  if  he 
does,  he  is  bound  to  take  care  that  he 
sell  it  to  the  company  through  the 
medium  of  a  board  of  directors  who 
can  and  do  exercise  an  independent 
and  intelligent  judgment  on  the  trans- 
action, and  who  are  not  left  under  the 
belief  that  the  property  belongs,  not 
to  the  promoter,  but  to  some  other  per- 
son." Continuing,  "Lord  O'HAGAN, 
referring  to  the  same  subject,  ex- 
pressed a  similar  opinion  in  even  more 
emphatic  language,  declaring  that, 
while  an  original  purchase  might  be 
legitimate,  and  not  less  so  because  the 
object  of  the  purchaser  was  to  sell  it 
again,  and  to  sell  it  by  forming  a  com- 
pany which  might  afford  them  a  profit 
on  the  transaction,  yet  '  the  privilege 
given  them  for  promoting  such  a  com- 
pany for  such  an  object  involved  ob- 
jections of  a  very  serious  kind.  It 
required,  in  its  exercise,  the  utmost 
good  faith,  the  completest  truthful- 
ness and  a  careful  regard  to  the  pro- 
tection of  the  future  stockholders.'" 
The  test,  therefore,  of  the  validity  of 
such  transactions  is  that  it  must,  in  all 
its  parts,  be  open  and  fair,  so  that  the 
promoters  shall  not,  in  fact,  substan- 
tially act  both  as  vendors  and  vendees, 
and  in  the  latter  capacity  approve  a 
transaction  suggested  by  them  in  the 


former.  Poss  v.  Harbottle,  2  Hare, 
461,  468;  McElhenny's  Appeal,  61  Pa. 
St.  188;  Simons  ®.  Vulcan  Oil  &  Mining 
Co.,  61  Pa.  St.  202;  Densmore  Oil  Co.  t>. 
Densmore,  64  Pa.  St.  43;  Pittsburg 
Mining  Co.  v.  Spooner,  74  Wis.  307;  s. 
c.,  42  N.  W.  Rep.  259;  South  Joplin 
Land  Co.  v.  Case,  104  Mo.  572;  s.  c., 
16  S.  W.  Rep.  390 ;  In  re  British 
Seamless  Paper  Box  Co.,  17  Ch.  Div. 
467;  Sewage  Co.  v.  Hartmont,  5  Ch. 
Div.  394.  In  the  last  case  the  distinc- 
tive feature  was  that  the  vendors  paid 
the  commission  to  the  trustees,  who 
received  the  property  on  behalf  of  the 
company.  They  were  compelled  to 
pay  it  to  the  company.  In  Hichens  v. 
Congreve,  1  Russ.  &  M.  150  (on  ap- 
peal, 4  Russ.  562),  three  promoters 
induced  their  company  to  buy  a 
mine  for  £25,000,  of  which  they 
received  from  the  vendor,  and  divided 
among  themselves,  £15,000.  This 
they  were  compelled  to  account 
for  to  the  company.  Similar  cases 
are  Beck  ».  Kantorowicz,  3  Kay  &  J. 
230;  Printing  Co.  v.  Green,  28  Wkly. 
Rep.  (Q.  B.  Div.  1880)  351;  Mining 
Co.  i\  Grant,  11  Ch.  Div.  918;  Bagnall 
v.  Carlton,  6  Ch.  Div.  385;  Kent  t>. 
Brickmaking  Co.,  17  Law  T.  (N.  S.) 
77;  Water  Co.  v.  Flash,  97  Cal.  610;  B.C., 

32  Pac.  Rep.  600.      See,  also,  Mallory 
v.  Mallory-Wheeler  Co.,  61  Conn.  135; 
s.  c.,  23  Atl.  Rep.  708,  and  the  recent 
English  case:  In  re  North  Australian 
Territory  Co.,  Archer's  Case,  (1892)  1 
Ch.  322.      See,  also,  Ore  Co.   v.  Bird, 

33  Ch.  Div.  85 ;  Cover's    Case,  1  Ch. 
Div.    182;    Atwool    c.    Merryweather, 
37    L.    J.    Ch.     35;    Sewage    Co.    v. 
Hartmont,    5    Ch.    Div.    395;    Pitts- 
burg  Mining  Co.  r.  Spooner,  74  Wis. 


§  206]  FRAUDULENT  ACTS  OF  OFFICERS. 

-tied  to  these  owners  for  the  patents.  They  then  offered  the 
public  an  option  to  take  stock  in  the  corporation,  disclosing  the 
purchase  of  the  patents,  and  that  a  portion  of  the  stock  was  to 
be  issued  to  the  former  owners  in  part  payment,  but  not  that 
thry  were  to  have  stock  on  different  terms  or  conditions.  They 
were  elected  president  and  treasurer  of  the  corporation  as  was 
further  agreed  between  them  and  the  owners  of  the  patents. 
They  succeeded  in  placing  a  large  amount  of  the  stock  at  seven 
dollars  per  share,  obtaining  their  own  stock  for  nothing.  In  this 
action  against  them  it  was  held  that  they  occupied  a  fiduciary  rela- 
tion to  the  other  shareholders,  and  were  liable  to  account  in  one 
of  several  modes  for  the  benefit  of  the  shareholders.1  As  to  the 
measure  of  damages,  the  court  said  :  "  I  think  the  company  had 
a  right  to  elect,  (1)  whether  they  would  have  the  shares  trans- 
ferred back  to  them  ;  or  (2)  if  the  shares  had  been  sold,  that 
these  defendants  should  turn  over  the  entire  profit  made  by  the 
sale;  or  (3)  that  the  company  may  say,  'Although  you  have 
derived  no  profit  by  selling  the  shares,  yet  you  deprived  us  of 
placing  them  with  other  persons,  and  you  must,  therefore,  pay  us 
the  sum  we  have  lost  by  reason  of  our  being  deprived  of  the 
right  of  placing  these  shares  with  other  persons.'  "  8 

807;  s.   c.,  42  N.   W.   Rep.  259;   24  any  fraudulent  intent,  or  that  the  price 

Am,    &  Eng.    Corp.    Cas.   1 ;   In    re  paid  for  the  patents  was  fair  and  rea- 

Cape  Breton  Co.,   26  Ch.   Div.  221;  sonablc,  cannot  retrieve  these  defend- 

8.  c.,  on  appeal,  29  Ch.  Div.  795;  Lady-  ants.      The  law  forbids  them,   from 

well  Mining  Co.  t>.  Brookes,  34  Ch.  Div.  their  position,  to  secretly  derive  any 

898;  s.  c.,  on  appeal,  35  Ch.  Div.  400.  benefit  over  other  stockholders,   and 

1  Chandler,  Receiver,  r.  Bacon,  (1887)  makes  them  accountable  to  the  com- 

80  Fed.  Rep.  588;  Browne  v.  National  pany  for  any  profit  so  derived."    Citing 

Color  Printing  Co.,    ibid.     COLT,  J.,  Bagnall  ».   Carltou,  6  Ch.   Div.  371; 

said:  "  The  defendants  could  not  law-  Whaley,  etc.,  Co.    v.  Green,  5  Q.  B. 

fully  [take  their  shares  of  stock  with-  Div.  109;  Sombrero  Phosphate  Co.  «. 

out  consideration,  while  other  stock-  Erlanger,   5  Ch.  Div.  73;  Emma  Sil 

holders  paid  seven  dollars  per  share],  ver  Mining  Co.  t>.  Grant,  11  Ch.  Div. 

As   promoters  of  the  new  company,  918;  Densmore  Oil  Co.  r.  Deusmore, 

they    occupied    a    fiduciary    relation  64  Pa.  St.  48;  McElhenny's  Appeal,  61 

towards  it  similar  to  that  of  agent  to  Pa.  St.  188;  Simons  r.  Vulcan  Oil.  etc., 

a  principal,  and  they  had  no  right  in  Co.,  61  Pa.  St.  202;  Emery  c.  Parrot t. 

these  negotiations  to  derive  any  ad  vant-  107  Mass.  95;  Getty  v.  Devlin,  5-1  N. 

age  over  other  stockholders  without  a  V.  408. 

full  and   fair  disclosure  of  tin-  trans-  *  Chandler.  Receiver,  r.  Bacon.  (1887) 

actions,  and  any  secret  profits  so  made  80  Fed.  Rep.  638;  Browne  r.  National 

they    must   refund  to  the   company.  Color  Printing  Co.,  ibid.;  citing  Carl- 

That  this  may  have  been  done  without  ing's  Case,   1  Ch.  Div.  115,   126.    1'J?: 


300  FRAUDULENT  ACTS  OF  OFFICERS.  [§  207 

§  207.  Jurisdiction  of  equity  courts  as  to  breaches  of  trust, 
etc. —  The  United  States  Supreme  Court  long  since  accepted  as 
settled  law,  both  in  England  and  the  United  States,  that  courts 
of  equity  in  both  countries  have  a  jurisdiction  over  corporations, 
at  the  instance  of  one  or  more  of  the  stockholders,  to  apply  pre- 
ventive remedies  by  injunction,  to  restrain  those  who  administer 
them  from  doing  acts  which  would  amount  to  a  violation  of  char- 
ters, or  to  prevent  any  misapplication  of  their  capitals  in  profits, 
which  might  result  in  lessening  the  dividends  of  stockholders  or 
the  value  of  their  shares,  as  either  may  be  protected  by  the  fran- 
chises of  a  corporation,  if  the  acts  intended  to  be  done  create 
whatever  the  law  denominated  a  breach  of  trust.  And  the  juris- 
diction extends  to  inquire  into  and  to  enjoin,  as  the  case  may 
require  that  to  be  done,  any  proceedings  by  individuals,  in  what- 
ever character  they  may  profess  to  act,  if  franchise,  or  the  denial 
of  a  right  growing  out  of  it,  is  involved,  for  which  there  is  not 
an  adequate  remedy  at  law.1  In  a  case  where  the  directors  recog- 
nized their  duty  to  resist  the  collection  of  a  state  tax  upon  the 
corporation  (a  bank),  their  refusal  to  do  so  was  held  to  be  an  act 
contrary  to  the  obligation  which  the  charter  imposed  upon  them 
to  protect  what  they  conscientiously  believed  to  be  the  franchise 
of  the  bank,  and  was  a  breach  of  trust ;  that  it  amounted  to  an 
illegal  application  of  the  profits  due  to  the  stockholders  of  the 
bank,  into  which  a  court  of  equity  will  inquire  to  prevent  its 
being  made.2  Officers  and  directors  of  a  corporation,  being  trus- 
tees of  the  stockholders,  in  securing  to  themselves  an  advantage 
not  common  to  all  the  stockholders,  a,s,  for  instance,  executing  a 
mortgage  to  themselves,  to  secure  indebtedness  of  the  corporation 
to  themselves,  would  be  guilty  of  an  unauthorized  act,  plainly  a 

McKay's     Case,      2     Ch.      Div.     1;  Flash,  97  Cal.  610;  s.  c.,  32  Pac.  Rep. 

De  Ruvigne's   Case,    5  Ch.  Div.  306;  600. 

Nant-y-glo,  etc.,  Co.  v.  Grave,  12  Ch.  '  Dodge  v.  "Woolsey,  (1855)  18  How. 

Div.  738.     Contracts  with  promoters,  331;   citing  Cunliffe  r.  Manchester  & 

see  Bash  v.  Culver  Gold  Mining  Co.,  7  Bolton  Canal  Co.,  2  Russ.   &  Mylne 

Wash.  122;    8.  c.(  34  Pac.  Rep.  462;  Ch.  480,  n.;  Ware  v.  Grand  Junction 

Weatherford,  M.  W.  &  N.  W.  R.  Co.  Water  Co.,   2  Russ.   &  Mylne,   470- 

D.  Granger,  (Tex.  Civ.  App.)  23  S.  W.  Bagshaw  v.   Eastern   Union  Railway 

Rep.  425;  Winters  v.  Hub  Mining  Co.,  Co.,  7  Hare  Ch.  114;  Ang.  &  Ames  on 

57  Fed.  Rep.  287;  Burbank  ».  Dennis,  Corp.  (4th  ed.)  424. 

(Cal.  1894)  35  Pac.  Rep.  444;  Cornell  v.  8  Dodge  «.  Woolsey,  (1855)  18  How. 

Corbin,  64  Cal.  197:  s.  c.,  30  Pac.  Rep.  331. 
629;  Ex-Mission  Land  &  Water  Co.  v. 


§  207]  FBAUDCLENT  ACTS  OF  OFFICERS.  80] 

breacli  of  trust,  for  which  a  stockholder  would  be  entitled  to  a 
remedy  in  a  court  of  chancery.1  Contracts  made  by  the  direct- 
ors of  a  railroad  corporation  for  the  construction  of  the  road,  for 
running  cars  of  another  corporation  upon  its  road,  for  mining  its 
coal  lands  and  purchasing  the  coal  so  mined,  which  allow  exorbi- 
tant prices  for  work  done  and  material  furnished,  that  are  advan- 
tageous to  the  other  contracting  parties  and  injurious  to  the 
railroad  corporation,  in  which  the  directors,  or  a  controlling 
majority  of  them,  are  interested  adversely  to  the  corporation,  in 
short,  contracts  made  with  themselves,  are  frauds  such  as  courts 
of  equity  will  relieve  against  in  a  proper  case.2  For  such  acts 
the  remedy  would  be  as  follows :  Parties  who  make  such  con- 
tracts and  receive  the  pecuniary  benefit  of  them  can  at  law  be  made 
responsible  in  damages,  or  held  in  equity  to  compensation  for  the 
loss  suffered.  In  a  proper  suit  such  contracts  may  be  adjudged 
void,  and  then  an  accounting  ordered,  on  the  basis  of  a  fair  com- 
pensation for  what  may  have  been  done  in  the  way  of  construc- 
tion, building,  opening  mines,  furnishing  coal,  etc.,  and  what  had 
been  received  for  such  work  and  materials.  But  this  can  be  done 
only  in  an  action  brought  by  bona  fide  stockholders  who  may 
have  taken  no  part  in  and  had  no  interest  in  the  fraudulent  con- 
tracts, in  case  the  corporation  be  disabled  to  complain.3  The 
directors  of  a  joint-stock  corporation,  who  willfully  abuse  their 
trust  or  misapply  the  funds  of  the  company,  by  which  a  loss  is 
sustained,  are  personally  liable  as  trustees  to  make  good  that  loss  ; 
and  they  are  also  liable  if  they  suffer  the  corporate  funds  to  be 
lost  or  wasted  by  gross  negligence  and  inattention  to  the  duties 
of  their  trust.4  And  a  court  of  equity  has  jurisdiction  to  enter- 
tain a  suit  to  enforce  the  proper  remedy  in  such  a  case.  If  the 
corporation,  or  the  then  present  directors  of  the  corporations  and 
the  parties  who  have  made  themselves  answerable  for  the  loss, 
refuse  to  bring  such  a  suit,  then  an  action  will  lie  in  the  name  of  a 
stockholder  in  his  own  behalf  or  in  behalf  of  all.8  The  chancellor 

1  Koehler  ».  Black  River  Falls  Iron  » United  States  r.  Union  Pacific  Rail- 
Co.,  (1862)  2  Black,  715;  citing  Ang.  road  Co.,  (1878)  98  U.  S.  569,  609,  610. 
&  Ames  on  Corp.  (ed.  1861)  §  812;  »Ibid. 

Tin  Charitable  Corporation  t>.  Button,  4  Robinson  r.  Smith,  (1882)  8  Paige, 

2    Atk.    404;    Robinson    t>.   Smith,   3  222,  a  case  involving  the  loss  of  corpo- 

Paige,   220;   Hodges  r.  New  England  rate  funds  by  a  speculation  in  stocks 

Screw  Co.,  1  R  I.  812;  York  &  North  of  other  corporations  by  the  directors. 

Midland  Ry.  Co.  «.  Hudson,  19  Eng.  » Ibid. 
L.  &  E.  861. 


302  FRAUDULENT  ACTS  OF  OFFICERS.  [§  207 

held  in  this  case  that  independent  of  the  Revised  Statutes  of  New 
York  the  Court  of  Chancery  had  jurisdiction,  so  far  as  the  rights  of 
the  individual  corporators  were  concerned,  to  call  the  directors  to 
account,  and  to  order  them  to  make  suits  of  action  for  losses  aris- 
ing from  a  fraudulent  breach  of  trust.1  And  in  such  suits 
the  corporation  is  a  necessary  party.2  Directors,  like  any  other 
trustees,  may  be  restrained  from  the  performance- of  unauthorized 
acts,  or  to  rescind  and  cancel  them  when  performed.  And  the 
stockholders,  occupying  the  relation  of  cestuis  que  triist,  may 
invoke  the  aid  of  equity  to  thus  protect  their  interests.8  Officers  of 
a  corporation  may  be  compelled  by  a  court  of  equity  to  account 
for  any  breach  of  trust,  but  the  jurisdiction  for  this  purpose  is 
over  the  officers  personally.4  Where  directors  of  a  corpora- 
tion have  so  mismanaged  its  affairs  as  to  be  fraudulent,  a  bill  may 
be  maintained  against  them  personally  by  a  stockholder.  The 
stockholder  may,  in  such  case,  interpose  for  the  protection  of 
the  corporation.5  In  a  stockholder's  action  brought  by  himself 
on  behalf  of  a  corporation  against  its  officers  for  misapplication 
and  misappropriation  of  its  funds  and  charging  a  violation  of 
trust  on  their  part,  the  right  of  action  in  the  corporation  must  be 
alleged,  just  as  if  the  action  had  been  brought  by  the  corporation. 
And  he  cannot  join  in  the  action  causes  of  action  accruing  to 

1  Ibid.  See,  also,  Scott  r.  Depeyster,  unfaithful  trustee  has  been  constantly 

1  Edw.  Ch.  513;  Cumberland  Coal  Co.  brought  before  it,  and  made  both  to 

v.  Sherman,  30  Barb.  553;  Cross  v.  discover  the  fund  belonging  to  the 

Sackett,  16  How.  Pr.  63.  trust  and  to  account  for  its  manage- 

*  Robinson  v.  Smith,  (1832)  3  Paige,  meut  and  misapplication.  If  fraud  in 

222;  Cunningham  v.  Pell,  (1836)  5  the  management  of  the  fund  is  charged 

Paige,  607.  in  the  bill,  by  one  interested  in  the 

3  Chetlain  v.  Republic  Life  Ins.  Co.,  trust  estate,  and  who  has  been  injured 

(1877)  86  111.  220.  in  consequence  of  such  fraud,  there  is 

4Neall£.  Hill,  16  Cal.  145.  no  doubt  of   the   jurisdiction  of  the 

5  Watts'  Appeal,  (1875)  78  Pa.  St.  court.  If,  superadded  to  the  matters 
370.  In  Bank  of  St.  Marys  v.  St.  of  trust  and  fraud,  the  bill,  as  in  this 
John,  Powers  &  Co.,  (1854)  25  Ala.  case,  seeksadiscoveryandaccount.it 
566,  609,  an  action  to  enforce  the  lia-  will  embrace  nearly  every  ground  on 
bility  of  directors  of  a  bank  for  un-  which  the  original  jurisdiction  of  the 
faithful  management  of  its  affairs,  the  Chancery  Court  is  said  to  rest.  In 
Supreme  Court  of  Alabama,  as  to  there  such  case  it  is  immaterial  whether  a 
being  no  equity  in  the  bill,  speaking  court  of  law  can  afford  to  the  corn- 
through  LIGON,  J.,  said:  "  It  may  be  plainant  partial  or  full  relief,  in  the 
remarked  that  strict  trusts  are  admit-  matter  complained  of;  it  cannot  hinder 
ted  to  be  open  at  all  times  to  the  ex-  the  aggrieved  party  from  resorting  to 
umination  of  a  court  of  equity,  and  an  a  court  of  equity  for  redress." 


FKAUDULENT  ACTS  OF  OFFICERS. 

himself   personally   with   causes    of    action    belonging    to    the 
corporation.1 

?;  208.  When  a  court  of  equity  is  not  open  to  the  com- 
plaints of  stockholders. —  A  company  was  organized  upon 
property,  and  not  cash,  as  its  capital,  bonds  and  stock  being  issued 
to  the  organizers  and  owners  of  the  land,  their  respective  hold- 
ings being  in  proportion  to  their  rights  in  the  pro|>erty.  The 
stockholders,  and  the  holders  of  the  bonds  as  well,  tiled  a  bill  in 
equity  complaining  of  the  management  of  the  company's  affairs 
by  its  officers.  The  court  held  that  stockholders,  after  voting  for 
and  approving  of  an  appropriation  of  corporate  funds  to  a  purpose 
fairly  within  the  scope  of  the  corporate  powers,  will  not,  in  the 
absence  of  fraud,  be  heard  to  complain  thereof  in  a  court  of 
equity.  Neither  can  they  proceed  in  chancery  to  protect  their 
equitable  rights,  unless  the  corporation  has  been  dissolved,  or  has 
itself  been  prevented  from  proceeding  by  the  misconduct  of  its 
officers.2  GOFF,  Circuit  Judge,  in  his  opinion,  states  the  com- 
plaints of  these  stockholders  and  declares  as  to  the  rights  of  stock- 
holders as  follows  :  "  As  stockholders  the  complainants  are  inter- 
ested in  the  proper  management  of  the  company ;  in  the  pay- 
ment of  all  its  liabilities ;  in  the  sale  of  its  real  estate,  and  the 
distribution  of  its  assets.  They  charge  that  the  funds  of  the 
company  have  been  wasted,  and  its  assets  misappropriated  and 
diverted  to  purposes  wholly  foreign  to  those  for  which  it  was 
organized,  to  their  loss  and  injury.  I  do  not  find  that  these 
charges  are  sustained.  The  appropriations,  donations  and  sub- 
><Ti[)ti«)iis  to  stock  by  the  company  to  the  various  purposes  and 
enterprises  set  forth  in  the  bill  were  all  made  with  the  assent  of 
the  stockholders,  including  complainants,  most  of  whom  voted 
for  them,  as  they  were  in  the  line  of  the  enterprise  in  which  the 
company  was  engaged,  and  to  which  the  stockholders  were  com- 
mitted. It  was  simply  an  effort  to  carry  out  the  object  had  in 
view  when  the  company  was  organized,  for  which  the  one-fourth 
portion  of  the  income  received  from  the  sale  of  lots  was  set 
apart,  as  was  provided  in  the  charter  and  nominated  in  the  bond. 
I  find  that  the  stocks  and  bonds  held  and  owned  by  defendant, 

1  Whitney   r.   Fairbanks,    (1893)   54       *  McGeorgc  r.  Big  Stone  Gap  Imp. 
Fed.  Rep.  985;  citing  Briggse.  Spauld-   Co.,  (1898)  57  Fed.  Rep.  262. 
ing,  141  U.  8.   182;   B.  C.,  11  Sup.  Ct. 
Hep.  924. 


304  FRAUDULENT  ACTS  OF  OFFICERS.  [§  208 

issued  by  other  corporations,  were  purchased  and  secured  with 
the  one-fourth  part  so  received,  and  not  with  trust  funds  to 
which  the  bondholders  were  entitled.  The  directors  of  the 
defendant  seem  to  have  advised  fully  with  its  stockholders,  and 
consulted  with  its  bondholders,  more  so  than  is  usually  done  ;  and, 
as  the  evidence  discloses,  they  were  always  governed  by  the 
advice  received.  It  is  true  that  a  number  of  the  enterprises  that 
were  assisted  with  the  funds  of  the  company  have  not  as  yet 
developed  into  remunerative  investments  by  demonstrating  their 
dividend-earning  capacities.  Still  the  evidence  shows  that  the. 
officers  honestly  endeavored  in  these  instances  to  enhance  the 
interest  of  the  company,  and  that,  in  their  efforts,  they  had  the 
approval  of  the  stockholders  and  the  commendation  of  the  present 
complainants.  It  is  clearly  shown  that  complainants  were  not 
only  aware  of  the  proceedings  had  at  the  meetings  of  the  stock- 
holders and  directors,  when  the  expenditures  complained  of  were 
authorized,  but  that  they  gave  them  their  cordial  support." 
Upon  this  statement  of  the  facts  the  court  held  that  the  bill  of 
the  complainants  was  not  maintainable.1 

1  Ibid.  Arguendo,  it  was  said  :  they  are  created,  provide  the  way  im 
"Stockholders  of  a  corporation  that  has  which  they  shall  be  managed,  as  well 
been  managed  without  fraud  will  not  as  the  mode  of  voting  the  stock  and 
be  permitted  after  they,  for  reasons  of  the  manner  of  electing  the  officers 
their  own,  have  become  dissatisfied  thereof;  and,  if  these  provisions  have 
with  the  plan  of  organization,  or  the  been  fairly  complied  with,  then  there  is 
management  thereof,  to  force  the  no  ground  for  the  interference  of  a 
abandonment  of  the  business,  and  court  of  equity  at  the  complaint  of  a 
compel  the  majority  of  the  stockhold-  dissatisfied  minority  shareholder.  If  he 
ers  to  submit  to  the  will  of  the  minor-  disapproves  of  the  management  that 
ity  by  the  decree  of  a  court  of  equity,  has  been  conducted  without  fraud,  and 
If  they  had  this  power  it  would  f  re-  under  the  requirements  of  the  law,  his 
quently  be  exercised  to  the  detriment  only  remedy  is  to  elect  new  officers  in 
of  the  corporation,  the  very  existence  favor  of  another  policy  by  appealing  to 
of  which  might  be  thus  destroyed,  or  the  stockholders,  or,  failing  in  that,  to 
the  value  of  its  stock  seriously  im-  sell  his  stock  and  retire.  Certainly, 
paired.  Rival  companies  might  make  the  equity  courts  of  the  country  will 
it  to  the  interest  of  this  minority  so  to  not  undertake  to  manage  it  for  him, 
act,  or  the  stock  of  a  corporation  might  nor  will  they,  under  such  circum- 
be  purchased  with  such  object  in  stances,  take  jurisdiction  for  the  pur- 
view, and  the  result  would  be  that  the  pose  of  closing  up  the  affairs  of  the 
security  relied  upon  by  those  invest-  corporation.  Such  power  is  never 
ing  in  corporate  property  would  be  exercised  in  the  absence  of  a  statute 
seriously  impaired.  The  charters  giving  the  jurisdiction,  and  I  find  no 
under  which  corporations  are  organ-  such  enactment  applicable  to  this  case, 
ized,  and  the  laws  by  virtue  of  which  In  the  absence  of  such  legislation  the 


§  209] 


FRAUDULENT  ACT> 


806 


§  209.  Remedy  in  equity. —  A  .*t<  irk  holder  may  bring  a  suit 
in  equity  where  a  president  of  a  corporation  which  has  been 
steadily  earning  profits  has  received  the  same  and  not  accounted 
for  them,  and  the  directors  are  under  his  influence  and  control 
ami  mere  instruments  to  do  his  bidding,  and  have  surrendered  the 
entire  control  of  the  affairs  of  the  corporation  to  him,  for  such  relief 


business  matters  of  a  corporation  can 
only  be  controlled,  or  its  charter 
privileges  taken  from  it,  by  the  proper 
and  usual  proceedings  in  such  cases 
provided  in  the  courts  of  law. 
Chancellor  KENT,"  said  the  court, 
"in  .-i  leading  case  on  this  subject, 
said  :  '  I  admit  that  the  persons  who 
from  time  to  time  exercise  the  cor- 
porate powers  may,  in  their  character 
of  trustees,  be  accountable  to  this 
court  for  a  fraudulent  breach  of  trust, 
and  to  this  plain  and  ordinary  head  of 
equity  the  jurisdiction  of  this  court 
over  corporations  ought  to  be  con- 
fined.' Attorney -General  r.  Utica  Ins. 
Co.,  2  Johns.  Ch.  871.  '  It  cannot  be 
concealed,'  said  the  chancellor  in  Bay- 
less  v.  Orne.  1  Freem.  Ch.  (Miss.)  173, 
'  that  to  decree  the  prayer  of  complain- 
ant's bill  would  be  to  decree  a  dissolu- 
tion of  the  corporation.  In  this  respect 
it  differs  materially  from  bills  which 
h.ive  frequently  been  entertained  by 
courts  of  equity  at  the  instance  of 
stockholders  against  the  directors  of  a 
corporate  company  to  compel  them  to 
account  for  the  improper  use  of  funds, 
or  to  restrain  them  from  violating  their 
trust.  That  a  court  of  equity,  as  such, 
has  not  jurisdiction  or  power  over  cor- 
porate bodies  for  the  purpose  of  re- 
straining their  operations,  or  winding 
up  their  concerns,  is.  I  think,  well 
settled  by  various  authorities'"  See 
on  this  subject  Verplanck  r.  Insurance 
Co.,  1  Edw.  Ch.  84;  Attorney -General 
v.  Bank  of  Niagara,  1  Hopk.  Ch.  354; 
Neall  v.  Hill,  16  Cal.  145.  In  Tread- 
well  r.  Salisbury  Manufg.  Co.,  7  Gray, 
893,  it  is  said  :  "Indeed,  it  is  too  well 
settled  to  admit  of  question  that  a 
39 


court  of  chancery  has  no  peculiar 
jurisdiction  over  corporations  to  re- 
strain them  in  the  exercise  of  their 
powers,  or  control  their  action,  or  pre- 
vent them  from  violating  their  charter 
in  cases  where  there  is  no  fraud  or 
breach  of  trust  alleged  as  the  founda- 
tion of  the  claim  for  equitable  relief. 
Their  rights  and  duties  arc  regulated 
and  governed  by  the  common  law, 
which,  in  most  cases,  furnishes  ample 
remedies  for  any  excess  or  abuse  of  cor- 
porate powers  and  privileges,  which 
may  injuriously  affect  either  public  or 
private  rights.  It  is  only  when  there 
is  no  plain  and  adequate  remedy  at 
law,  and  a  case  is  presented  which 
entitles  a  party  to  equitable  relief, 
under  some  general  head  of  chancery 
jurisdiction,  that  a  bill  in  equity  can 
be  maintained  against  a  corporation. 
And  this  rule  is  applicable  to  stockhold- 
ers as  well  as  to  other  persons."  See 
Ang.  &  A.  Corp.  §  812;  Grant  on  Corp. 
71,  271;  Mozley  r.  Alston,  1  Phil.  Ch. 
790;  Hodges  r.  Screw  Co.,  1  R.  I. 
350;  Baker  r.  Railroad  Co.,  84  La.  Ann. 
754.  The  circuit  judge  resumed: 
"  The  rule  is  also  well  established  that 
a  corporation  claiming  redress  for 
wrongs  must  proceed  through  its 
regularly  appointed  agents.  It  is 
only  when  the  company  has  been  dis- 
solved, or  is  prevented  from  proceed- 
ing by  the  misconduct  of  its  officers, 
that  the  stockholders  may  themselves 
proceed  in  chancery  for  the  protection 
of  their  equitable  rights.  If  tin- 
directors  refuse  to  act,  or  arc  thorn 
selves  guilty  of  a  wrong  that  the  ma- 
jority of  the  stockholders  refuse  to 
correct,  equity  will  interfere  at  the 


306  FRAUDULENT  ACTS  OF  OFFICERS.  [§ 

as  he  may  be  entitled  to.1  And  in  addition  to  these  facts,  should 
it  appear  that  a  number  of  the  directors,  especially  if  includ- 
ing a  relative  of  the  president,  are  not  honafide  stockholders,  but 
made  such  merely  by  a  voluntary  transfer  of  stock  to  them  by 
him  to  qualify  them  as  directors,  it  may  not  be  alleged  that  the 
directors  have  been  requested  to  bring  suit  and  refused.2  One 
having  a  claim  for  a  loss  against  a  mutual  insurance  corporation  is 
entitled  to  bring  his  bill  in  equity  against  the  directors  of  such  a 
corporation  who,  having  funds  belonging  to  it  in  their  hands  to 
pay  the  claim,  have  neglected  and  refused  to  pay  it,  and  fraudu- 
lently applied  the  funds  to  other  purposes.3  The  managers  of  a 
saving  fund  are  liable  in  equity  as  trustees  for  the  proper  man- 
agement of  the  fund.4  The  proper  remedy  for  the  defrauded 
depositors  of  a  saving  fund  is  a  bill  in  equity  against  the  directors 
of  such  an  institution  ;  and  these  directors,  although  ignorant  of 
the  fact  of  a  fraud  in  its  organization,  will  be  liable  to  the  deposit- 
ors for  the  proper  care  and  management  of  the  deposits  intrusted 
to  its  safe-keeping.5  The  directors  of  a  saving  fund  will  be  held 
liable  to  the  depositors  for  maladministration  of  their  office,  and 
suits  may  be  brought  by  the  depositors.6  But  directors  who  did 

suit  of  a  stockholder.     Moraw.  Priv.  Hotchkiss,  25  Conn.   171;  Wright  r. 

Corp.    §§    239,   381,    386;     Moore    v.  Oroville  Gold,  Silver  &  Copper  Min- 

Schoppert,  22  W.  Va.  282,  291;  Hawes  ing  Co.,  40  Cal.  20;  Allen  r.  Curtis,  26 

v.  Oakland,  104  U.  S.  450,  460;  Foss  c.  Conn.  456. 

Harbottle,  2  Hare,  493.     In  this  case  3  Lyman  v.  Bonney,  (1869)  101  Mass. 

the  complainants  allege  that  they  con-  562. 

trol  a  majority  of  the  shares  of  stock  4Leffman  c.  Flanigan,  (1863)  5  Phil. 

of  the  defendant.     If  that  is  so  they  155. 

will  have  no  trouble  in  calling  a  stock  s  Ibid. 

holders'  meeting  of  the  company  and  6  Maisch  v.  Saving  Fund,  (1862),  5 

therein  so  voting  their  stock  as  to  cor-  Phil.  30.     SHARSWOOD,  P.  J.,  in  his 

rect  the  wrongs  of  which  they    now  opinion,  said:  "We  are  by  no  means 

complain,  and  fully  protect  their  in-  announcing  any  new  doctrine  when 

terests  in  the  future."  we  say  that  the  directors  of  corpora- 

1  Rogers  r.  La  Fayette  Agricultural  tious  are  responsible  for  gross  negli- 
Works,  (1875)  52  Ind.  296.  gence,  as  well  as  fraud,  in  the  man- 

2  Ibid. ;  citing  March  v.  Eastern  R.  R.  agement   of  the  interest  intrusted  to 
Co.,  40  N.  H.  548;  Robinson  r.  Smith,  them.     It  has  received    the   indorse- 
3  Paige,    222;   Dodge   p.  Woolsey,  18  inent  of  courts  of  the  highest  character 
How.  331;  Brewer  t.  Boston  Theatre,  for  learning.     Robinson  v.    Smith.  3 
104  Mass.  378;  Hodges  n.  New  Eng-  Paige,   222;    Scott    v.     Depeyster,    1 
land  Screw  Co.,  1  R.  1.312;  Goodinr.  Edw.   Ch.    513;    Allen   r.    Curtis,   2« 
Cincinnati,  etc.,  Co.,  18  Ohio  St.  169;  Conn.  456.     No  one  doubts  the  per- 
Peabody  c.  Flint,  6  Allen,  52;  Sears  r.  sonal  liability  of  the  president,  treas- 


209] 


FRAl'DULENT  ACTS  OF  OFFICERS. 


307 


not  participate,  and  never  took  their  seats  in  the  board,  and 
against  whom  there  he  no  allegation  of  knowledge  of  the  fraud, 
nr»-cl  not  In-  held  liable.1  A  president  of  a  corporation  may  be 
called  upon  hy  bill  in  equity  to  account  for  and  make  restitution 
of  any  part  of  the  property  of  the  corporation  confided  to  his 
care  where  he  has  improperly  applied  it  to  his  own  use.8  Where 
by  a  contract  with  its  president  a  corporation  may  deliver  to  him, 
its  unissued  stock,  with  power  of  sale,  as  security  for  money 
loaned  the  corporation  by  him,  the  contract  will  be  enforced 
if  shown  to '  have  been  made  for  the  benefit  of  the  corporation, 
and  to  be  just  and  fair.8  An  action  by  a  stockholder  to  set 


urer  and  other  officers  who  are  paid 
for  their  services.  Why  should  there 
exist  any  doubt  as  to  directors  who 
are  ulso  officers?  The  difference  is 
only  in  the  measure  and  degree  of 
their  respective  responsibility.  It 
would  be  monstrous  if  a  director 
could  look  on  and  see  a  cashier  or 
treasurer  embezzling  the  funds  of  a 
corporation  and  not  be  responsible  if 
he  gave  no  information,  and  took  no 
ine.-i-.ures  to  prevent  it.  Equally  mon- 
strous would  it  be  to  say  that  the 
directors  of  a  saving  fund,  insurance 
office  or  bank  should  allow  their  names 
to  go  forth  to  the  public  in  connection 
with  representations  of  the  nature  and 
value  of  the  assets  which,  if  the  ordi- 
nary means  of  examination  and  super- 
vision hiid  been  resorted  to,  they  would 
have  easily  discovered  to  be  false.  If 
they  have  such  unbounded  faith  in 
the  faithfulness  and  integrity  of  their 
officers  as  to  trust  the  whole  affairs  of 
the  corporation  to  their  management, 
•without  any  attention  on  their  part, 
they  must  accept  the  alternative  of 
responsibility  for  their  conduct.  It  is 
important  that  the  community  at  large 
should  know  this,  and  that  gentlemen 
of  wealth  and  respectability  should  be 
careful  how  they  suffer  their  names  to 
be  held  forth  as  the  trustees  or  man- 
agers of  institutions  to  which  they 
have  not  the  time  or  inclination  to 
give  their  personal  attention." 


'Maisch  t>.  Saving  Fund,  (1862),  5 
Phil.  30.  In  Flagler  Engraving  Ma- 
chine Co.  P.  Flagler,  (1884)  19  Fed. 
Rep.  468,  it  appeared  that  the  organ- 
izers of  the  joint  stock  company  put 
in  as  a  part  of  the  capital  stock  cer- 
tain patent  rights  and  by  fraudulent 
puffing  induced  others  to  purchase  the 
stock  at  fictitious  prices.  It  was  held 
that  whether  the  purchasers  could  set 
aside  the  sales  or  not,  they  were  not 
entitled  to  gain  control  of  the  com- 
pany and  pursue  their  remedy  against 
the  fraudulent  directors  in  the  name  of 
the  company. 

'Combination  Trust  Co.  t>.  Weed,  3 
Fed.  Rep.  24. 

•Ibid.  In  Pneumatic  Gas  Co.  v. 
Berry,  (1885)  113  U.  8.  822;  8.  c.,  5 
Sup.  Ct.  Rep.  525,  where  the  objec- 
tion was  made  to  a  contract  entered 
into  with  a  director  of  the  corporation 
seven  years  after  its  execution  and  had 
been  repeatedly  ratified,  the  Supreme 
Court  of  the  United  States  said:  "A 
court  of  equity  does  not  listen  with 
much  satisfaction  to  the  complaints  of 
a  company  that  transactions  were  ille- 
gal which  had  its  approval,  which  were 
essential  to  its  protection,  and  other 
benefits  of  which  it  has  fully  received. 
Complaints  that  its  own  directors  ex- 
ceeded their  authority  come  with  ill 
grace  when  the  acts  complained  of 
alone  preserved  its  existence."  In 
Jesup  r.  Illinois  Central  R  Co.,  (1890) 


308  FRAUDULENT  ACTS  OF  OFFICERS.  [§  209 

aside  a  resolution  of  a  board  of  trustees  of  a  corporation  fix- 
ing the  salaries  and  compensation  to  be  received  by  them 
respectively  as  secretary,  treasurer  and  vice-president  of  the  cor- 
poration, and  to  compel  the  restoration  of  the  money  paid  them, 
although  it  is  not  binding  upon  the  corporation  and  may  at  the 
election  of  the  corporation  be  set  aside,  cannot  be  maintained 
unless  he  shows  that  the  corporation  ought  to  exercise  its  rights 
to  avoid  the  resolution  or  contract  made  by  its  trustees  in  which 
they  were  personally  interested.1  The  presumption  does  not 
arise  in  such  an  action  that  the  trustees  acted  dishonestly,  which 
must  be  overcome  on  their  part  by  affirmative  evidence,  as  it 
would  in  case  the  corporation  had  sought  to  set  aside  the  contract.2 
A  stockholder  has  a  right  of  action  for  losses  sustained  by  him  by 

43  Fed.  Rep.  483,  it  was  held  that  sea-  covery  against  them  personally,  see 

sonable  resistance  could  not  be  predi-  Stebbins  v.  Cowles,  (1835)  10  Conn.  399. 

cated  of  a  case  of  a  merely  voidable  !  MacNaughton  ».  Osgood,  (1886)  41 

contract,  where  the  party  complaining  Hun,  109. 

had  not  simply  been  silent  for  twenty  2  Ibid.  As  to  the  rule  which  would 
years,  but  with  knowledge  of  the  facts,  govern  in  case  the  corporation  itself 
or  with  free  opportunity  to  ascertain  sought  to  set  aside  such  a  resolution, 
them,  has  enjoyed  the  fruits  of  the  it  was  said  by  the  court:  "Thecorpo- 
contracts,  and  treated  it  as  valid.  Mr.  ration  may  avoid  such  a  contract  with 
Justice  HARLAN  said  generally:  "The  its  trustees,  but  cannot  do  so  except 
rule  is  a  wholesome  one  that  requires  upon  equitable  terms,  and  must  re- 
the  court,  in  cases  of  merely  voidable  store  to  him  what  is  received  from 
contracts,  to  withhold  relief  from  those  him.  Duncomb  ».  N.  Y.,  H.  &  N. 
who,  with  knowledge  of  the  facts,  or  R.  R.  Co.-,  84  N.  Y.  190.  Hence  the 
with  full  opportunity  to  ascertain  the  corporation,  upon  rescinding,  ought  to 
facts,  unreasonably  postpone  applica-  pay  the  reasonable  value  of  the  serv- 
tion  for  relief.  A  contract  not  wholly  ices  of  these  officers,  rendered  in  a  de- 
invalid  when  executed,  nor  prohibited  partment  of  labor  beneficial  to  it,  and 
by  law,  as  relating  to  some  illegal  outside  of  the  duty  of  direction  which 
transaction,  and  which  is,  therefore,  the  office  of  director  implies.  See 
voidable  only,  may  become,  by  the  acts  Metropolitan  Elevated  Railway  Co. 
of  the  parties  or  by  long  acquiescence,  ».  Manhattan  Railway  Co.,  14  Abb. 
binding  upon  them,  especially  where  N.  C.  at  pages  258,  259,  where  the 
the  nature  of  the  property  which  is  case  of  Jackson  v.  New  York  Central 
the  subject  of  the  contract  is  such  that  Railroad  Co.,  2  Sup.  Ct.  (T.  &  C.) 
its  value  may  be  affected  by  its'rela-  653;  affirmed,  58  N.  Y.  623,  is  cona- 
tions to  other  property  of  like  kind,  mented  upon,  and  other  cases  are  cited 
and  by  the  changing  business  of  the  in  which  the  right  of  a  director  to  re- 
country."  As  to  the  right  of  one  cover  for  such  services  is  shown  to 
wishing  to  fix  liability  upon  directors  rest  solely  upon  quantum  meruit,  and 
of  a  corporation  on  account  of  fraudu-  such,  we  have  no  doubt,  is  the  law." 
lent  transactions  by  which  he  had  That  it  must  be  a  clear  case  demand- 
been  endangered  to  file  a  bill  for  dis-  ing  its  interference  before  a  court  will 


§  209]  FRAUDULENT  ACTS  OF  OFFICERS.  309 

reason  of  the  fraudulent  acts  and  a  misapplication  or  waste  of  the 
corporate  funds  and  property  by  an  officer  of  the  corporation.1 
But  before  bringing,  in  his  own  name,  an  action  against  an  officer 
of  a  corporation  to  recover  damages  for  a  fraudulent  misappro- 
priation and  conversion  by  such  officer  of  the  corporate  earnings 
and  funds,  lie  must  first  apply  to  the  corporation  to  bring  the 
action  and  the  latter  refuse  to  bring  it.  In  case  the  corporation 
do  refuse  to  bring  the  action,  then  the  stockholder  may  bring  it 
in  behalf  of  himself  and  other  stockholders,  making  the  corpora- 
tion a  party  defendant,  alleging  its  refusal  in  his  complaint  and 
proving  it.2  And  an  action  in  his  own  name,  without  making 
the  corporation  a  party  defendant,  to  recover  the  difference 
between  the  actual  loss  and  depreciation  will  not  be  authorized 
by  the  fact  that  the  wrongful  acts  of  the  officer  have  depreciated 
the  market  value  of  the  capital  stock  held  by  the  stockholder  to 
an  extent  greater  than  its  share  of  the  actual  loss  sustained.8 
Where  the  officers  and  trustees  of  a  corporation  alien  and  trans- 
fer the  whole  property  of  a  corporation  to  one  to  enable  him  to 
appropriate  it  to  his  own  use  and  to  render  valueless  the  stock  of 
the  corporation  to  effect  a  dissolution  of  the  corporation  without 
due  process  of  law,  and  also  to  oust  one  who  has  been  chosen  to 
have  the  "  management  of  the  affairs  of  "  the  corporation  for  u 
stated  time  and  for  .the  purpose  of  defrauding  its  creditors,  an 
action  will  lie  to  set  aside  such  alienation  as  fraudulent.4  And 
such  manager  would  be  a  proper  party  to  bring  such  an  action 
under  the  New  York  Code  of  Civil  Procedure,  sections  1781, 
1782,  which  provide  that  such  an  action  may  be  brought  by  a 
creditor  of  the  corporation,  or  by  a  trustee,  director,  manager,  or 

interfere  with  the  management  of  a  Pr.  293;  Mead  v.   Mali,  15  How.   Pr. 

corporation,  see  Barnes  r.  Brown,  80  847;  Crook  v.  Jewett,  12  How.  Pr.  19; 

N.  Y.  527;  Chautauqua  County  Bank  Cazcaux  v.  Mali,  25  Barb.  578;  Abbot 

«  Risley,  19  N.  Y.  881;  Hawes  v.  Oak-  r.  Am.  H.  R.  Co.,  38  Barb.  578;  Howe 

land,  104  U.  8.  460.  t>.    Deuel,  48  Barb.  505;  Gardiner  v. 

1  Greaves  v.  Gouge,  (1877)    69   N.  Pollard,  10  Bosw.  675;  Gray  t>.  New 

Y.  154.     As  to  a  stockholder's  having  York  &  Virginia  St.  Ship  Co..  5  T.  & 

a  remedy  for  losses  produced  by  the  C.  224. 

fraud,  culpable  neglect  of  duty  or  a  '  Greaves  r.  Gouge,  (1877)  69  N.  Y. 

violation  of  law,   on  the  part  of  an  154. 

officer  of  the  corporation,  see  Bissell  t>.  *  Ibid. 

Michigan  Southern  &  N.  I.  R.  R.  Co.,  «Beecher  r.  Schieffelin,   (Spl.  Term 

22  N.  Y.  275;  Butts  *.  Wood,  87  N.  Sup.  ft.  1883)  4  N.  Y.  Civ.  Pro.  Rep. 

Y.  817;  Cross  «.   Sackett,  6  Abb.  Pr.  280. 
247,  265;  House  v.  Cooper,  10  iiow. 


310  FRAUDULENT  ACTS  OF  OFFICERS.  [§  209 

other  officer  of  the  corporation  having  a  general  superintendency 
of  its  affairs.1  A  treasurer  of  a  corporation  failing  to  pay  over 
to  it  money  which  he  has  collected  whereby  the  corporation  is 
compelled  to  borrow  money  and  to  pay  a  rate  of  interest  greater 
than  six  per  cent  in  an  action  against  him  for  the  recovery  of 
that  money,  would  not  be  liable  in  equity  to  pay  on  the  sums  he 
had  withheld  more  than  six  per  cent  interest  should  the  bill  not 
seek  to  recover  any  profits  he  had  made.2  Where  stock  of  a  cor- 
poration has  been  fraudulently  issued  by  one  of  its  officers  and 
transferred  to  a  third  person  as  collateral  security  for  a  debt,  it  is 
in  the  power  of  a  court  of  equity,  upon  a  bill  tiled  for  the  pur- 
pose by  a  stockholder,  to  order  the  certificates  of  such  stock 
returned  and  canceled.8  And  in  such  a  bill  the  corporation  is 
not  a  necessary  party.4  A  treasurer  of  a  corporation  who  has 
sold  for  its  benefit  a  bond  issued  by  it,  in  case  he  is  unable  or 
refuses  to  disclose  the  exact  amount  for  which  he  sold  it,  will  be 
chargeable  in  equity  for  at  least  the  full  market  value  of  the 
bond  at  the  time  of  the  sale.5  In  this  case  the  treasurer  of  the 
corporation  had  purchased  on  his  own  account  a  quantity  of  coal, 
when  it  was  not  his  duty  as  treasurer  to  purchase  it,  and  with  no 
intention  of  selling  it  to  the  corporation.  He  afterwards  sold  it 
to  the  corporation  at  its  then  fair  market  value,  which  was  more 
than  it  cost  him.  It  was  held  that  he  was  not  chargeable  in  equity 
for  the  difference  in  price  between  what  he  paid  for  it  and  sold  it 
for  to  the  corporation.6  The  Supreme  Court  of  New  York,  in  a 
case  where  two  of  the  directors  of  a  corporation  acquired  title  to 
patents  for  use  in  the  business  in  their  own  name,  and  transferred 
them  to  another  corporation,  which  in  turn  assigned  them  to  one 
of  these  directors  as  trustee,  held  that  a  decree  that  this  director 
should  assign  all  the  interest  which  he  held  individually  and  as 
trustee  in  the  patents  to  the  receiver  appointed  in  the  action,  and 
that  both  of  these  directors  should  account  for  all  the  profits  they 
had  made  in  the  transactions  was  proper.7  An  action  at  law  can- 

JIbid.     As  to  the  rules    governing  'Campbell     f.     Morgan,    (1879)     4 

the  bringing  of  suits  to  compel  the  Bradw.  (111.)  100. 

ministerial  officers  of  a  private  cor-  4  Ibid. 

poration  to  account   for  a  breach  of  6  Parker    t.     Nickerson.  (1884)    137 

official  duty  or  misapplication  of  cor-  Mass.  487. 

porate  funds,  see  Hyde  Park  Gas  Co.  *  Ibid. 

v.  Kerber  (1879)  5  Bradw.  (111.)  132.  '  Averill  v.  Barber,  (1889)  53  Hun, 

*  Parker    P.    Nickerson,   (1884)    137  636;  s.  c.,  6  N.  Y.  Supp.  255. 
Mass.  487. 


§209]  FRAUDULENT  ACTS  OF  OFFICERS. 

not  be  maintained  by  a  stockholder  of  a  corporation  against  the 
officers  mid  directors  of  the  corporation  to  recover  damages  for 
willful  wasto  of  the  assets,  by  reason  of  which  the  value  of  his 
shares  of  stock  may  have  been  decreased,  and  he  may  have  become 
liable  to  an  assessment  upon  his  shares.  11  i>  mm-dy  lies  in  a 
court  of  equity.'  It  should  appear  very  clearly  that  the  loss  of 
a  stockholder  in  a  diminution  of  the  value  of  his  stock  was 
occasioned  by  the  gross  negligence  or  willful  misconduct  of 
directors  to  charge  the  officers  of  a  corporation  with  such  loss 
whicfh  he  may  allege  had  been  caused  by  their  mismanagement* 
While  accountable  in  equity  as  trustees,  in  case  the  officers  of  a 

1  Hirsh  v.  Jones,  (1893)56  Fed.  Rep.  "  The  general  rule  of  law  Is,  that  an 
187.  McCoRMifK,  Circuit  Judge,  said:  action  at  law  must  be  brought  by  the 
'•  The  authorities  are  uniform  in  sup-  person  having  the  title  or  right  to  the 
port  of  the  proposition  that  where  the  damages  which  are  sought  to  be  re 
cause  of  action  affects  all  the  interests  covered  for  the  injury.  Hence  the 
of  the  corporation,  as  such,  the  cor-  }\' »,<//, >/n/  lt<u<k  should  have  brought 
poration  is  the  proper  party  to  sue,  this  suit.  It  is  its  property  which  hag 
and  on  its  refusal  to  sue,  or  falling  been  misappropriated  and  lost,  and  the 
under  the  control  of  those  liable  to  the  damages  to  be  recovered  belong  to  it  — 
suit,  and  thus  not  to  be  trusted  to  to  be  sure  —  in  trust  for  billholders, 
bring  and  conduct  the  action,  the  in-  depositors  and  other  creditors,  if  any 
jured  stockholder  has  his  remedy  in  there  be,  and  finally  for  the  stock- 
equity,  and  must  seek  it  in  that  juris-  holders,  but  for  all  of  them  and  not 
diction."  Citing  Kendig  v.  Dean,  97  for  some  of  them  exclusively.  The 
U.  8.  423;  Dewing  r.  Perdicaries,  96  U.  bank  then  must  sue.  It  may  compro- 
S.  193;  Dodge  r.  Woolsey,  18  How.  mise  and  settle  or  release  the  defend- 
841;  Conway  r.  Halscy,  44  N.  J.  Law,  ants  on  terms  mutually  satisfactory, 
462.  which  the  stockholders  cannot  do,  and, 

*Neall  T.  Hill,  16  Cal.  145.  As  to  should  they  do  it,  it  would  be  no  bar  to 

tin-  rule  with  reference  to  an  action  by  a  suit  afterwards  brought  by  the  bank, 

a  stockholder  of  a  corporation  against  In  this  respect  the  defendants  are 

the  directors  for  a  misapplication  of  liable  to  the  bank  as  any  other  agents 

funds  of  the  corporation,  see  Cogswell  or  persons  would  be  for  robbing  or  de- 

«.  Bull,  (1870)  89  Cal.  820;  Parrott  r.  frauding  it  or  in  any  way  injuring  the 

Byers,  40  Cal.  614.  In  Allen  t.  Cur-  corporate  property.  *  *  *  Besides 

tis,  (1857)  26  Conn.  456,  an  action  on  the  directors  of  the  bank  are  the  agents 

the  case  brought  by  a  stockholder  of  a  of  the  bank.  The  bank  is  the  only 

bank  against  the  directors  of  the  same  princi|tal.  and  there  is  no  such  trust 

for  mismanagement  and  willful  neglect  for  or  relation  to  a  stockholder  as  has 

on  their  part  of  the  affairs  of  the  bank  been  claimed  by  the  plaintiff.  The 

which  caused  insolvency  of  the  hank  entire  duty  of  the  dint-tors  growing 

and  a  loss  to  him  in  the  value  of  liis  out  <>l  their  air<-ncy  is  owed  to  the 

stock,  the  case  being  referred  to  the  bank,  which,  under  the  charter,  is  the 

Supremo  Court  of  Connecticut  on  a  sole  representative  of  the  stockholders 

demurrer,  the  court  su-tained  the  de-  and  the  legal  protector  and  defender 

murrer,  and  in  their  opinion  said:  of  their  property.  Nor  is  any  other 


312  FRAUDULENT  ACTS  OF  OFFICERS.  [§  210 

corporation  have  gone  out  of  office,  the  remedy  against  them  for 
an  appropriation  of  corporate  funds  to  their  own  use  is  at  law 
and  not  in  equity  unless  discovery  is  sought.1 

§  210.  Malfeasance  of  the  president  of  a  corporation  —  a 
stockholder's  remedy. —  In  a  federal  court  a  stockholder's  bill 
in  equity  charged  that  the  president  of  the  corporation  had  taken 
possession  and  control  of  the  moneys  of  the  corporation,  deposit- 
ing them  in  bank  in  his  own  name,  in  defiance  of  the  express 
provision  of  the  by-laws,  and  drawing  them  out  on  his  own 
check,  in  his  own  discretion,  for  his  own  purposes ;  that  espe- 
cially he  had  in  his  own  hands  the  sum  of  $25,660,  money  of  the 
corporation,  which  he  had  converted  to  his  own  use,  and  for 
which  he  failed  and  refused  to  account ;  that  by  this  action,  and 
the  further  misuse  of  the  corporation's  funds  by  lending  them  in 
his  own  name,  this  stockholder  had  failed  to  receive  his  proper 
share  of  the  funds  of  the  company  in  the  shape  of  a  dividend  on 
his  stock  ;  that  all  his  efforts  to  ascertain  the  truth  about  this  mis- 
use of  funds  by  the  president,  on  examination  of  the  books,  or  in 
calling  the  president  to  an  account  therefor,  had  been  baffled  and 
defeated  by  the  direct  and  active  effort  of  the  president  himself, 
aided  by  the  other  officers,  going  so  far  as  to  receive  and  put  a 
motion  for  investigation  made  at  a  stockholders'  meeting,  and 
that  there  was  a  definite  purpose  so  to  use  the  affairs  of  the  com- 
pany as  to  depress  the  stock  so  as  to  compel  this  stockholder  to 
sell  out  at  a  loss.  There  was  a  general  demurrer  to  the  bill. 
The  United  States  Circuit  Court  overruled  the  demurrer  and  sus- 
tained the  bill.2 

protector  or  defender  necessary  until  '  Bay  City  Bridge  Co.  v.  Van  Etten, 

the  bank  shall  neglect  its  duty  in  re-  36  Mich.  210. 

fusing  to  call  the  directors  to  account;  *  Ranger  t.  Champion  Cotton-Press 

in  which  event,  upon  a  case  properly  Co.,  (1892)  52  Fed.  Rep.  611.     SIMON- 

stated  and  with  proper  parties  before  TON,  J.,  said,  referring  to  the  demurrer 

the  court,  a  court  of  equity  may  grant  and  its  admissions:  "Here  we  have 

relief  according  to   the  existing    ex-  the    admission    that    a    complaining 

igency."     Citing   Smith  v.    Kurd,  12  stockholder  in  a  trading  corporation 

Met.  371;  Bishop  r.  Houghton,  1  E.  has  been  defrauded  and  deprived  of 

D.  Smith,  566;  Aug.  &  Ames  on  Corp.  his  share  of  its  property  applicable  to 

§  312;  Hodsdon  v.  Copeland,  16  Me.  dividends,  by  the  action  of  the  presi- 

314;  Hersey  r.  Veazie,  24  Me.  9.    See,  dent  in  misusing  for  his  own  purposes 

also,  Ruby  r.  Abyssinian  Society,  15  the  moneys  of  the  company.     That 

Me.  306.  every  effort  made  by  him  to  ascertain 


11]  FRAUDULENT  ACTS  OF  OFFICEBS.  313 

§  211.  When  a  demand  upon  directors  to  bring  suit  is  not 
required.  Certain  stockholders  of  an  Indiana  corporation 
brought  an  action  against  the  corporation  and  the  officers  of  the 
same  eharirin^  a  conspiracy  between  the  hitter,  they  controlling  a 
majority  of  the  .-tock,  by  which  in  electing  and  continuing  cer- 

the  facts  connected  with  this  charge  power,  or  mi  inti  rfcrence.  with  vested 
have  lu-cn  thwarted  liy  tin-  positive  ri-htv  An<>'.  lin  <  la>.s  of  cases  U  where 
:iml  distinct  refusal,  at  flu-  htinds  of  the  rights  and  interests  of  a  corpora- 
the  president,  made  at  an  annual  lion  as  a  whole  arc  threatened  by  the 
meeting  of  the  stockholders,  to  give  action  of  a  third  party,  an  outsider, 
any  information  or  explanation  what-  and  the  corporate*  authorities,  through 
ever.  This  admission  is  made.  It  is  inadvertence,  negligence  or  willful- 
denied  that  a  court  of  equity  can  give  ness,  will  not  move  in  their  defense." 
any  relief.  Strong,  indeed,  must  be  In  such  cases,  following  Dod<je  r. 
the  formal  or  technical  difficulties  Woolsey,  »uprn,  the  courts  of  the 
which  will  forbid  this  court  from,  at  United  States  lent  a  ready  ear  to  the 
least,  hearing  such  a  complaint."  The  complaint  of  stockholders  who  inter- 
bill  and  the  rights  of  the  stockholder  fcrcd  in  behalf  of  the  corporate  rights, 
are  then  discussed  in  these  words:  But  this  indulgence  of  the  courts  was 
"  Does  the  bill  make  out  prima  facie  a  greatly  abused.  Many  cases  were 
case  for  equitable  relief?  There  can  brought  in  the  United  States  courts  in 
be  no  doubt  that  in  a  proper  showing  which  the  jurisdiction  was  secured  by 
this  court  will  come  to  the  aid  of  a  collusion  between  a  non-resident 
minority  of  stockholders.  Dodge  r.  stockholder  and  the  corporation  which 
Woolsey,  18  How.  331.  The  doctrine  itself  could  not  come  into  this  court, 
is  well  stated  in  Waterman  on  Corpo-  This  abuse  was  rebuked  in  Hawes  r. 
rations  (page  578,  §  319):  '  A  court  of  Oakland,  104  U.  S.  450.  The  evil  was 
equity  will  enjoin,  on  behalf  of  the  cured  by  the  passage  of  the  ninety- 
stockholders,  any  improper  alienation  fourth  equity  rule,  consequent  on  this 
or  disposition  of  the  property,  other  case.  This  rule,  by  its  terms,  is  made 
than  for  corporate  purposes,  and  will  applicable  to  "every  bill  brought  by 
restrain  the  commission  of  acts  which  one  or  more  stockholders  in  a  corpora- 
are  contrary  to  law,  and  tend  to  the  de-  tion  against  the  corporation  and  other 
struction  of  the  franchises,  as  well  the  parties,  founded  on  rights  which  may 
improper  management  of  the  business  properly  be  asserted  by  the  corpora- 
of  the  corporation,  or  a  wrongful  di-  tion."  Hawes  r.  Oakland  (page  454) 
version  of  its  funds,  and  in  such  case  shows  that  these  words,  "other  par- 
equity  may  grant  relief  at  the  suit  of  ties,"  means  "an  outsider."  But  this 
a  single  stockholder.'  "  The  court  re-  case,  and  the  rule  consequent  upon  it, 
sumed:  "There  are  three  classes  of  do  not  apply  to  cases  in  which  there  h 
cases  in  which  stockholders  may  com-  a  real  contest  between  the  stockholder 
plain.  A  minority  may  object  to  the  and  his  corporation.  Leo  «.  Railway 
business  policy  pursued  by  the  major-  Co.,  17  Fed.  Rep.  273.  Hawes v.  Oak 
ity,  as  tending  to  injure,  perhaps  de-  land  draws  the  distinction  broadly  and 
stroy,  their  interests.  In  such  cases  clearly:  "That  the  vast  and  increas- 
the  court  will  seldom  or  never  inter-  ing  proportion  of  the  tu -live  business 
fere.  The  majority  must  govern,  un-  of  modern  life  is  done  by  corporations, 
less  there  be  a  palpable  abuse  of  should  call  into  exercise  the  beneficent 
40 


FRAUDULENT  ACTS  OF  OFFICERS.  [  5j  '1 11 

tain  ones  of  them  as  officers  they  were  enabled  to,  and  did, 
misappropriate  and  vaste  the  funds  of  the  corporation,  by  a 
system  of  paying  exorbitant  and  unreasonable  salaries  to  each 
other  as  officers  and  thus  disabled  the  corporation  to  declare  divi- 
dends, there  being  many  different  allegations  of  wrongdoing  on 
their  part  in  the  complaint.  The  Supreme  Court  sustained  the 
overruling  of  the  demurrers  to  each  of  the  allegations  in  the 

powers  and  flexible  methods  of  courts  because  they  were  applicable  to  diyi- 
of  equity  is  neither  to  be  wondered  at  dends;  that  the  president  misuses  his 
nor  regretted,  and  this  is  specially  powers,  and  conducts  the  business  of 
true  of  controversies  growing  out  of  the  corporation  to  his  own  purposes; 
the  relations  between  the  stockholder  that  he  controls  and  uses,  in  his  own 
and  the  corporation  of  which  he  is  a  private  banking  account,  and  for  his 
member.  The  exercise  of  this  power  own  private  purposes,  all  the  funds  of 
in  protecting  the  stockholder  against  the  company,  against  the  express  pro- 
the  frauds  of  the  governing  body  of  visions  of  the  by-laws,  and  that  in 
directors  or  trustees,  and  in  prevent-  this  he  is  sustained  by  the  officers  of 
ing  thek  exercise,  in  the  name  of  the  the  company,  who  aided  him  in  a  per- 
corporation,  of  powers  which  are  out-  emptory  refusal  even  to  consider  a 
side  of  their  charters  or  articles  of  at-  motion  of  inquiry  on  this  subject, 
sociation,  has  been  frequent,  and  is  made  at  a  general  meeting  of  stock- 
most  beneficial,  and  is  undisputed,  holders.  He  charges  that  his  own 
*  *  *  The  case  before  us  goes  be-  personal  rights  are  infringed  and  for 
yond  this."  After  stating  that  case  this  he  seeks  his  remedy.  As  his 
and  the  principle  of  Dodge  ».  Wool-  rights  are  similar  to  those  of  the  other 
sey,  in  both  of  which  the  action  of  an  stockholders,  he  makes  them  parties 
outsider  was  the  gravamen  of  the  com-  to  his  suit,  as  parties  in  interest,  so 
plaint,  the  court  adds  (page  454):  that  they  may  take  sides  as  they  are 
"  This  is  a  very  different  affair  from  a  °dvised,  and,  at  least,  may  be  present 
controversy  between  the  shareholder  at  the  division  of  the  common  prop- 
of  a  corporation  and  the  corporation  erty,  and  see  that  he  gets  his  just 
itself,  or  its  managing  directors  or  share  and  no  more.  His  prayer  is 
trustees,  or  the  other  shareholders  who  that  the  money  unlawfully  converted 
maybe  violating  his  rights,  or  destroy-  be  returned,  and  out  of  it  a  dividend 
ing  the  property  in  which  he  has  an  be  declared,  and  that  he  get  his 
interest."  SIMONTON,  J.,  then  refers  dividend.  This  is  a  suit  within  the 
to  the  case  before  him:  "The  bill  in  corporation,  concerning  no  one  but 
this  case  does  not  complain  of  any  the  stockholders  and  the  company, 
business  policy  on  the  part  of  the  cor-  seeking  rights,  claimed  as  a  stock - 
poration  or  of  the  other  stockholders,  holder,  against  the  company  and  other 
nor  does  it  charge  supineness,  or  neg-  stockholders.  The  complainant  could 
lect  or  collusion  with  any  attack  on  not  work  out  his  case  through  the 
corporate  rights,  interests  or  privi-  corporation."  The  court  then  stated 
leges,  by  an  outsider.  The  complain-  the  particular  facts  as  to  who  hold  the 
ant  charges  that  the  president  has  stock  and  are  officers,  and  said:  "Un- 
converted to  his  own  use  moneys  of  der  these  circumstances,  it  would  be 
the  company  in  which,  as  a  stock-  absurd  to  require  the  complainant  to 
holder,  complainant  has  an  interest,  ask  these  gentlemen  to  institute,  in 


§211] 


FRA  I  ACTS  OF  OFFICERS. 


315 


complaint,  holding  that  each  one  of  them  >tat«-d  a  cause  of  action 
against  the  defendants.  One  of  the  main  contentions  of  the 
defendants  was  that  there  should  have  been  a  demand  ujxjn  them 
to  bring  the  action  and  an  allegation  in  the  complaint  that  it  had 
been  made.  The  court  held  this  was  particularly  a  case  in  which 
such  a  demand  upon  the  directors  was  not  required.1 


the  name  of  the  corporation,  a  suit 
against  [the  president]  involving  the 
grave  charges  of  this  suit.  Ta/ewell 
Co.  /•.  Fanners' L.  &  T.  Co.,  12  I-Yd. 
Rep.  752;  Heath  r.  Kailway  Co.,  8 
Blatchf.  847." 

1  Wayne  Pike  Company  v.  Ham- 
mons,  (1891)  129  Ind.  368.  Arguendo, 
it  was  said:  "Conceding  that  the  cases 
are  numerous  in  which  such  demand 
is  necessary,  we  do  not  think  this  case 
belongs  to  that  class.  In  this  case 
something  more  than  a  mere  account- 
ing is  sought,  namely,  the  appointment 
of  a  receiver  to  take  charge  of  the  cor- 
porate property.  The  parties  out  of 
whose  hands  it  is  proposed  to  take  the 
management  of  the  affairs  of  the  cor- 
poration, and  who  are  called  upon  to 
account  for  a  misappropriation  and 
conversion  of  the  corporation  assets, 
constitute  a  majority  of  the  directors. 
It  would  not  be  reasonable  to  require 
those  who  are  charged  with  a  conver- 
sion of  the  assets  to  bring  suit  in  the 
name  of  the  corporation  against  them- 
selves, and  to  furnish  the  proof  to 
sustain  the  charge,  and  at  the  same 
time  ask  the  court  to  take  the  prop- 
erty from  their  charge  on  account  of 
their  misconduct.  Such  a  suit  would 
be  a  farce,  and  it  would  be  beyond 
reason  to  refuse  the  a  p  pel  Ires  relief 
because  they  did  not  demand  that  such 
a  proceeding  be  had  before  they  com- 
menced their  suit.  Cook  on  Stocks  & 
Stockholders,  section  741,  in  treating 
this  subject,  says:  'There  an*  occa- 
sions when  the  allegation  that  the 
stockholder  has  requested  tin- directors 
to  bring  suit,  and  they  have  refused. 
may  be  omitted  bince  the  request  itM-l! 


is  not  required.  This  occurs  when  the 
corporate  management  is  under  the 
control  of  the  guilty  parties.  No  re- 
que-t  need  then  be  made  or  alleged, 
since  the  guilty  parties  would  not  com- 
ply with  the  request;  and  even  if  they 
did  the  court  would  not  alldw  them  to 
conduet  the  suit  against  themselves.' 
The  author  cites  many  authorities 
which  fully  support  the  text.  Mr. 
Waterman,  in  his  work  on  Corpora- 
tions, vol.  1.  page  467,  says:  'The 
corporation  may  call  its  officers  to 
account  if  they  willfully  abuse  their 
trust  or  misapply  the  funds  of  the 
company;  and  if  it  refuses  to  sue,  or 
is  still  under  the  control  of  those  who 
must  be  made  defendants  in  the  suit, 
the  stockholders  who  are  the  real  par- 
ties in  interest  may  file  a  bill  in  their 
own  names,  making  the  corporation  a 
party  defendant,  or  part  of  them  may 
file  a  bill  in  behalf  of  themselves  and 
all  others  standing  in  the  same  rela- 
tion. Where  a  majority  of  the  stock 
of  a  corporation  is  held  by  one  family, 
who  vote  away  the  corporation  profits 
for  salaries,  a  court  of  equity  will 
remedy  the  fraud.  Cook  Stock  & 
Stockholders,  section  567.  In  the  case 
of  Carter  r.  Ford,  etc.,  Co.,  85  Ind. 
180,  it  was  held  that  where  the  corpo- 
ration was  in  the  hands  of  its  enemies 
the  stockholders  might  maintain  an 
action,  which,  if  successful,  would 
inure  to  the  benefit  of  the  corporation.1 
See.  also,  Rogers  r.  La  Fayette,  etc.. 
Works.  .V.'  Ind.  '.".Mi.  'The  olllcera  of 
a  corporation  are  its  agents,  and  they 
are  governed  oy  the  rules  of  law  ap- 
plicable to  other  agents,  as  l>«t\vi.  n 
themselves  and  their  principal,  in  so 


316  FRAUDULENT  ACTS  OF  OFFICERS.  [§  '2  1  '1 

§  212.  When  a  stockholder  may  bring  an  action. —  It 
appearing  in  a  case  that  a  stockholder  had  written  to  the  presi- 
dent of  a  corporation  to  take  action  against  certain  directors  for 
breaches  of  their  trust,  and  he  replied  that  he  had  resigned  the 
presidency  two  years  before  this  time,  and  further  that  the  direct- 
ors complained  of  were  the  active  managers  of  the  business,  and 
there  being  no  evidence  that  any  successor  to  the  president  had 
been  elected  in  the  meantime,  the  Supreme  Court  of  New  York 
held  that  the  stockholder  could  properly  bring  an  action  in  his 
own  name  against  these  directors.1  An  action  for  an  accounting 
and  an  injunction  in  the  name  of  a  corporation  may  be  authorized 
and  maintained  by  the  president  of  a  corporation  who  is  also  a 
trustee,  without  the  authority  of  the  board  of  trustees,  or  against 

far  as  such  rules  relate  to  honesty  and  646;  Dannmeyer  v.  Coleman,  11  Fed. 
fair  dealing  in  the  management  of  the  Rep.  97;  City  of  Detroit  t.  Dean,  106 
affairs  of  their  principal.  They  can  U.  S.  537;  s.  c.,  1  Sup.  Ct.  Rep.  560; 
no  more  use  the  business  of  their  prin-  Rathbone  v.  Parkersburg  Gas  Co.,  31 
cipal  for  their  own  private  gain  than  W.  Va.  798;  s.  c.,  8  S.  E.  Rep.  570; 
any  other  agent,  and  should  they  do  Alexander  v.  Searcy,  81  Ga.  536;  s.  c., 
so  they  should  be  held  to  the  same  8  S.  E.  Rep.  630;  City  of  Chicago «. 
strict  rule  of  accountability  as  the  Cameron,  120  111.  447;  s.  c.,  UN.  E. 
agent  of  a  private  person.  Port  v.  Rep.  899;  Dunphy  v.  Traveller  News- 
Russell,  36  Ind.  60;  Aberdeen  Railway  paper  Association,  146  Mass.  495;  s. 
Co.  •».  Blakie,  1  Macq.  461;  Michoud  c.,  16  N.  E.  Rep.  426;  Allen  v.  Wilson, 
T).  Girod,  4  How.  502 ;  Cumberland,  28  Fed.  Rep.  677;  Slattery  v.  St.  Louis 
etc.,  Co.  v.  Sherman,  30  Barb.  553.  &  N.  O.  Transportation  Co.,  91  Mo. 
If  the  appellants  conspired  together  217;  s.  c.,  48.  W.  Rep.  79;  Taylor  r. 
for  the  purposes  alleged  in  the  com-  Holmes,  127  U.  S.  489;  s.  c.,  8  Sup. 
plaint,  each  became  liable  for  any  act  Ct.  Rep.  1192;  Dimpfel  v.  Ohio  &  M. 
done  by  any  of  the  three  in  furtherance  Railway  Co.,  110  U.  S.  209;  s.  c.,  3 
of  the  common  design.  By  the  act  of  Sup.  Ct.  Rep.  573;  McHenry  «.  Rail- 
conspiring  together  the  conspirators  road  Co.,  22  Fed.  Rep. .130;  Footer, 
assumed  to  themselves  the  attribute  of  Mining  Co.,  17  Fed.  Rep.  46;  Bill  v. 
individuality  so  far  as  regards  the  Telegraph  Co.,  16  Fed.  Rep.  14;  City 
proscution  of  the  common  design,  thus  of  Quincy  v.  Steel,  120  U.  S.  241 ;  s. 
rendering  what  was  said  or  done  by  c.,  7  Sup.  Ct.  Rep.  520;  Byers  v. 
any  one  in  furtherance  of  the  design,  Rollins,  13  Colo.  22;  8.  c.,  21  Pac. 
the  act  of  all.  [Citing  authorities.] ' "  Rep.  894;  Poole  v.  Association,  30  Fed. 
'Averill  ».  Barber,  (1889)  53  Hun,  Rep.  513;  Wilcox  v.  Bickel,  11  Neb. 
636;  s.  c.,  6  N.  Y.  Supp.  255.  As  to  154;  s.  c.,  8  N.  W.  Rep.  436;  Davis  v. 
the  general  rule  in  such  cases,  see  Gemmell,  70  Md.  356;  s.  c.,  17  At!. 
Doud  T.  Wisconsin  P.  &  S.  Railway  Rep.  259;  Hazeltine  v.  Belfast  &  M. 
Co.,  65  Wis.  108;  s.  c.,  25  N.  W.  Rep.  L.  Railroad  Co.,  79  Me.  411;  s.  c.,  10 
533;  Boyd  v.  Sims,  3  Pickle  (Tenn.),  Atl.  Rep.  328;  Oliphant  v.  Woodburn 
771;  s.  c.,  11  S.  W.  Rep.  948;  Bacon  C.  &  Mining  Co.,  63  Iowa,  332;  s.  c., 
v.  Irvine,  70  Cal.  221;  11  Pac.  Rep.  19  N.  W.  Rep.  212. 


§212] 


FRAUDULENT  ACTS  OF  OFFICEB8. 


31T 


its  express  direction  where  a  majority  of  the  trustees  may  have 
wrongfully  converted  corporate  funds  and  threaten  to  convert 
other  of  the  funds,  especially  where  the  neglect  of  the  board  of 
trustees  to  sue,  and  its  resolution  to  discontinue  a  suit  already 
commenced,  are  simply  acts  in  furtherance  of  the  unlawful 
design  of  the  majority  of  the  trustees.1  Where  the  assignee  in 


1  Recamier  Manufg.  Co.  «.  Seymour, 
(Com.  PI.  New  York  City,  1889)  5 
N.  Y.  Supp.  648.  In  Merchants  & 
Planters'  Line  t>.  Waganer,  (1882>  71 
Ala.  581,  a  stockholder's  action  agafnst 
the  corporation  and  certain  directors 
based  upon  alleged  mismanagement, 
etc.,  STONE,  J.,  asks  :  "  Have  the  com- 
plainants averred  sufficient  facts  to 
authorize  them,  representing,  as  they 
do,  a  minority  of  the  stock,  to  come 
into  equity  for  the  redress  of  the 
wrongs  they  complain  of  while  the 
corporate  powers  are  still  in  exercise  ?  " 
and  answers  as  follows  :  "  Very  true, 
the  present  bill  charges  that  three,  a 
majority  of  the  directors,  have  com- 
bined and  formed  a  ring  for  their  own 
private  profit,  at  the  expense  of  the 
other  stockholders  and  many  acts  of 
wrongdoing  are  charged  against  those 
three  directors.  No  act  is  charged  that 
is  ultra  vires,  and  there  is  no  averment 
that  the  corporation  effects  are 
imperiled  by  the  insolvency  of  the 
parties.  Neither  is  there  averment  in 
the  bill  that  any  request  has  been 
made  known,  soliciting  the  use  of  the 
corporate  name  in  bringing  suit 
against  the  alleged  offenders.  Nor  is 
it  shown  that  any  attempt  has  been 
made  to  obtain  a  meeting  of  the  stock- 
holders. In  Tuscaloosa  Manufactur- 
ing Co.  v.  Cox,  68  Ala.  71.  the  ques- 
tions presented  arose  on  bill  filed  by 
a  minority  of  stockholders.  True,  the 
abuses  charged  in  that  case  were  less 
flagrant  than  those  complained  of  in 
this;  but  the  difference  is  in  degree, 
not  in  kind.  In  that  case  we  ruled 
that  complainants  had  shown  no 
ground  for  equitable  relief.  We 


said  :  '  In  the  government  of  corpora, 
tions  much  must  be  left  to  the  judg- 
ment and  discretion  of  the  directory, 
and  much  must  be  credited  to  the 
fallibility  of  human  judgment.  If  it 
be  supposed  an  unwise  course  is  being 
pursued,  or  that  the  interests  of  the 
corporation  are  suffering,  or  likely  to 
suffer  though  the  inefficiency  or  faith- 
lessness of  an  official  an  appeal  should 
first  be  made  to  the  directory  or 
governing  body,  to  redress  the  griev- 
ance. Failing  there,  in  ordinary  cases, 
the  next  redress  will  be  found  in  tht: 
power  of  the  ballot,  which  usually 
comes  into  exercise  at  short  intervals.' 
We  quoted  approvingly  the  case  of 
Greaves  t>.  Gouge,  69  N.  Y.  154,  and 
Brewer  v.  Boston  Theatre,  104  Mass. 
878.  In  Hawes  c.  Oakland,  104  U.  S. 
450,  Justice  MILLER,  in  delivering 
the  opinion  of  the  court,  stated  that  a 
stockholder  could  appeal  to  the  courts 
for  relief,  '  when  the  board  of  direct- 
ors or  a  majority  of  them,  are  acting 
for  their  own  interest,  in  a  manner 
destructive  of  the  corporation  itself, 
or  of  the  rights  of  the  other  share- 
holders.' Tbat  is  precisely  what  is 
averred  in  this  case.  'But,'  Ju.stk-c 
MILLER  adds,  'in  addition  to  the 
existence  of  grievances  which  call  for 
this  kind  of  relief,  it  is  equally  im- 
portant that  before  the  shurrholdrr  is 
permitted  in  his  own  name  to  institute 
and  conduct  a  litigation  which  usually 
belongs  to  the  corporation,  ho  should 
show  to  the  satisfaction  of  the  court 
that  he  has  exhausted  all  the  means 
within  his  rrnrh,  to  obtain,  within  the 
corporation  itself,  the  redress  of  his 
grievances,  or  action  in  conformity  to 


318  FRAUDULENT  ACTS  OF  OFFICERS.  [§  212 

insolvency  of  a  corporation  refuses  to  sue,  a  stockholder  may  sue 
to  enforce  a  claim  of  the  corporation  against  its  managing  officer 
for  diversion  of  funds.  At  the  same  time  it  has  been  held  that  a 
stockholder,  seeking  to  enforce  rights  of  the  corporation  against 
its  managing  officer  for  diversion  of  funds  arising  from  an  unau- 
thorized "swapping"  of  checks,  who,  alleging  that,  being  a 
director,  he  protested  in  writing  against  such  acts  when  first 
apprised  of  them,  but  that  they  were  nevertheless  continued  for 
two  years,  showed  facts  convicting  himself  of  laches,  by  failing 
to  aver  that  he  was  ignorant  of  such  continuance.1  A  stock- 
holder of  a  construction  company  which  had  constructed  a  rail- 
road which  became  connected  with  and  was  controlled  by  another 
corporation,  a  railroad  company,  the  latter  assuming  by  contract 
the  liabilities  of  the  company  absorbed  by  it  to  the  construction 
company,  brought  his  action  as  a  stockholder  of  the  latter  against 
the  construction  company  and  the  railroad  company  which  had 

his  wishes.  He  must  make  an  earnest,  breaches  of  trust  and  misappropria- 
not  a  simulated,  effort  with  the  manag-  tion  of  funds,  see  Hyde  Park  Gas  Co.  v. 
ing  body  of  the  corporation,  to  induce  Kerber,  5  Bradw.  (111.)  132.  As  to  what 
remedial  action  on  their  part,  and  this  is  required  and  what  not  required  of 
must  be  made  apparent  to  the  court,  stockholders  before  they  can  institute 
If  time  permits,  or  has  permitted,  he  suits  for  mismanagement,  etc.,  on  the 
must  show,  if  he  fails  with  the  direct-  part  of  directors  and  officers,  for  the 
ors,  that  he  has  made  an  honest  effort  redress  of  grievances,  see  Bell  n.  Mont- 
to  obtain  action  by  the  stockholders  gomery  Light  Co.,  (Ala.)  15  So. 
as  a  body,  in  the  matter  of  which  he  Rep.  569;  McCrory  v.  Chambers,  48 
complains  ;  and  he  must  show  a  case,  111.  App.  445;  George  v .  Central  R.  R. 
if  this  is  not  done,  where  it  could  &  Bkg.  Co.  of  Georgia,  (Ala.)  14  So. 
not  be  done,  or  it  was  not  reasonable  Rep.  752;  Earle  v.  Seattle,  L.  S.  &  E. 
to  require  it.'  The  principles  com-  Ry.  Co.,  56  Fed.  Rep.  909;  Sage  v. 
mend  themselves  to  our  approval  by  Culver,  71  Hun,  42;  8.  c.,  24  N.  Y. 
the  strongest  of  considerations.  A  Supp.  514;  Putnam  v.  Ruch,  54  Fed. 
corporation,  to  attain  the  highest  sue-  Rep.  216;  Putnam  v.  Ruch,  56  Fed. 
cess,  should,  like  a  family,  dwell  to-  Rep.  416;  Atchison,  T.  &  S.  F.  R. 
gether  in  unity.  And  when  disputes  Co.  v.  Comrs.,  51  Kans.  617;  Eaton 
arise  between  members  of  this  body  v.  Robinson,  (R.  I.)  27  Atl.  Rep.  595; 
politic,  or  law-created  household,  they  Pondir  v.  New  York,  L.  E.  &  W.  R. 
should,  if  possible,  be  adjusted  among  Co.;  72  Hun,  384;  s.  c.,  25 N.  Y.  Supp. 
themselves.  It  should  be  a  strong  560;  31  Abb.  N.  C.  29;  Whitney  v. 
case  to  justify  a  resort  to  personal  Fairbanks,  54  Fed.  Rep.  985;  Fitz- 
litigation,  which  almost  invariably  gerald  v.  Fitzgerald  &  Mallory  Con- 
leads  to  personal  alienation  if  not  struction  Co.  et  al.,  (1894)  41  Neb.  374; 
open  hostility.  Pratt  t>.  Jewett,  9  s.  c.,  59  N.  W.  Rep.  839. 
Gray,  34."  As  to  actions  against  »  Streight  t>.  Junk,  (1893)  59  Fed. 
ministerial  officers  of  a  corporation  for  Rep.  321. 


'  1  2  j  FRAUDULENT  ACTS  OF  OFFICERS.  319 

also,  by  purcha.-e  of  tin-  stock  of  tin-  construction  company,  and 
electing  so  great  a  number  of  its  directors,  obtained  full  control 
of  its  management,  charging  great  wrongs  perpetrated  on  the 
part  of  tin-  railroad  company  acting  through  its  directors  and 
management  so  as  to  create  liabilities  to  the  construction  company 
growing  out  of  their  wrongdoing  for  which  this  action  was  brought 
to  secure  such  equitable  decree  against  the  railroad  company  in 
favor  of  the  construction  company,  its  co-defendant,  as  would 
inure  to  the  benefit  of  the  complainant  and  others  holding  judg- 
ments and  claims  against  the  construction  company.  The 
Nebraska  Supreme  Court  held  that  the  action  was  maintainable.1 
Two  receivers  of  this  construction  company  had  been  appointed, 
it  appeared  in  the  petition  in  this  ca.se,  one  in  a  court  of  general 
jurisdiction  in  two  different  states.  It  was  insisted  upon  the  part 
of  defendants  that  as  this  appeared  the  receivers  were  indispen- 
sable parties  to  the  suit.  I3ut  the  court  held  to  the  contrary.2 
There  was  also  a  contention  in  this  case,  it  being  found  by  the  court 
that  this  stockholder  and  one  other  representing  one-tifth  interest  in 
the  whole  of  the  shares  of  the  corporation,  having  acquiesced  in 
these  particular  acts  of  the  directors  of  the  railroad  corporation,  the 
corporation  itself  was  estopped  from  recovery.  The  court  below 
found  in  accordance  with  this  contention.  The  Supreme  Court 
of  Nebraska,  however,  held  this  finding  of  the  court  below  to 
be  erroneous.  The  position  of  the  latter  as  to  the  law  involved 
upon  this  point  is  thus  stated  in  the  syllabus  by  the  court:  The 
acquiescence  of  a  stockholder  will  not  preclude  a  recovery  in  an 
action  brought  by  him  in  a  proper  case  for  the  benefit  of  such 
corporation  in  respect  of  wrongs  committed  by  the  managing 
officers  of  said  corporation  against  it  for  the  benefit  of  another 
corporation  in  which  they  were  also  officers.  In  such  case,  while 
the  stockholder  is  nominally  the  plaintiff,  he  is  only  nominally  so; 
the  action  is  in  reality  between  the  corporations  joined  as  defend- 
ants —  the  one  as  the  party  wronged,  the  other  as  the  party  which 
profited  by  the  wrong.8  The  corporation,  a  railroad  company, 

1  Fitzgerald  r.  Fitzgerald  &  Mallory  in    the    wrong   found   by  the  court, 

Construction  Co.  et  al.,  (1894)  41  Neb.  whereby  its  ability  to  pay  its  debts 

974;  8.  c.,  59  N.  VV.  Rep.  889.  \MIS  greatly  impaired,  should  preclude 

*  Ibid.  the  right  of  the  construction  company 

'  Ibid.     Argutndo,   it  was  said   by  to  relief  as  against  such  wrong.     The 

the  court:  "  It  is  difficult  to  conceive  trial  court  found  that,  aside  from  the 

why  the  acquiescence  of  stockholders  acquiescence  of  [the  two  stockholders], 


320 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§212 


one  of  the  defendants  in  this  case,  was  held  liable  civilly  for  the 
damages  occasioned  by  the  torts  of  its  officers,  its  directors,  to  the 
construction  company,  its  co-defendant,  those  torts  being  the 
result  of  the  acts  of  those  directors  of  the  railroad  company 
while  acting  in  its  interest  in  the  management  of  the  financial 
settlements  based  upon  the  contracts  between  the  two  on  behalf 
of  the  construction  company,  which  management  the  railroad 
company  dominated.1 


there  had  been  the  active  commission 
of  the  wrong  by  the  other  four-fifths 
of  the  construction  company's  stock. 
Of  what  greater  avail  should  be  the 
mere  acquiescence  of  the  other  fifth? 
In  Quincy  v.  Steel,  120  U.  8.  244;  s.  c., 
7  Sup.  Ct.  Rep.  520,  it  was  said  that  a 
suit  brought  by  a  stockholder  for  the 
benefit  of  the  corporation  was  in  fact 
a  suit  for  the  corporation  itself.  That 
the  acquiescence  of  stockholders 
merely  as  such  could  be  held  to  imply 
more  than  by  an  affirmative  act  such 
stockholder,  as  such,  could  perform, 
can  scarcely  be  seriously  argued.  In 
the  brief  of  the  defendants  is  found 
the  following  quotation  from  the  lan- 
guage of  FIELD,  J.,  in  Humphreys  v. 
McKissock,  140  U.  S.  311,  312;  s.  c., 

11  Sup.  Ct.  Rep.  779:  '  The  property 
of  a  corporation  is  not  subject  to  the 
control      of      individual      members, 
whether  acting  separately  or  jointly. 
They  can  neither  incumber  nor  trans- 
fer that  property,  nor  authorize  others 
to  do  so.     The  corporation,  the  artifi- 
cial being  created,  holds  the  property, 
and  alone  can  mortgage  or  transfer  it, 
and  the  corporation  acts  only  through 
its  officers,  subject  to  the  conditions 
prescribed  by  law.'     In  this  brief  it  is 
also  stated  that  Justice  FIELD,  in  the 
case  cited,  approved  the  language  of 
Chief  Justice  SHAW  in  Smith  v.  Hurd, 

12  Met.   (Mass.)  385,  where  he  says: 
'  The  individual  members  of  a  corpo- 
ration, whether  they  should  all  join  or 
each  act  severally,  have  no  right  or 
power  to  intermeddle  with  the  prop- 


erty or  concerns  of  the  bank,  or  call 
any  officer,  agent  or  servant  to  ac- 
count, or  discharge  them  from  any 
liability.  Should  all  the  stockholders 
join  in  a  power  of  attorney  to  any 
one,  he  could  not  take  possession  of 
any  real  or  personal  estate,  any  se- 
curity or  choice  in  action,  could  not 
collect  a  debt  or  discharge  a  claim  or 
release  damages  arising  from  any  de- 
fault, simply  because  they  are  not  the 
legal  owners  of  the  property,  and 
damage  done  to  such  property  is  not 
any  injury  to  them.  Their  rights  and 
their  powers  are  limited  and  well  de- 
fined.' If  all  the  stockholders,  by 
joining  in  a  power  of  attorney  for  that 
purpose,  could  not  release  damage 
arising  from  any  default,  upon  what 
principle  could  such  release  be  inferred 
from  the  mere  acquiescence  in  such 
release  by  one-fifth  in  amount  of  the 
stockholders?  Most  manifestly  such 
an  anomaly  cannot  be  tolerated,  much 
less  enforced,  by  judicial  tribunals.  In 
argument  it  is  tenaciously  contended, 
however,  that  the  long  acquiescence 
of  the  construction  company  effected 
the  same  result.  There  was  no  find- 
ing of  such  acquiescence  by  the  court. 
Indeed,  there  could  not  be,  consist- 
ently with  the  finding  that  the  con- 
struction company  was  dominated  in 
all  things  by  the  officers  of  the  Mis- 
souri Pacific  Railway  Company  [its 
co  defendant.]" 

1  Fitzgerald  ».  Fitzgerald  &  Mallory 
Construction  Co.  et  al.,  (1894)  41  Neb. 
374;  s.  c.,  59  N.  W.  Rep.  839.  It  was 


§  213]  FRAUDULENT  ACTS  OF  OFFICERS. 

§  213.  Dissolution  of  a  corporation  by  a  scheme  of  a 
majority  of  stockholders  and  a  sale  of  the  property  to 
themselves. —  In  a  bill  filed  by  a  minority  of  stockholders  of 
a  corporation  against  the  representatives  of  a  majority  of  stock- 
holders for  an  accounting  as  to  the  disposal  of  the  property  of 
the  corporation  to  a  new  corporation  formed  by  this  majority  of 
stockholders,  the  case  disclosed  therein  was  thus  stated  by  WAL- 
LACE,  J.,  of  the  United  States  Circuit  Court :  "  A  majority  of 
the  stockholders  of  a  corporation  resolve  to  avail  themselves  of 
their  power  as  a  quorum  to  sacrifice  the  interests  of  the  minority 

insisted  that  the  acts  of  these  directors  H.  Co..  23  N.  J.  Law.  369,  it  was 
were  not  imputablc  to  the  railroad  well  said  that,  if  the  corporation  has 
company  itself.  This  contention  was  itself  no  hands  with  which  to  strike, 
disposed  of  by  the  Supreme  Court  of  it  may  employ  the  hands  of  others,  and 
Nebraska  in  the  following  words:  it  is  now  perfectly  well  settled,  con- 
"The  following  apt  language  is  em-  trary  to  the  ancient  authorities,  that  a 
ployed  by  HARLAN,  J.,  in  the  opinion  corporation  is  liable  citiliter  for  all 
of  the  Supreme  Court  of  the  United  torts  committed  by  its  servants  or 
States  in  Railway  Co.  r.  Harris,  122  agents  by  authority  of  the  corporu- 
U.  8.  on  page  607;  7  Sup.  Ct.  Rep.  tion,  express  or  implied.  The  result 
1286:  '  In  Railroad  Co.  r>.  Quiglcy,  21  of  the  modern  cases  is  that  a  corpora- 
How.  202,  this  court  held  that  a  rail-  tion  is  liable  rinliter  for  torts  corn- 
road  corporation  was  responsible  for  mitted  by  its  agents  or  servants  prc- 
t  lie  publication  by  them  of  a  libel  in  cisely  as  a  natural  person,  and  that  it 
which  the  capacity  and  skill  of  a  is  liable  ns  a  natural  person  for  the 
mechanic  and  builder  of  depots,  acts  of  agents  done  by  its  authority, 
bridges,  station  houses  and  other  struc-  express  or  implied,  though  there  be 
turcs  for  railroad  companies  were  neither  a  written  appointment  under 
falsely  and  maliciously  disparaged  and  seal  nor  a  vote  of  the  corporation  con- 
undervalued.  The  publication  in  that  stituting  the  agency  or  authorizing  the 
case  consisted  in  the  preservation  in  act.  See,  also,  Salt  Lake  City  v.  Hoi- 
permanent  form  of  a  book  for  distribu-  lister,  118  U.  S.  256,  260;  s.  c.,  6  Sup. 
tion  among  the  persons  belonging  to  Ct.  Rep.  1055;  Steamboat  Co.  «. 
the  corporation,  of  a  report  made  by  Brockett,  121  U.  S.  637;  8.  c..  7  Sup. 
a  committee  of  the  company's  board  Ct.  Rep.  1089;  Bank  r.  Graham,  100 
of  directors  in  relation  to  the  adminis-  U.  S.  699-702.'  In  Booth  r.  Bank,  50 
tration  and  dealings  of  the  plaintiff  as  N.  Y.  on  page  400  et  seq.,  is  found  the 
a  superintendent  of  the  road.  The  following  language:  'When  an  officer 
court,  under  a  full  review  of  the  au-  does  an  act  which  is  within  the  gen- 
thorities,  held  it  to  be  the  result  of  the  cral  scope  of  his  powers,  although 
cases  that  for  acts  done  by  the  agents  of  circumstances  may  exist  which  render 
a  corporation,  either  in  contractu  or  in  the  particular  act  a  violation  of  his 
tldicto,  in  the  course  of  its  business  duty,  the  corporation  is  nevertheless 
and  of  their  employment,  the  corpora-  bound  by  his  acts  as  to  persons  deal 
tion  is  responsible  as  an  individual  is  ing  in  ignorance  of  those  circum 
responsible  under  similar  circum-  stances,  and  is  responsible  to  innocent 
stances.  In  State  r.  Morris  &  Essex  third  parties  who  have  sustained  dam 
41 


322 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  213 


stockholders  for  their  own  profit,  by  destroying  the  corporation 
and  selling  its  property  and  franchises  to  themselves  at  half  their 
real  value.  This  scheme  they  have  carried  out,  and  now  retain 
its  fruits.  They  have  thrust  out  the  complainants,  the  minority, 
from  their  position  as  stockholders,  terminating  their  relations  with 
the  corporation  as  such,  and  have  deprived  them  from  realizing 
what  would  belong  to  them  upon  a  fair  disposition  and  division 
of  the  corporate  property."  The  court  then  discusses  those  acts 
and  the  powers  of  the  majority  and  the  rights  of  the  minority 
of  the  stockholders,  as  follows :  "  It  is  to  be  observed  that  the 


ages  occasioned  by  such  acts.  And  the 
liability  of  a  corporation  for  the  con- 
sequences of  acts  of  its  officers  come 
within  the  scope  of  their  general 
powers,  and  is  not  affected  by  the  fact 
that  the  act  which  the  officers  have  as- 
sumed to  do  is  one  which  the  corpora- 
tion itself  could  not  rightfully  do.  A 
corporation  may  do  wrong  through  its 
agent  as  well  as  a  private  individual. 
Railroad  Co.  v.  Schuyler,  34  N.  Y.  30; 
Farmers  &  Mechanics'  Bank  v.  Butch- 
ers &  Drovers'  Bank,  16  N.  Y.  125; 
Bissell  «.  Railroad  Co.,  22  N.  Y.  258; 
Bank  of  Genesee  v.  Patchin  Bank,  13 
N.  Y.  309.'  In  Hussey  v.  King,  (N. 
C.)  3  S.  E.  Rep.  on  page  926,  DAVIS, 
J.,  delivering  the  opinion  of  the  court, 
said:  'It  was  long  thought  that,  as  a 
corporation  has  no  mouth  with  which 
to  utter  slander,  or  hand  with  which 
to  write  libels  or  commit  batteries,  or 
mind  to  suggest  malicious  prosecu- 
tions or  other  wrongs  —  as  it  was  an 
artificial  person  and  could  speak  and 
act  only  through  the  agency  of  others 
—  it  was  not,  therefore,  liable  for  any 
torts  except  such  as  resulted  from 
some  act  of  commission  or  omission 
of  its  agents  or  servants  while  acting 
within  the  scope  of  granted  powers, 
or  wrongfully  omitting  and  neglect- 
ing some  duty  imposed  by  its  charter 
or  by  law;  and,  consequently,  it  was 
necessary  to  allege  that  the  act 
committed  was  done  while  acting 
•within  the  scope  and  power  of  the 


company,  or  that  the  act  omitted 
was  required  to  be  performed. 
Whether  it  was  wise  to  depart  from 
this  rule,  that  excepted  corporations 
from  liability  for  the  acts  of  its  agents 
in  cases  where  the  character  of  the  act 
depended  upon  motives  or  intent,  seems 
no  longer  an  open  question.  The  old 
idea,  that  because  a  corporation  had 
no  soul,  it  could  not  commit  torts,  or 
be  the  subject  of  punishment  for  tor- 
tious  acts,  may  now  be  regarded  as  ob- 
solete. The  rights,  the  powers  and 
the  duties  of  corporate  bodies  have 
been  so  enlarged  in  modern  times,  and 
these  artificial  persons  have  become  so 
numerous,  and  enter  so  largely  into 
the  every -day  transactions  of  life, 
that  it  lias  become  the  policy  of  the 
law  to  subject  them,  so  far  as  practi- 
cable, to  the  same  civil  liability  for 
wrongful  acts  as  attach  to  rational 
persons,  and  its  liability  is  not  re- 
stricted to  acts  committed  within  the 
scope  of  granted  powers,  but  the  cor- 
poration may  be  liable  for  an  action 
for  false  imprisonment,  malicious  prose- 
cution and  libel.  Pierce  on  Railroads, 
21 3. '  In  Miller  T.  Railroad  Co. ,  8  Neb. 
219,  it  was  said  that  a  corporation  is 
liable  the  same  as  a  natural  person  for 
the  tortious  acts  of  its  servants  and 
agents  in  the  course  of  their  employ- 
ment, but  to  make  a  corporation  liable 
for  such  acts  they  must  be  connected 
with  the  transaction  of  the  business 
for  which  the  company  was  incorpo- 


-13]  1  •  J :  A 1  I  >  1 '  1 . 1 .  N  T  ACTS  OF  OFFICERS.  323 

proceedings  of  the  defendants  were  not  outside  of  the  charter  or 
articles  of  association  of  the  corporation,  but,  on  the  contrary, 
were  carefully  pursued  according  to  the  form  of  the  organic  law. 
They  had  a  right  to  dissolve  the  corporation  and  dispose  of  its 
property  and  distribute  the  proceeds.  The  minority  cannot  be 
ln-anl  t«>  complain  of  this,  because  the  laws  of  Oregon  permitted 
it  and  because  it  is  an  implied  condition  of  the  association  of 
stockholders  in  a  corporation  that  the  majority  shall  have  power 
to  bind  the  whole  body  as  to  all  transactions  within  the  scope  of 
the  corporate  powers.1  Nor  does  it  matter,  in  legal  contemplation, 
that  the  majority  were  actuated  by  dishonorable  or  even  corrupt 
motives,  so  long  as  their  acts  were  legitimate.  In  equity,  as  at  law, 
a  fraudulent  intent  is  not  the  subject  of  judicial  cognizance  unless 
accompanied  by  a  wrongful  act.2  In  other  words,  if  the  majority 
had  the  right  to  wind  up  the  corporation  at  their  election,  and  they 
availed  themselves  of  it  in  the  mode  which  was  permitted  by  the 
organic  law  of  the  corporation,  neither  a  court  of  law  or  equity  can 
entertain  an  inquiry  as  to  the  motives  which  influenced  them.  The 
power  to  do  this  was  undoubted."  "  But,"  the  court  said,  "  the 
right  of  the  majority  to  sell  the  property  to  themselves  at  their 
own  valuation  is  a  very  different  matter;  it  cannot  be  implied 
from  the  contract  of  association,  and  will  not  be  tolerated  by  a 
court  of  equity.  As  is  said  by  MELLISH,  L.  J.,  in3  [case  cited  below] : 
'Although  it  may  be  quite  true  that  the  shareholders  of  a  company 
may  vote  as  they  please  and  for  the  purpose  of  their  own  inter- 
ests, yet  the  majority  cannot  sell  tha  assets  of  the  company  and 
keep  the  consideration,  but  must  allow  the  minority  to  have  their 
share  of  any  consideration  which  may  come  to  them.'  If  the 
majority  sell  the  assets  to  themselves  they  must  account  for  their 
fair  value.  They  cannot  bind  the  minority  by  fixing  their  own 
price  upon  the  assets.  A  majority  have  no  right  to  exercise  the 
control  over  the  corporate  management  which  legitimately 

rated,  for  the  officers  themselves  are  the  one  who  has  created  the  power 

the  mere  agents  of  the  corporation,  and  selected  the  persons  to  enforce  it 

and    their    powers     are     necessarily  must  sustain  the  loss." 

limited  within  the  scope  of  the  pur-  '  Citing  Durfee  r.  Old  Colony  &  F. 

poses  of  the  corporation.     The  stock-  R.  Co.,  87  Mass.  (5  Allen)  250;  Bill  t>. 

holders,  however,  by  electing  officers,  Western  Union  Tel.  Co.,  16  Fed.  Rep. 

assume  the  risk  of  the  faithful  or  uu-  10. 

faithful  management  of  the  corpora-  *  Citing  Clarke  t>.  White,  12  Pet.  178. 

tion,  and  cases  may  arise  where,  if  one  *  Menier     t>.     Hooper's     Telegraph 

of  two  innocent  persons  has  to  suffer,  Works,  L.  R.,  9  Ch.  A  pp.  Cas.  850,  354, 


324  FRAUDULENT  ACTS  OF  OFFICERS.  [§  214: 

belongs  to  them  for  the  purpose  of  appropriating  the  corporate 
property  or  its  avails  to  themselves,  or  to  any  of  the  shareholders, 
to  the  exclusion  or  prejudice  of  the  others.1  In2  [case  cited  below], 
the  property  of  a  company  was  transferred  to  two  shareholders 
in  lieu  of  their  shares,  and  the  company  was  thereby  practically 
put  an  end  to,  and  the  debts  were  thrown  on  the  remaining  share- 
holders. This  was  sanctioned  by  a  majority  of  the  shareholders 
at  a  general  meeting,  but  it  was  held  that  the  majority  could  not 
bind  the  minority  in  such  a  transaction,  and  it  was  set  aside."3 

§214.  The  rights  of  the  minority  in  such  a  case. —  The 

same  judge,  in  the  same  court,  in  the  same  case,  upon  its  second 
hearing,  thus  states  the  position  and  insistment  of  the  defendants  : 
"  They  have  adjusted  their  own  interests  on  the  basis  of  a  con- 
solidation of  the  two  corporations  and  a  continuance  of  their 
business  as  a  joint  venture  ;  but  they  now  insist  that  the  interests 
of  the  minority  stockholders,  who  have  not  been  permitted  to  par- 
ticipate with  them,  shall  be  adjusted  on  the  basis  of  a  dissolution 
and  a  cessation  of  the  business  which  they  originally  associated 
together  to  conduct.  More  than  this,  the  defendants  insist  that 
the  value  of  the  assets,  for  the  purpose  of  determining  the 
interests  of  the  minority,  is  fixed  by  the  appraisal  of  persons 
selected  by  the  defendants  themselves,  in  whose  selection  the 
minority  had  no  voice ;  and  they  have  assumed  to  deny  all  recog- 
nition to  those  of  the  minority  who  will  not  consent  to  surrender 
their  stock  and  accept  a  final  dividend  upon  the  basis  of  this 
appraisal."  He  then  continues  the  discussion :  "  Plainly,  the 
defendants  have  assumed  to  exercise  a  power  belonging  to  the 
majority  in  order  to  secure  personal  profit  for  themselves  with- 
out regard  to  the  interests  of  the  minority.  They  repudiate  the 
suggestion  of  fraud,  and  plant  themselves  upon  their  rights  as  a 
majority  to  control  the  corporate  interests  according  to  their  dis- 
cretion. They  err  if  they  suppose  that  a  court  of  equity  will  tol- 
erate a  discretion  which  does  not  consult  the  interests  of  the 
minority.  It  cannot  be  denied  that  minority  stockholders  are 

'Citing  Brewer  v.  Boston  Theatre,  *  Gregory    v.    Patchett,     33    Beav. 

104  Mass.  378,  395;  Preston  v.  Grand  595. 

Collier  Dock  Co.,  11  Sim.  327;  Hodg-  3Ervin  v.  Oregon  Ry.  &  Nav.  Co., 

kinson  v.  National  Live  Stock  Ins.  Co.,  (1884)  20  Fed.  Rep.  577,  580. 
26  Beav.  473;  Atwool  v.  Merry  weather, 
L.  R.,  5  Eq.  464,  note. 


§  214]  FRAUDULENT  ACTS  OF  OFFICERS.  325 

bound  hand  and  foot  to  the  majority  in  all  matters  of  legitimate 
administration  of  the  corporate  affairs;  and  the  courts  are  power- 
less to  redress  many  forms  of  oppression  practiced  upon  the 
minority  under  the  guise  of  legal  sanction  which  fall  short  of 
actual  fraud.  This  is  a  consequence  of  the  implied  contract  of 
association  by  which  it  is  agreed  in  advance  that  a  majority  shall 
bind  the  whole  body  as  to  all  transactions  within  the  scope  of  the 
corporate  powers.  But  it  is  also  of  the  essence  of  the  contract 
that  the  corporate  powers  shall  only  be  exercised  to  accomplish 
the  objects  for  which  they  were  called  into  existence,  and  that 
the  majority  shall  not  control  those  powers  to  pervert  or  destroy 
the  original  purposes  of  the  corporations.1  It  is  for  this  reason 
that  the  majority  cannot  consolidate  the  corporation  with  another 
corporation  and  impose  responsibilities  and  hazards  upon  the 
minority  not  contemplated  by  the  original  enterprise,  unless 
express  statutory  authority  for  this  purpose  is  conferred  upon  the 
majority.  It  is  no  more  repugnant  to  the  purposes  of  the  associ- 
ation to  permit  the  majority  to  merge  and  consolidate  the  corpo- 
ration with  another  corporation  than  it  is  to  permit  them  to  dis- 
solve it  or  abandon  the  enterprise  for  which  it  is  created,  where  no 
reasons  of  expediency  require  this  to  be  done.  A  dissolution 
under  such  circumstances  is  an  abuse  of  the  powers  delegated  to 
the  majority.  It  is  no  less  a  wrong  because  accomplished  by  the 
agency  of  legal  forms.  In  the  language  of  BLACKBURN,  J.,  in2  [case 
cited  below]  :  '  As  the  shareholders  are,  in  substance,  partners  in  a 
trading  corporation,  the  management  of  which  is  intrusted  to  the 
body  corporate,  a  trust  is,  by  implication,  created  in  favor  of  the 
shareholders  that  the  corporation  will  manage  the  corporate  affairs, 
and  apply  the  corporate  funds  for  the  purpose  of  carrying  out  the 
original  speculation.'  When  a  number  of  stockholders  combine  to 
constitute  themselves  a  majority  in  order  to  control  the  corporation 
as  they  see  n't,  they  become,  for  all  practical  purposes,  the  corpora- 
tion itself,  and  assume  the  trust  relation  occupied  by  the  corpora- 
tion towards  its  stockholders.  Although  stockholders  are  not  part- 
ners, nor  strictly  tenants  in  common,  they  are  the  beneficial  joint 
owners  of  the  corporate  property,  having  an  interest  and  power  of 

1  Citing    Livingston    r.     Lynch,    4  t>.  Clay.  88  Me.  182 ;  Clinch  t>.  Finun- 

Johns.  Ch.  578;  Hutton  v.  Scurt>orough  cial    Corporation,    4    Ch.   App.   117  ; 

Cliff  Co.,  2  Drew.  &  8.  514  ;  Brewer  r.  Clearwater  r.  Meredith,  1  Wall.  25. 
Boston  Theatre,  104  Mass.  878;    Kean       *  Taylor  t>.  Chichestcr  Ry.  Co.,  L. 

r.  Johnson,  9  N.  J.  Eq.  401 ;  Rollins  R,  2  Exch.  879. 


326  FRAUDULENT  ACTS  OF  OFFICEES.  [§  215 

legal  control  in  exact  proportion  to  their  respective  amounts  of 
stock.  The  corporation  itself  holds  its  property  as  a  trust  fund 
for  the  stockholders  who  have  a  joint  interest  in  all  its  property 
and  effects,  and  the  relation  between  it  and  its  several  members 
is,  for  all  practical  purposes,  that  of  trustee  and  cestui  que  tnwt.1 
When  several  persons  have  a  common  interest  in  property,  equity 
will  not  allow  one  to  appropriate  it  exclusively  to  himself  or  to 
impair  its  value  to  the  others.  Community  of  interest  involves 
mutual  obligation.  Persons  occupying  this  relation  towards  each 
other  are  under  no  obligation  to  make  the  property  or  fund  pro- 
ductive of  the  most  that  can  be  obtained  from  it  for  all  who  are 
interested  in  it ;  and  those  who  seek  to  make  a  profit  out  of  it,  at 
the  expense  of  those  whose  rights  in  it  are  the  same  as  their  own, 
are  unfaithful  to  the  relation  they  have  assumed,  and  are  guilty  at 
least  of  constructive  fraud."  2 

§  215.  Principles  applied  to  this  particular  case. —  Apply- 
ing the  principles  as  to  the  acts  of  fiduciaries  with  reference  to 
the  property  intrusted  to  them,  established  in  such  cases  as 
[those  cited  below] 3  to  the  case  in  hand,  WALLACE,  J.,  said : 
« *  *  *  Although  the  minority  of  stockholders  cannot 
complain  merely  because  the  majority  have  dissolved  the 
corporation  and  sold  its  property,  they  may  justly  complain 
because  the  majority,  while  occupying  a  fiduciary  relation 
towards  the  minority,  have  exercised  their  powers  in  a  way 
to  buy  the  property  for  themselves,  and  exclude  the  minority 
from  a  fair  participation  in  the  fruits  of  the  sale.  In  the  lan- 
guage of  MELLISH,  L.  J.,  in  Menier  v.  Hooper's  Telegraph 
Works,  9  Ch.  App.  Cas.  350,  354 :  '  The  majority  cannot  sell  the 
assets  of  the  company  and  keep  the  consideration,  but  must 
allow  the  minority  to  have  their  share  of  any  consideration  which 
may  come  to  them.'  The  minority  stockholders  are,  therefore, 
entitled  to  demand  their  fair  share  in  the  transaction,  and  to  be 
placed  upon  terms  of  equality  with  the  majority.  It  may  be  that 

1  Peabody  r.  Flint,  6  Allen,  52,  56;  3  Greenlaw  v.  King,  3  Beav.  49,  63; 
Hardy  v.  Metropolitan  Land  Co.,  L.  Gibson  v.  Jeyes,  6  Ves.  278;  Torrey  v. 
R.,  7  Ch.  427;  Stevens  v.  Rutland  R.  Bank  of  Orleans,  9  Paige,  663;  Mi- 
Co.,  29  Vt.  550.  choud  v.  Girod,  4  How.  555;  Gardner 

4  Ervin  «.  Oregon  Ry.  &  Nav.  Co.,  v.  Ogden,  22  N.  Y.  327;  and  Hoyle  v. 

(1886)  27  Fed.  Rep.  625 ;  citing  Jack-  Pittsburgh  &  M.  R.  Co.,  54  N.  Y.  315. 
son  «.   Ludeling,    21   Wall.  616,   622; 
Story  Eq.  §  323. 


§  216]  FRAUDULENT  ACTS  OF  OFFICERS. 

the  property  of  the  old  company  wa*  not  worth  more  than  the 
sum  fixed  by  the  appraisers,  otimatini:  its  value  with  a  view  of 
the  winding  up  of  the  corporation  ;  but  for  several  months  the 
property  had  l>een  used  by  the  defendants  in  a  joint  venture  with 
the  other  property  of  the  new  corporation,  and  its  value,  at  the 
time  of  the  sale,  should  he  estimated  at  what  the  property  was 
worth  as  then  situated.  This  results  from  the  rule  of  equity 
which  entitles  those  whose  property  has  Ixxm  misapplied  by  an 
agent  or  fiduciary  to  follow  it  into  any  form  in  which  it  has  been 
converted,  and  impress  it  with  a  trust  whenever  its  identity  can 
be  traced,  or,  at  their  election,  to  recover  the  value  of  the  prop- 
erty in  any  form  into  which  it  has  been  transmuted.  Story  Eq. 
§§  1261,  1262.  If  it  was  worth  much  more  as  a  constituent  of 
the  new  corporation  than  it  would  have  been  worth  otherwise, 
the  minority  stockholders  are  entitled  to  the  benefit  of  the  increase. 
The  majority  of  the  stockholders  are  not  to  be  permitted  to 
segregate  it  from  the  conditions  in  which  they  have  placed  it,  for 
the  purpose  of  fixing  its  value  to  the  minority.  For  this  reason 
the  estimate  made  by  the  appraisers  is  not  controlling,  even  if  it 
is  of  any  value  in  determining  the  price  for  which  the  defendants 
should  account.  This  is  so,  not  only  because  the  appraisers  were 
the  agents  of  those  who  were  at  the  same  time  negotiating  as  the 
purchasers  and  the  sellers  of  the  property,  but  also  because  they 
adopted  a  basis  of  valuation  which  will  not  be  sanctioned  by  a 
court  of  equity."  * 

§  216.  When  a  fraudulent  assignment  of  a  mortgage  by 
the  treasurer  of  a  corporation  will  bind  it. —  In  a  case  where 
it  appeared  that  the  treasurer  of  a  savings  bank,  clothed  with 
authority  to  do  so,  executed  an  assignment  of  a  mortgage  in  the 
name  of  the  bank  in  ilue  form,  and  indorsed  the  note  secured  by 
it  to  a  bona  fide  purchaser,  it  was  held  in  the  United  States  Cir- 
cuit Court  for  the  district  of  Massachusetts  that  the  title  passed, 
notwithstanding  the  treasurer  perpetrated  a  fraud  ujxni  tin-  hank. 
and  converted  to  his  own  use  the  purchase  money.  It  was 
further  held  that  the  corporation  was  estopped  to  prove,  as 
against  bonafide  purchasers,  either  irregularity  or  fraud  upon  the 
part  of  its  officers  when  acting  within  tlu-ir  authority.2 

'Ervin  r.  Oregon  Ry.  &  Nnv.  Co..  'Whiting   r.   Wellington.  (1882)   10 

(1886)  27  Fed.  Rep.  62.5.     A  rehearing  Fed.     Rep.    sio        l.mvK.i.i.,     Circuit 

of  this  case  was  denied  in  28 Fed.  Rep.  Judge,  referring  t<>  :i  certificate  of  the 

s:t::  treasurer  given  to  the  purchaser,  that 


828 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§217 


§  217-  When  a  corporation  may  recover  money  fraudu- 
lently paid  out  by  its  treasurer. —  Two  manufacturing  corpora- 
tions of  Massachusetts  had  a  common  treasurer.  Money  was 
loaned  by  one  to  the  other  when  needed,  and  the  loans  were 
effected  by  the  check  of  one  payable  to  the  order  of  the  other 
drawn  by  the  common  treasurer.  This  treasurer  had  by  a  series  of 


a  certain  note  was  found  upon  the 
records  of  the  corporation,  said:  "The 
estoppel  arises  from  the  certificate. 
*  *  *  In  a  recent  case  in  England 
a  statute  declared  that,  unless  certain 
things  were  done,  no  shares  of  a  joint- 
stock  company  should  be  issued  except 
for  cash,  and  all  which  should  be  is- 
sued otherwise  should  be  subject  to 
assessment.  Shares  were  issued  as 
'  paid  up,'  and  were  bought  by  a  bona 
fide  purchaser.  The  company  and  its 
liquidator  were  held  estopped  to  prove 
that  the  statute  had  not  been  followed. 
In  re  British,  etc.,  Co.,  7  Ch.  D.  533; 
s.  c.  nom.  Burkinshaw  t.  Nicolls,  3 
App.  Cas.  1004.  In  that  case  (page 
1026)  a  very  able  j  udge  says  that  the 
doctrine  of  estoppel  in  pais  is  a  most 
equitable  doctrine,  and  one  without 
which  the  law  of  the  country  could  not 
be  satisfactorily  administered.  '  When 
a  person  makes  to  another  the  repre- 
sentation, 'I  take  upon  myself  to  say 
such  and  such  things  do  exist,  and  you 
may  act  upon  the  basis  that  they  do 
exist,'  and  the  other  man  does  really 
act  upon  that  basis,  it  seems  to  me  it 
is  the  very  essence  of  justice  that,  be- 
tween those  two  parties,  their  rights 
should  be  regulated,  not  by  the  real 
state  of  the  facts,  but  by  that  conven- 
tional state  of  facts  which  the  two  par- 
ties agree  to  make  the  basis  of  their 
action;  and  that  is,  I  apprehend,  what 
is  meant  by  estoppel  in  pais  or  homo- 
logation.'  This  doctrine  has  been  af- 
firmed by  the  Supreme  Court  in  a  large 
class  of  cases  where  the  facts  are 
much  more  open  to  public  observation 
than  are  the  notes  of  a  private  corpo- 
ration, in  which  counties  and  towns 


having  power  to  issue  bonds  upon  cer- 
tain terms  and  conditions  are  held  es- 
topped to  prove,  as  against  bona  fde 
purchasers,  either  irregularity  or  fraud 
on  the  part  of  their  own  officers  in  is- 
suing the  bonds,  especially  if  they  con- 
tain upon  their  face  a  certificate  that 
the  terms  of  the  law  have  been  com- 
plied with.  These  decisions  do  not 
depend  upon  the  negotiable  character 
of  the  bonds,  excepting  when  there  is 
a  question  of  notice.  Comre.  v.  As- 
pinwall,  21  How.  539;  Moran  v.  Comrs. 
of  Miami,  2  Black,  722;  Rogers  v.  Bur- 
lington, 3  Wall.  654;  Grand  Chute  t>. 
Winegar,  15  Wall.  355;  Comrs.  0. 
January,  94  U.  S.  202;  San  Antonio  v. 
Mehaffy,  96  U.  S.  312;  County  of 
Warren  v.  Marcy,  97  U.  S.  96.  So.  if 
a  cashier  has  authority  to  certify  a 
check,  the  bank  is  estopped  to  say  that 
his  authority  is  false  in  fact.  Mer- 
chants' Bank  v.  State  Bank,  10  Wall. 
604.  If  a  company  has  issued  a  certifi- 
cate of  shares,  it  is  estopped  to  prove 
against  one  who  has  bought  the  shares 
in  good  faith,  or  even  one  who  has 
paid  one  call  or  assessment  to  a  third 
person  on  the  strength  of  the  certifi- 
cate, that  it  was  issued  improvidently. 
In  re  Bahia,  etc.,  Co.,  L.  R.,  3  Q.  B. 
584;  Hartfl.  Frontino,  etc.,  Co.,  L.  R., 
5  Exch.  111.  Where  the  president, 
who  was  also  transfer  agent  of  a  rail- 
road company,  issued  an  immense 
amount  of  false  and  fraudulent  certifi- 
cates of  shares,  beyond  the  whole 
capital,  the  company,  after  '  a  decade 
of  litigation,'  was  held  bound  to  in- 
demnify the  honest  purchasers.  New 
York  &  New  Haven  R.  R.  Co.  «. 
Schuyler,  34  N.  Y.  30." 


17]  FRAUDULENT  ACTS  OF  OFFICERS.  329 

embezzlements  from  the  corporations  created  a  deficit  in  their 
funds.  He  had  concealed  this  deficit  by  at  certain  times  draw- 
ing checks  in  the  name  of  one  corporation,  payable  to  the  order 
of  the  other,  and  placing  it  with  the  funds  of  the  latter.  When 
his  eml>e/./.lenients  were  discovered  these  fraudulently  drawn 
checks  were  about  equally  divided  between  the  corporations. 
There  was  an  action  for  accounting  brought  by  one  against  the 
other  claiming  a  large  balance  in  the  mutual  account.  The 
defendant  corporation  pleaded  as  a  set-off  the  amount  of  its  funds 
received  by  the  plaintiff  through  these  fraudulent  checks,  and  the 
plaintiff  contended  that  the  transfers  of  checks  from  one  com- 
pany to  the  other  were,  in  fact  and  law,  payments  by  the 
treasurer  to  an  innocent  creditor  without  notice,  and,  therefore, 
could  not  be  reclaimed ;  that  the  losses  must  be  borne  as  they 
stood  at  the  time  of  the  discovery  of  the  frauds.  The  Supreme 
Court  of  Judicature  held  that  the  corporation  using  the  money 
was  affected  with  the  knowledge  of  its  treasurer  and  the  transac- 
tion did  not  amount  to  a  payment  of  the  deficit,  and  that  the 
other  corporation  was  not  guilty  of  such  negligence  as  to  pre- 
clude it  from  recovering  back  the  money.' 

1  Atlantic    Cotton    Mills    r.    Indian  case  for  two  reasons:  In  the  first  place. 

Orchard   Mills,  (1888)  147  Mass.  268.  under  the  circumstances  disclosed    in 

C.  ALLEN,  J.,  speaking  for  the  court  the  auditor's  report,  the  plaintiff  can- 

aaid:    "The    ground    on    which    the  not  be  considered  as  an  innocent  cred- 

phintilT  asserts  a  right  to  retain  the  itor,  that  is,  a  creditor  without  notice, 

money    is,    that    [its    treasurer]    had  and,  moreover,  the  transaction  did  not 

•  •mix  x.zlcd   its   funds,   as  well  as  the  amount  to   payment.     It  is  true  that 

funds    of    the  defendant,   to  a  large  no  officer  of  the  plaintiff  besides  [its 

amount,  and  that  it  is  entitled  to  apply  treasurer]    knew    of    the    fraudulent 

the  money  thus  received  from  him  to  origin  of  these  checks;  but  in  the  very 

reduce  his  indebtedness  for  such  em-  transaction    of    receiving    them,    the 

hc/./lcmenta,  and  treat  the  same  as  a  plaintiff  was  represented  by  [him]  and 

payment   pro  tanto ;    that    from    the  by   him  alone,   and   is  bound  by  his 

nature    of    the    transaction    the    law  knowledge.     It  is  the  same  as  if  tho 

stamps  it  as  a  payment,  and  that  thus  plaintiff's  directors   had  received  tho 

the  plaintiff  is  a  holder  of  the  funds  checks,  knowing  what  he  knew.     For 

for  a  valuable  consideration.    There  the  purpose  of  accepting  the  checks, 

is  no  doubt  that  a  thief  may  use  stolen  [he]  stood  in  the  place  of  the  plaintiff, 

money  or  stolen  negotiable  securities  and  was  the  plaintiff.     It  is  quite  im 

before  their  maturity,  to  pay  his  debts,  material,  in  reference  to  this  question, 

and  in  such  case  an  innocent  creditor  in  what  manner  or  by  what  officer  of 

may   retain  the  payment.      But  this  the  corporation    the   funds  were  rr- 

doctrine  is  inapplicable  to  the  present  ccivcil.     Thr  important  consideration 
42 


330 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§218 


§  218.  When  a  corporation  must  respond  for  damages 
resulting  from  a  fraudulent  issue  of  its  stock. —  One  who 

was  the  secretary,  treasurer  and  transfer  agent  of  a  domestic  cor- 
poration, a  street  railroad  company  of  the  city  of  New  York,  and, 
as  such  secretary,  kept  and  had  in  his  custody  the  books  of  the 
corporation  relating  to  the  issue  and  transfer  of  stock,  filled  out 
a  blank  certificate  taken  from  the  company's  certificate  book, 
forged  the  name  of  its  president  thereto,  signed  his  own  name  as 
treasurer,  then  countersigned  it  and  impressed  thereon  the  cor- 
porate seal.  The  by-laws  of  the  corporation  required  that  "  all 


is  how  the  plaintiff  became  possessed 
of  the  money,  and  it  is  apparent  that 
it  was  through  the  act  of  no  other 
person  than  of  [the  treasurer]  himself. 
It  is  not  as  if  he  had  stolen  the  money, 
and  then  called  the  directors  of  the 
plaintiff  corporation  together  and  in- 
formed them  of  his  indebtedness  and 
of  his  desire  to  make  a  payment  on 
account,  and  had  then  paid  over  to 
them  the  money  as  money  coming 
from  himself,  and  they  had  received 
it  without  knowledge  or  suspicion  that 
it  had  been  stolen,  and  given  him 
credit  for  it  as  part  payment.  There 
was  no  transaction,  whatever,  between 
[the  treasurer]  and  the  plaintiff,  in  re- 
spect to  the  transfer  of  this  money,  in 
which  the  plaintiff  was  represented 
either  in  whole  or  in  part  by  any  other 
person  than  by  [him],  and,  therefore, 
even  though  the  transfer  to  the  plain- 
tiff had  been  made  in  bank  bills  or  in 
gold  coin  (which  it  was  not),  the  plain- 
tiff must  be  deemed  to  have  had 
knowledge  of  the  true  ownership,  be- 
cause in  receiving  the  funds  it  acted 
solely  through  [his]  agency.  It  must 
be  deemed  to  have  known  what  he 
knew,  and  it  cannot  retain  the  benefits 
of  his  acts,  without  accepting  the  con- 
sequences of  his  knowledge.  The 
plaintiff  cannot  obtain  greater  rights 
from  his  act  than  if  it  did  the  thing 
itself,  knowing  what  he  knew.  Such 
is  the  doctrine  either  expressly  de- 
clared or  necessarily  involved  in  nu- 


merous adjudged  cases.  The  leading 
case  in  this  commonwealth  is  Atlantic 
Bank  v.  Merchants'  Bank,  10  Gray, 
532,  where  there  was  the  semblance  of 
an  accounting  between  the  guilty 
agent  and  other  officers  of  the  bank 
which  received  the  money,  but  it  was 
held  that  there  was  no  real  accounting 
and  the  general  principle  was  held  to 
be  applicable.  That  case  was  followed 
by  Skinner  v.  Merchants'  Bank,  4 
Allen,  290,  where  the  facts  were  simi- 
lar." After  reviewing  and  citing  many 
cases,  it  is  further  on  in  the  opinion 
said:  "We  have  preferred  to  put  the 
decision  of  this  point  upon  the  broad 
ground  that,  if  the  treasurer  of  a  cor- 
poration is  a  defaulter,  and  his  defalca- 
tion is  as  yet  unknown  and  unsus- 
pected, and  he  steals  money  from  a 
third  person  and  places  it  with  the 
funds  of  the  corporation  in  order  to 
conceal  and  make  good  his  defalcation, 
and  the  corporation  uses  the  money  as 
its  own,  no  other  officer  knowing  any  of 
the  facts,  the  corporation  does  not 
thereby  acquire  a  good  title  to  the 
money,  as  against  the  true  owner,  but 
the  latter  may  maintain  an  action 
against  the  corporation  to  recover  back 
the  same.  But  it  is  also  apparent  that 
in  the  present  case  the  decision  might 
rest  upon  a  narrower  ground.  The 
fraudulent  transfers  were  made  by 
checks  of  the  defendant,  payable  to 
the  order  of  the  plaintiff,  and  these 
checks  before  being  available  must 


§218] 


FRAL'DUI.KXT   A<T>  oK  <>KI  ICKKS. 


881 


certificates  shall  be  issued  and  signed  \ty  the  president  and 
treasurer  and  countersigned  by  the  transfer  agent/ '  The  certificate 
upon  its  face  was  perfect  and  regular  in  every  respect,  and  showed 
a  partner  of  the  secretary  and  treasurer  to  be  the  owner  of  the 
shares  of  stock  stated  therein.  The  in  testinwnium  clause  recited 
that  the  corporation  had  caused  the  certificate  to  be  signed  by  its 
president  and  countersigned  by  its  treasurer  and  transfer  agent, 
and  sealed  with  its  corporate  seal.  The  partner  of  this  officer  of 
the  corporation  procured  of  a  bank  a  loan  upon  his  note  secured 
by  a  pledge  of  the  certificate.  Before  acting  upon  the  applica- 


nccessarily  have  been  indorsed  by  the 
plaintiff,  acting  by  some  officer  au- 
thorized to  indorse  checks  payable  to 
its  order.  If  these  checks,  therefore, 
were  taken  by  the  plaintiff  in  payment 
of  indebtedness  of  [the  treasurer]  they 
carried  notice  upon  their  face  that 
they  were  checks  of  the  defendant, 
not  payable  to  [his]  order  but  to  the 
order  of  the  plaintiff.  Now,  assuming 
that  [his]  transaction  had  been  con- 
ducted with  some  other  officers  of  the 
plaintiff,  who  represented  that  corpo- 
ration, it  is  impossible  to  suppose  that 
they  could  have  accepted  these  checks 
in  extinguishment  of  a  known  in- 
debtedness of  [the  treasurer]  without 
being  put  upon  inquiry  as  to  how  he 
came  by  the  defendant's  checks  to  so 
large  an  amount,  made  payable  to  the 
plaintiff,  which  he  could  apply  upon 
his  private  account.  National  Bank 
of  North  America  v.  Bangs,  106  Mass. 
441.  445."  After  commenting  upon 
various  cases  cited  by  the  plaint  ill's 
counsel  the  discussion  of  this  point 
closes  with  thi>:  "Thus  far  the  discus- 
sion has  proceeded  upon  the  assump- 
tion that  even  if  the  transfer  of  the 
defendant's  property  to  the  plaintiff 
were  intended  as  a  payment  on  account 
of  [the  treasurer's]  indebtedness  to  the 
plaintiff,  yet  the  plaintiff  would  not  be 
entitled  to  hold  the  same  on  the  ground 
that  it  would  be  chargeable  with  [his] 
knowledge  of  the  source  from  which 
the  money  came.  But  it  is  equally 


clear  that  the  transfer  cannot  be  con- 
sidered as  a  payment  by  [him]  to  the 
plaintiff,  because  it  was  not  so  under- 
stood. Nobody  on  the  part  of  the 
plaintiff  called  [the  treasurer]  to  any 
account,  or  knew  that  he  was  account- 
ing or  that  he  was  indebted  to  the 
plaintiff,  or  that  these  funds  had  come 
into  the  plaintiff's  possession  or  that 
they  had  come  from  [the  treasurer]. 
Nobody  but  [he]  could  possibly  have 
intended  that  the  transaction  should 
amount  to  a  payment,  and  his  inten- 
tion, if  entertained,  was  ineffectual 
because  of  his  fraud.  It  is  not  neces- 
sary to  deny  or  doubt  that  [he]  might 
secretly  transfer  to  the  treasury  of  t  In- 
corporation money  or  property  of  his 
own,  and  thus,  if  the  same  should  be 
kept,  extinguish  an  indebtedness  aris- 
ing from  a  former  embezzlement. 
There  would  be  nothing  fraudulent  in 
the  act  of  such  a  transfer;  and  the  cor- 
poration, being  lawfully  in  possession 
of  the  money  or  property,  might  prop- 
erly keep  it.  But  whore  he  undertook 
in  this  manner  to  make  a  payment  by 
secretly  transferring  the  property  of  a 
third  person  the  act  cannot  take  effect 
as  a  payment,  because  it  was  not  re 
ccived  as  such  by  any  person  noting  in 
behalf  of  the  plaintiff.  There  was  not 
even  the  semblance  of  an  accounting. 
And  under  tln->e  circumstances  if  the 
plaintiff  would  adopt  the  intention  to 
make  it  a  payment  it  must  also  adopt 
the  fraud.  It  cannot  adopt  so  much 


332  FRAUDULENT  ACTS  OF  OFFICERS.  [§  218 

tion  for  a  loan  the  bank  sent  a  clerk  with  the  certificate  to  the 
office  of  the  corporation,  who  showed  it  to  the  secretary,  who  was 
in  charge  of  the  office,  who,  in  response  to  inquiries,  stated  that 
the  certificate  was  genuine  and  all  right,  and  that  the  applicant 
for  the  loan  was  a  stockholder,  and,  relying  thereon,  the  bank  dis- 
counted the  note.  The  bank  afterwards  was  compelled  to  sell  the 
certificate  held  as  collateral  to  a  bonafide  purchaser,  and  when  he 
presented  it  to  the  proper  officers  of  the  corporation  for  a  trans- 
fer the  corporation  refused  to  recognize  the  certificate  as  valid 
evidence  of  title  to  the  shares  of  stock  stated  therein.  The  bank 
upon  this  being  brought  to  its  knowledge,  refunded  the  purchase 
money,  and  had  the  purchaser  reassign  the  certificate  to  the  bank, 
and  brought  its  action  against  the  corporation  for  damages  incur- 
red by  its  refusal  to  recognize  the  certificate,  its  right  of  recovery 
being  based  upon  the  corporation's  liability  on  account  of  the  fraud 
of  its  officer.  The  New  York  Court  of  Appeals  declared  these 
general  rules,  that  where  a  certificate  of  stock  contained  apparently 
all  the  essentials  of  genuineness  a  bona  fide  holder  thereof  was 
entitled  to  recognition  as  a  stockholder,  if  a  new  certificate  could 
be  issued  to  him,  or  to  indemnity,  if  this  could  not  be  done ;  that 
the  fact  that  an  official  signature  to  the  certificate  had  been  forged 
did  not  extinguish  this  right  where  the  forgery  had  been  done  by, 
or  at  the  instance  of,  an  officer  of  the  corporation  intrusted  with 
the  custody  of  its  stock  books,  and  held  out  by  the  company  as 
the  source  of  information  on  that  subject ;  that  while  certificates 
of  stock  in  railroad  and  other  business  corporations  do  not  possess 
in  full  the  qualities  of  commercial  paper,  when  the  transfer 
indorsed  thereon  is  signed  in  blank  by  the  stockholder  named 
therein,  they  become  in  effect,  so  far  as  the  public  is  concerned, 
the  same  as  if  they  had  been  issued  to  bearer.1  It  appeared  in  a 

of  [the  treasurer's]  act  as  was  benefi-  231;  s.  c.,  33  N.  E.  Rep.  378,  afflrm- 
cial  and  reject  the  rest.  As  Lord  ing  judgment  in  favor  of  the  bank. 
KENTON  said  in  Smith  v.  Hodson,  4  Referring  to  the  ruling  of  the  court 
T.  R.  211,  it  cannot  blow  hot  and  cold,  that  the  corporation,  in  this  case, 
This  ground  also  is  fully  covered  by  was  liable  on  account  of  the  acts  of 
the  decisions  in  Atlantic  Bank  v.  Mer-  its  officer,  the  court,  speaking  through 
chants'  Bank,  10  Gray,  532,  547-553,  MAYNARD,  J.,  said:  "This  result  fol- 
and  in  Skinner  v.  Merchants'  Bank,  4  lows  from  the  application  of  the  f  unda- 
Allen,  290."  mental  rules  which  determine  the 

1  Fifth  Avenue  Bank  of  New  York  obligations  of  a  principal  for  the  acts 
v.  Forty -second  Street  &  Grand  Street  of  its  agent.  They  are  embraced  in 
Ferry  R.  R.  Co.,  (1893)  137  N.  Y.  the  comprehensive  statement  of  Story 


§  218]  FRAUDULENT  ACTS  OF  OFFICERS. 

"N<-\v  York  case  that  the  by-laws  of  the  corporation  required  cer- 
tificates of  stock  to  be  i.-.-neil  under  the  corporate  seal  and  signed 
by  the  president  and  treasurer.  The  treasurer,  upon  the  faith  and 
pledge  as  collateral  of  spurious  certificates  of  its  stock,  drawn  up 
and  executed  in  the  form  and  manner  prescribed  by  the  by-laws 
(the  signature  of  the  president  having  Keen  negligently  affixed), 
purporting  on  their  face  to  be  of  stock  owned  by  the  treasurer, 

in  his  work  on  Agency  (9th  ed.  |  452),  depended.  It  was  a  certificate  ap- 
that  the  principal  is  to  be  '  held  liable  patently  made  in  the  course  of  his 
to  third  persons  in  a  civil  suit  for  the  employment,  as  the  agent  of  the  corn- 
frauds,  deceits,  concealments,  misrcp-  pany,  and  within  the  scope  of  the 
resentations,  torts,  negligences  and  general  authority  conferred  upon  him, 
other  malfeasances,  or  misfeasances  and  the  [corporation]  is  under  an  im- 
and  omissions  of  duty  of  his  agent  in  plied  obligation  to  make  indemnity  to 
the  course  of  his  employment,  although  the  plaintiff  for  the  loss  sustained  by 
the  principal  did  not  authorize,  or  the  negligent  or  wrongful  exercise  by 
justify,  or  participate  in,  or,  indeed,  its  officers  of  the  general  powers  con 
know  of  such  misconduct,  or  even  if  ferred  upon  them  Griswold  t.  Haven, 
he  forbade  the  acts  or  disapproved  of  25  N.  Y.  599;  New  York  &  New  Hav. -n 
them.  In  all  such  cases  the  rule  applies  R.  R.  Co.  c.  Schuyler,  34  N.  Y.  30; 
respondent  superior,  and  is  founded  Titus  v.  G.  W.  Turnpike  Co.,  61  N.  Y. 
upon  public  policy  and  convenience,  287;  Bank  of  Butavia  v.  New  York, 
for  in  no  other  way  could  there  be  any  L.  E.  &  W.  R.  R.  Co.,  106  N.  Y.  199." 
safety  to  third  persons  in  their  dealings,  It  was  said  further  in  this  opinion: 
either  directly  with  the  principal,  or  "  The  learned  counsel  for  the  defend- 
indirectly  with  him  through  the  instru-  ant  seeks  to  distinguish  this  case  from 
mentality  of  agents.  In  every  such  the  authorities  cited,  because  the  signa- 
ca«j  the  principal  holds  out  his  agent  ture  of  the  president  to  the  certificate 
as  com peteqt  and  fit  to  be  trusted,  and  was  not  genuine;  but  we  cannot  see 
thereby,  in  effect,  he  warrants  his  how  the  forgery  of  the  name  of  the 
fidelity  and  good  conduct  in  all  mat-  president  can  relieve  the  defendant 
ters  within  the  scope  of  his  agency.'  from  liability  for  the  fraudulent  acts 
It  is  true  that  the  secretary  and  trans-  of  its  secretary,  treasurer  and  transfer 
fer  agent  had  no  authority  to  issue  a  agent.  They  were  officers  to  whom  it 
certificate  of  sto^k  except  upon  the  had  intrusted  the  authority  to  make 
surrender  and  cancellation  of  a  previ-  the  final  declaration  as' to  the  validity 
ously  existing  valid  certificate,  and  the  of  the  shares  of  stock  it  might  issue, 
signature  of  the  president  and  treasurer  and  where  their  acts,  in  the  apparent 
first  obtained  to  the  certificate  to  be  exerciseof  this  power,  are  accompanied 
issued;  but  these  were  facts  necessarily  with  all  the  indicia  of  genuineness,  it 
and  peculiarity  within  the  knowledge  is  essential  to  the  public  welfan  -that 
of  the  secretary,  and  the  issue  of  the  the  principal  should  be  responsible  to 
certificate  in  due  form  was  a  rcpre-  all  persons  who  receive  the  certificates 
sentation  by  the  secretary  and  transfer  in  good  faith  and  for  a  valuable  con- 
agent  that  these  conditions  had  been  sidcration  and  in  the  ordinary  course 
complied  with,  and  that  the  facts  ex-  of  business  whether  the  indicia  are 
isted  upon  which  his  rights  to  act  true  or  not.  2  Beach  on  Pr.  (  orp. 


334  FRAUDULENT  ACTS  OF  OFFICERS.  [§  219 

obtained  a  loan  of  one  acting  in  good  faith  and  in  ignorance  of 
the  fraud.  The  Court  of  Appeals  held  that  there  was  nothing 
upon  the  face  of  the  certificate  to  notify  the  lender  of  any  defect 
in  the  title  of  the  treasurer  to  these  shares,  and  that  the  corpora- 
tion was  liable  to  him  for  the  damages.1 

§219.  The   same   subject  —  Massachusetts  decisions.— 

Several  cases  have  been  adjudicated  by  the  Supreme  Court  of 
Judicature  of  Massachusetts,  growing  out  of  the  fraudulent 
transactions  of  a  treasurer  of  a  railroad  corporation  of  that  state  - 
The  facts  were  that  he  was  supplied  by  the  president  with  blank 
certificates  of  its  stock,  signed  by  the  president.  The  treasurer 
was  also  a  stockbroker.  In  this  latter  capacity  he  told  a  customer 
on  one  occasion,  that  he  had  purchased  snares  of  this  stock  for 
her  as  ordered,  and  she  paid  him  for  it.  On  another  occasion  he 
ordered  certain  brokers  to  sell  shares  of  the  stock  for  him,  and 
they  did  so,  and  received  payment  for  it.  lie  owned  no  stock, 
and  held  none  as  agent  or  otherwise,  and  the  whole  amount  of 
the  capital  stock  had  already  been  issued.  In  each  case  he  fraud- 
ulently made  a  fictitious  transfer  of  stock  on  the  books  of  the 
corporation,  in  one  case  from  himself  as  agent  to  his  customer, 
and  in  the  other  from  himself  as  agent  to  the  brokers,  and  by 
means  of  a  blank  power  of  attorney  furnished  by  the  brokers 
and  delivered  to  him.  made  a  further  transfer  as  their  attorney  to 
their  customers.  He  then  filled  out  blank  certificates  of  the 
shares  in  the  usual  form  under  the  corporate  seal,  and  delivered 

790;  North  River  Bank  v.  Aymar,  3  has  a  claim  to  recognition  as  a  stock- 
Hill,  262;  Jarvis  v.  Manhattan  Beach  holder,  if  such  stock  can  be  legally  is- 
Co.,  53  Hun,  362;  Tome*.  Parkers-  sued,  or  to  indemnity  if  this  cannot  be 
burg  Branch,  39  Md.  36;  Baltimore,  done.  The  fact  of  forgery  does  not 
etc.,  R.  R.  Co.  v.  Wilkens,  44 Md.  11, 28;  extinguish  his  right  when  it  has  been 
Western  M.  R.  Co.  v.  Franklin  Bank,  perpetrated  by  or  at  the  instance  of  an 
60  Md.  36;  Com.  v.  Bank,  137  Mass,  officer  placed  in  authority  by  the  cor- 
431;  Holden  v.  Phelps,  141  Mass.  456;  poration  and  intrusted  with  the  cus- 
Manhattan  Beach  Co.  v.  Harned,  tody  of  its  stock  books  and  held  out 
27  Fed.  Rep.  486;  Shaw  v.  Port  by  the  company  as  the  source  of  in- 
Philip  &  Colonial  Gold  Mining  Co,  formation  upon  the  subject.'" 
13  Q.  B.  Div.  103.  The  rule  is,  J  Titus  v.  President,  etc.,  Great 
we  think,  correctly  stated  in  Beach  on  Western  Turnpike  Road,  (1876)  61  N. 
Private  Corporations  (Vol.  2,  §  488,  p.  Y.  237.  Claflin  v.  Farmers  &  Citizens' 
791):  'When  certificates  of  stock  con-  Bank,  25  N.  Y.  293,  was  distinguished 
tain  apparently  all  the  essentials  of  by  the  Court  of  Appeals, 
genuineness,  a  bona  fide  holder  thereof 


:  810] 


FRAUDUI.KXT  ACTS  OF  OFFICERS. 


885 


tin-in  to  the  purchasers,  each  of  whom  received  dividends  regu- 
larly until  the  fraud  was  discovered,  after  which  the  corporation 
refused  to  recognize  the  certificates  as  valid,  or  to  allow  a  trans- 
fer of  the  stock.  Tne  purchasers  ;m<l  tin-  broker.-  acted  in  good 
faith,  and  the  brokers  acted  according  to  tin-  ireiieral  custom  of 
brokers.  The  treasurer  had  made  nearly  all  the  transfers  on  the 
books  of  the  corporation  as  attorney  under  like  powers;  and  it 
was  not  the  custom  of  brokers  to  take  transfers  of  certificates  to 
themselves  when  ordered  to  sell  stocks.  The  court  upon  these 
agreed  facts  held  that  the  plaintiffs  were,  entitled  to  damages  from 
the  company,  as  the  company  could  issue  no  more  stock,  and  the 
measure  of  the  damages  was  the  market  value  of  the  shares  at 
the  time  the  corporation  first  refused  to  recognize  the  certificates 
;i>  valid.1 


1  Allen  r.  South  Boston  Hailrond  Co., 
(1889)  150  Mass.  200;  Craft  r.  South  Bos- 
ton  Railroad  Co.,  (1889)  150  Mass.  200. 
"  The  agreed  facts  in  both  cases,"  said 
FiKi.n,  J.(  speaking  for  the  court, 
"show  gross  carelessness  on  the  part  of 
the  president  in  signing  certificates  in 
blank,  and  negligence  on  the  part  of  the 
directors  in  not  examining  the  books 
and  discovering  the  fictitious  trans- 
fers of  stock  made  by  the  treasurer." 
Then,  as  to  the  admissions  on  the  part 
of  the  defendant,  it  is  said:  "The 
counsel  for  the  defendant  does  not 
deny  that  if  these  certificates  of  stock 
had  been  sold  and  duly  assigned  by 
tin'  plaintiffs  for  value  to  one  who  hud 
no  knowledge  that  they  had  been 
fraudulently  issued,  the  defendant 
would  be  liable  in  damages  to  the  pur- 
chaser. He  admits  the  general  rule 
that  a  corporation  is  estopped  to  deny 
the  validity  of  certificates  issued  in 
proper  form  under  its  seal,  and  duly 
signed  by  the  officers  authorized  to 
issue  certificates,  if  they  are  held  by 
persons  who  took  them  for  value  with- 
out knowledge  or  notice  that  they  had 
been  fraudulently  issued."  Moores  r. 
Citizens'  National  Bank,  111  U.  8. 156; 
Boston  &  Albany  Railroad  r.  Richard 
son,  135  Mass.  473  ;  Machinists'  Na 


tional  Bank  v.  Field,  120  Mass.  845; 
Pratt  v.  Taunton  Copper  Manuf.  Co., 
123  Mass.  110;  New  York  «.V  Xew  Haven 
Railroad  r.  Schuyler,  84  N.  Y.  30,  64; 
Titus  v.  Great  Western  Turnpike  Road, 
61  N.  Y.  237,  245 ;  Holbrook  v.  New 
Jersey  Zinc  Co.,  57  N.  Y.  616;  Shaw 
r.  Port  Philip  Mining  Co.,  13  Q.  B.  I). 
103.  Of  the  contention  on  behalf  of 
the  corporation,  it  is  said:  "But  he 
contends  that  the  plaintiffs  were  negli- 
gent in  accepting  the  new  certificates 
without  taking  pains  to  ascertain 
whether  old  certificates  of  a  corre- 
sponding number  of  shares  had  been 
surrendered,  and  a  transfer  made  upon 
the  books  of  the  company.  Each 
certificate  of  stock  in  the  defendant's 
company,  as  the  plaintiff  knew,  de- 
clared that  the  shares  are  'transfer- 
able by  an  assignment  in  the  books  of 
said  company  upon  a  surrender  of  this 
certificate.  When  a  transfer  shall  be 
made  in  the  books  of  the  company, 
and  this  certificate  surrendered,  a  new 
one  will  be  issued.'  See  Pub.  8ts. 
Hum  chap.  113,  §  13.  The  contention 
is,  that  one  object  of  this  provision 
\v.-i*  the  protection  of  the  corporation 
against  the  frauds  of  its  officers  in 
issuing  false  certificates,  and  that  if 
the  plaintiffs  in  these  cases  had  re- 


336 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§220 


§220.  The  same  subject — a  Pennsylvania  decision.— 
A  president  of  a  corporation  having  fraudulently  issued  false 
certificates  of  stock  of  the  corporation,  properly  signed  and 
sealed,  in  excess  of  the  amount  authorized  by  law,  a  Court  of 


quired  that  a  certificate  of  shares  be 
delivered  to  them  with  an  assignment 
of  it,  or  a  power  of  attorney  to  assign 
it.  [the  treasurer]  could  not  have  com- 
mitted these  frauds."  The  court  said 
to  this:  *'We  do  not  see  why  [the 
treasurer],  having  been  intrusted  with 
blank  certificates  signed  by  the  presi- 
dent, might  not  have  issued  certifi- 
cates to  himself,  and  then  assigned 
them  when  the  stock  was  sold,  and  on 
the  surrender  of  the  old  certificates 
have  issued  new  certificates.  Perhaps 
the  chances  of  detection  would  have 
been  slightly  greater  if  he  had  pro- 
ceeded in  this  way.  But  certainly 
this  provision  regulating  the  transfer 
of  stock,  if  intended  as  a  protection 
to  the  corporation  against  the  frauds 
of  its  officers,  is  insufficient.  The 
primary  purpose  of  it  undoubtedly 
was  to  prescribe  the  manner  in  which 
such  intangible  property  as  shares  of 
stock  should  be  transferred  from  one 
person  to  another,  and  it  required  the 
transfer  to  be  made  on  the  books  of 
the  company  that  the  company  might 
know  who  its  stockholders  were,  and 
it  required  the  surrender  of  the  old 
certificate  before  the  new  one  was  is- 
sued, that  there  might  not  be  two  or 
more  certificates  outstanding  for  the 
same  shares  of  stock.  The  ground  on 
which  a  corporation  is  held  liable  to  a 
bona  fide  purchaser  for  value  of  false 
certificates  of  its  stock  issued  under  its 
seal,  signed  by  the  proper  officers,  and 
apparently  genuine,  is  that  the  certifi- 
cates are  statements  by  the  corpora- 
tion of  facts  which  it  is  its  duty  to 
know,  and  which  cannot  well  be 
known  to  the  purchaser.  It  is  the  duty 
of  the  proper  officer  of  the  corpora- 
tion to  ascertain  that  its  stock  has  been 


transferred  in  accordance  with  its  by- 
laws and  in  accordance  with  law,  be  fore 
they  issue  a  new  certificate.  The 
transfer,  which  must  be  made  on  the 
books  of  the  company,  must  be  made 
by  the  owner  of  the  old  certificate,  or 
by  his  attorney  for  him.  The  sur- 
render of  the  old  certificate  must  be 
made  by  him  or  his  attorney.  There 
is  no  provision  that  it  shall  be  made 
by  the  purchaser,  as  the  assignee  of 
the  attorney  of  the  seller.  If  the  sel- 
ler undertakes  with  the  purchaser  to 
make  the  surrender  and  the  transfer 
on  the  books  of  the  company,  the  only 
thing  left  for  the  purchaser  to  do  is  to 
call  upon  the  corporation  for  the  new 
certificate.  We  see  no  good  reason 
for  holding  that  there  is  a  duty  on  the 
part  of  the  purchaser  towards  the  cor- 
poration, to  see  to  it  that  the  seller  of 
stock  surrenders  his  certificate  and 
transfers  it  on  the  books  of  the  cor- 
poration. That  is  the  duty  of  the  cor- 
poration towards  both  the  seller  and  the 
purchaser  before  it  issues  a  new  certifi- 
cate. If  the  purchaser  exhibits  to  the 
corporation  a  forged  assignment  of 
stock  or  a  forged  power  of  attorney  to 
assign  it,  and  thus  obtains  a  new  certifi- 
cate, which  he  sells,  he  is  liable  to  the 
corporation,  not  because  it  is  his  duty 
to  attend  to  the  transfer  of  stock,  but 
because  he  has  impliedly  represented 
,the  forged  signature  to  be  the  genuine 
signature  of  a  stockholder,  whereby 
he  has  deceived  the  corporation. 
Boston  &  Albany  Railroad  v. 
Richardson,  135  Mass.  473.  Before 
the  passage  of  the  statute  of  1884, 
chapter  229,  if  not  since,  the  transfer 
of  stock  was  usually  attended  to  by 
brokers,  if  the  stock  was  bought  and 
sold  through  brokers.  Many  shares 


220] 


ACTS  OF  OFFICERS. 


337 


Common  Pleas  of  Pennsylvania  held  that  Ixniajide  purchasers  of 
such  stock  were  entitled  to  relief  against  the  corporation  which 
rotiM  imt  gainsay  its  own  certiticates.  They  held  further  that 
the  measure  of  damages  in  such  a  case  would  IK:  tin-  market  value 

the  fact  that  [the  treasurer],  who 
committed  tin-  fraud  upon  tin-  tlcfcnd 
ant,  was,  also,  her  agent  in  the  trans- 
action. If  he  be  regarded  as  acting 
in  two  capacities,  and  as  having  com- 
mitted the  fraud  iti  his  capacity  as 
treasurer,  he  3- el,  as  her  agent,  knew 
of  and  participated  in  it.  Is  this 
knowledge  to  be  imputed  to  her  in  de- 
termining her  rights  against  the 
defendant?  The  general  rule  is  that 
notice  to  an  agent,  while  acting  for 
his  principal,  of  facts  affecting  the 
character  of  the  transaction,  is  con- 
structive notice  to  the  principal.  Suit 
«.  Woodhall,  113  Mass.  891;  National 
Security  Bank  t.  Cushman,  121  Mass. 
490;  Sartwcll  r.  North,  144  Mass. 
188;  The  Distilled  Spirits,  11  Wall. 
856.  There  is  an  exception  to  this 
rule,  when  the  agent  is  engaged  in 
committing  an  independent  fraudulent 
act  on  his  own  account,  and  the  facts 
to  be  imputed  relate  to  this  fraudulent 
act.  It  is  sometimes  said  that  it  can- 
not be  presumed  that  an  agent  will 
communicate  to  his  principal  acts  of 
fraud  which  he  has  committed  on  his 
own  account  in  transacting  the  busi- 
ness of  his  principal,  and  that  the  doc- 
trine of  imputed  knowledge  rests  upon 
a  presumption  that  an  agent  will  com- 
municate to  his  principal  whatever  he 
knows  concerning  the  business  he  is 
engaged  in  transacting  as  agent.  It 
may  be  doubted  whether  the  rule  and 
the  exception  rest  on  any  such  reasons. 
It  has  been  suggested  that  the  true 
reason  for  the  exception  is  that  an  in- 
dependent fraud  committed  by  an 
agent  on  his  own  account  is  beyond 
the  scope  of  his  employment,  and, 
therefore,  knowledge  of  it,  as  matter 
of  law,  cannot  be  imputed  to  the  prin- 


of  stock  represented  by  a  single  cer- 
tificate were  often  sold  in  parcels  to 
many  different  persons,  and  the  seller 
made  but  one  surrender,  with  powers 
of  attorney  to  transfer  the  parcels  to 
the  different  purchasers.  A  purchaser 
of  stock  violated  no  duty  to  the  corpo- 
ration when  he  trusted  to  the  sellsr  to 
make  tin  assignment  and  the  surrender 
of  the  old  certificate.  The  utmost  that 
can  reasonably  be  contended  is  that 
the  fact  that  a  certificate  was  not  ex- 
hibited and  delivered  with  a  power  of 
attorney  to  the  purchaser,  was  a  cir- 
cumstance to  be  considered  upon  the 
question  whether  the  purchaser  acted 
in  good  faith  and  •with,  due  care. "  The 
court  then,  in  detail,  states  the  facts 
attending  the  purchase  and  transfer 
of  shares  through  the  brokers,  and 
said:  "  On  these  facts,  we  think  it 
dear  that  [this  plaintiff]  exercised  due 
care  in  obtaining  a  transfer  of  the 
stock,  and  that  [the  treasurer]  in  mak- 
ing the  transfer  was  not  his  agent,  but 
the  agent  of  [the  broker  selling  it],  or 
the  undisclosed  principal.  In  issuing 
the  M'-W  certificate  he  was  the  agent 
of  the  defendant,  and  as  the  plaintiff 
cannot  now  be  put  in  ttntu  quo,  the 
defendant  must  bear  the  loss."  Of 
the  second  case,  it  was  said:  "The 
plaintiff  received  from  [the  treasurer], 
as  broker,  a  certificate,  in  her  name, 
of  the  stock  which  he  said  he 
bad  bought  for  her,  and  there  is 
nothing  to  show  that  this  was  not  the 
usual  way  in  which  brokers  transacted 
such  business.  Apparently  [she] 
acted  as  a  purchaser,  though  a  broker 
usually  acted,  and  we  see  no  want  of 
due  care  on  her  part."  They  then  re- 
fer to  a  question  in  her  case:  "An- 
other question  arises  in  her  case  from 
43 


338 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§  220 


of  the  stock  at  the  date  of  a  demand  by  the  holders  for  a  trans- 
fer, or,  if  no  demand  were  made,  at  the  date  of  filing  the  bills ; 
and,  where  specific  performance  was  impossible,  a  pecuniary 
equivalent  might  be  awarded.1 


cipal,  and  the  principal  cannot  be  held 
responsible  for  it.  On  this  view,  such 
a  fraud  bears  some  analogy  to  a  tort 
willfully  committed  by  a  servant  for 
his  own  purposes,  and  not  as  a  means 
of  performing  the  business  intrusted 
to  him  by  his  master.  Whatever  the 
reason  may  be,  the  exception  is  well 
established.  Kennedy  v.  Green,  3 
Myl.  &  K.  699;  Espin  v.  Pemberton, 
3  De  G.  &  J.  547;  Holland  v.  Hart,  L. 
R,  6  Ch.  678;  In  re  European  Bank, 
L.  R,  5  Ch.  358;  Cave  v.  Cave,  15  Ch. 
D.  639;  Kettlewell  v.  Watson,  21  Ch. 
D.  685,  707;  Innerarity  D.  Merchants' 
National  Bank,  139  Mass.  332;  Dilla- 
way  D.  Butler,  135  Mass.  479;  Atlantic 
Cotton  Mills  v.  Indian  Orchard  Mills, 
147  Mass.  268;  Howe  v.  Newmarch, 
12  Allen,  49.  The  case  [of  Craft «?. 
South  Boston  R.  R.  Co.]  seems  to  me 
to  fall  within  this  exception.  Al- 
though the  fraudulent  act  of  [the 
treasurer]  may  not  have  been  com- 
mitted with  the  intention  of  cheating 
.the  plaintiff,  yet  that  was  its  legal 
effect,  and  it  was  a  fraudulent  act 
committed  by  him  for  his  own  benefit, 
the  actual  effect  of  which  would  have 
been  wholly  to  avoid  the  transaction 
if  the  plaintiff  had  known  of  it.  The 
present  cases  we  think  fall  within  the 
principle  that  where  one  of  two  inno- 
cent persons  must  suffer  a  loss  from 
the  fraud  of  a  third,  the  loss  must  be 
borne  by  him  whose  negligence  en- 
abled the  third  person  to  commit 
fraud." 

1  Willis  r.  Philadelphia  &  Darby  R. 
R.  Co.,  (Pa.  1878)  6  W.  K  C.  461.  The 
court  said  :  "  It  is  well  settled  that  one 
who,  as  a  purchaser  or  lender,  gives 
value  on  the  faith  of  a  certificate  of 
stock,  authenticated  by  the  seal  of  the 


corporation  and  the  signatures  of  the 
proper  officers,  acquires  an  equitable 
title,  and  may  require  the  corporation 
to  transfer  the  stock  to  him  or  respond 
in  damages  for  the  default.  It  is  not 
a  sufficient  answer  to  such  a  demand 
that  the  certificate  was  fraudulently  is- 
sued, because  corporations  are,  not  less 
than  natural  persons,  answerable  for 
the  conductof  their  agents  in  the  busi- 
ness intrusted  to  their  care.  Nor  is  it 
necessarily  conclusive  against  such  a 
purchaser  that  the  party  from  whom 
he  bought  was  cognizant  of,  or  par- 
ticipated in,  the  fraud.  If  a  certificate 
of  stock  is  not  a  negotiable  instrument, 
it  is  a  written  declaration  that  the 
holder  has  a  definite  share  in  the 
capital  or  profits  of  the  concern,  which, 
though  delivered  to  him,  is  intended 
for  circulation  and  virtually  addressed 
to  all  the  world,  and  third  persons 
who  are  misled  by  such  an  instrument 
may  justly  require  that  the  loss  shall 
fall  on  the  corporation  and  not  on 
them.  New  York  &  New  Haven  R. 
R.  Co.  r.  Schuyler,  34  N.  Y.  30,  52,  80; 
Bank  of  Kentucky  V.  Schuylkill  Bank, 
1  Parsons'  Eq.  180;  In  re  Bahia  &  San 
Francisco  R.  R.  Co.,  L.  R.,  3  Q.  B. 
595.  *  *  * "  The  defendants  an- 
swered that,  however  sound  the  argu- 
ment might  be  under  other  circum- 
stances, it  was  inapplicable  here,  be- 
cause the  railway  company  was  limited 
by  its  charter  to  ten  thousand  shares. 
When  that  number  was  reached  the 
power  was  exhausted,  and  any  subse- 
quent proceedings  under  it  merely 
void.  The  barrier  thus  set  was  in- 
superable, and  could  not  have  been 
surmounted  by  a  vote  of  the  directors 
or  stockholders,  or  by  both  conjoined. 
To  hold  that  the  president  and  treas- 


§281] 


FUAUDULEXT  ACTS  OF  OFFICERS. 


339 


§  221.  When  a  corporation  may  not  respond  for  damages 
for  fraudulent  issue  of  stock. —  The  officer  of  a  corporation  in 
a  New  York  case  obtained  certain  certificates  of  stock  of  a 
corponition,  which  had  been  signed  by  a  former  president  of 
the  corporation  in  blank,  and  left  with  the  other  then  officers 


UIXT  could,  by  a  fraudulent  and  un- 
authorized  overissue,   bind  the   com- 
pany to  that  which  the  company  was 
powerless  to  perform,  was  to  hold  that 
an    agent    might     acquire    a    power 
through  fraud  which  the  principal  did 
iiot  possess  and  could  not  have  con- 
ferred.    The  court  said  :  "  This  argu- 
ment might  be  unanswerable  if   the 
power  to  give  certificates  was  identical 
with  the  power  to  create  stock,  or  if  a 
certificate  could    not   legitimately  be 
issued  to  any  one  who  claimed  under 
a  derivative    title,  because   it    would 
then  be  incumbent  on  third  persons  to 
take  notice  of  the  limited  nature  of  the 
power  and   ascertain  whether  it  had 
been  strictly  pursued.     It  is.  however, 
plain  that   the  legislature  did  not  in- 
tend to  impose  a  rule  contrary  to  the 
ordinary  course  of  business,  and  which 
would    have    enhanced    the    market 
value    of    the    stock.     Although   the 
company    could    not    issue  a    larger 
number  of  shares  than  that  prescribed 
by   its  charter,  it  might  well  give  a 
new  certificate  to  a  purchaser  in  lieu 
of  that   surrendered   by  the  vendor, 
and  repeat  the  act  as  often  as  the  occa- 
son    required.      This     was    virtually 
conceded  during  the  argument,  but  it 
was  at    the    same    time    strenuously 
urged  that,  to  render  such  a  substitu- 
tion valid,  the  pre-existing  certificate 
must  be  given  up  as  other  stock  duly 
transferred   on   the    corporate  books. 
If  this  method  was  observed  the  public 
and  stockholders  would  be  safe,  and  a 
departure  from  it  involved  an  excess 
of  power  which   rendered  the  trans- 
action void,    not   only  between    the 
original  parties,  but  as  it  regarded 
purchasers  claiming  under  them.   The 


cogency  of  this  reasoning  should  not 
render  us  unmindful   of  a  considera 
tion  by  which  it  is  controlled.     That 
which  a  corporation  is  not  authorized 
to   do  under    any   circumstances,  or 
which  is  absolutely  forbidden  by  its 
chart cr.  isso  entirely  void  that  nothing 
short  of  an  act  of  assembly  can  render 
it  s  ali'i,  but  that  which  it  may  do  for 
certain  purposes  and  not  for  others,  or 
on  the  happening  of  a  particular  event, 
is  not  necessarily  within  this  rule,  and 
may    take    effect   although    the  pre- 
requisites were  not  fulfilled.     N.  Y.  & 
N.  H.  R.  R.  Co.  r.  Schuyler,  34  N.  Y. 
80,  68.     The  case  in  hand  apparently 
belongs  to  the  latter  category.      We 
have  seen  that  although  the  railway 
company  could  not  create  new  stock, 
it  might  properly  give  a  certificate  to 
a  purchaser  as  evidence  that  he  had 
acquired  a  title  regularly  deduced  on 
the  books,  and  the  legal,  as  well  as  the 
natural,   presumption  in    every  such 
case  is  that  the  power  has  been  ex- 
ercised for  a  legitimate  end,  and  not 
in  a  way  to  render  it  invalid.     N.  Y. 
&  N.  H.  R.  R.  Co.  v.  Schuyler,  34  N. 
Y.    30,   63.      '  Acts  of   corporations,' 
says  Judge  KINO  in  Bank  of  Kentucky 
v.     Schuylkill    Bank,    1    Pars.    252, 
'  which   presuppose  the  existence  of 
other  acts  to  make  them  legally  oper- 
ative, are  presumptive  proof  of  the 
latter.     In  short,  the  acts  of  artificial 
persons  afford  the  same  presumptions 
as  the  acts  of  natural  persons.     Each 
afford  presumptions,  from  acts  done, 
of  what  preceded.     A  vote  of  a  cor- 
poration may  be  presumed  from  other 
acts,  though  there  is  no  proof  of  such 
vote  on  the  corporate  records.    *    *    * 
The  source  from  which  these  prin- 


340  FRAUDULENT  ACTS  OF  OFFICERS.  [§  221 

to  be  used  in  case  a  stockholder  desired  to  transfer  his  stock  in 
the  president's  absence.  He  filled  out  the  blanks  in  one  of  these 
certificates,  inserting  his  own  name  as  stockholder,  forging  the 
name  of  one  who  was  the  treasurer  of  the  corporation  when  the 
president  signed  them,  and  si  ned  his  own  name  as  transfer 
agent,  which  position  he  occupied  at  that  date,  and  dating  the 
transaction  to  make  it  conform  to  the  date  when  the  president's 
signature  was  affixed.  When  he  did  this  he  was  president  of  the 
company.  He  used  the  false  certificate  of  stock  by  pledging  it 
as  a  collateral  security  for  a  loan  made  to  him  personally.  In  an 
action  by  the  holder  of  this  certificate  against  the  corporation  for 
damages,  by  reason  of  his  fraud,  the  New  York  Court  of  Appeals 
held  that  there  could  be  no  recovery.1 

ciples  have  been  drawn  is  the  judg-  the    corporation    shall    transfer    the 

ment  of  Justice  STORY  in  The  Bank  v.  stock,  or,  if  unable  to  do  so  in  conse- 

Dandridge,  12  Wheat.  64.'     This  cita-  quenceof  an  obstacle  which  cannot  be 

tion  would  seem  to  be  a  conclusive  removed,  give  an  equivalent  for  that 

answer  to  the  argument  that  the  pro-  which  is  withheld.     N.   Y.   &  N.  H. 

duction  of  a  certificate  of  stock  is  not  R.  R.  Co.  v.  Schuyler,  34  N.   Y.  30, 

prima  facie  evidence  of  a  title,  and  80,  83." 

that  a  purchaser  must  examine  the  '  Manhattan  Life  Insurance  Co.  v. 
records  of  the  corporation  and  ascer-  Forty -second  Street  &  Grand  Street 
tain  from  them  whether  the  vendor  Ferry  R.  R.  Co.,  (1893)  139  N.  Y.  146; 
has  the  right  which  the  certificate  8.  c.,  34  N.  E.  Rep.  776.  This  opinion 
avers.  Such  an  investigation  is  abso-  was  rendered  by  MAYNARD,  J. , 
lutely  superfluous  where  the  officers  who  said  :  "The  rule  which  imposes 
of  the  corporation  have  done  their  a  liability  upon  the  principal  for  the 
duty,  and  will  generally  be  unavailing  unauthorized  acts  of  his  agent,  is 
when  they  are  engaged  in  the  per-  'founded  upon  public  policy,  and  is 
petration  of  a  fraud.  N.  Y.  &  N.  H.  well  defined.  It  is  limited  to  cases 
R.  R.  Co.  v.  Schuyler,  34  N.  Y.  30,  where  there  was  an  apparent  au- 
71.  It  is  no  doubt  true,  as  the  counsel  thority  to  do  the  act  in  question  ;  and 
for  the  defense  contend,  that  the  it  appeared  to  have  been  done  in  the 
formal  mode  of  deducing  title  to  stock  course  of  his  employment  as  agent 
is  by  a  transfer  regularly  made  in  some  and  was  within  the  scope  of  his  gen- 
book  kept  for  the  purpose  by  the  cor-  eral  powers.  None  of  these  grounds 
poration  or  its  duly  constituted  of  liability  have  been  shown  here, 
agents.  But  although  a  certificate  of  The  agency  did  not  exist  in  1888, 
stock  is  not  the  title,  it  is  au  authorita-  which  was  necessary  in  order  to  de- 
tive  declaration  that  such  a  title  exists,  prive  the  principal  of  the  right  to  dis- 
which  may  operate  as  an  equitable  claim  responsibility  for  the  unauthor- 
estoppel  in  favor  of  third  persons  who  ized  act.  With  respect  to  the  creation 
part  with  value  in  the  belief  that  it  is  of  certificates  bearing  date  in  1881,  he 
true.  The  legal  title  does  not  pass  to  was  as  destitute  of  authority  as  if  he 
the  purchaser,  but  he  acquires  an  had  been  a  stranger  to  the  corporation, 
equitable  right,  and  may  insist  that  He  not  only  could  not  issue  them,  but 


222]- 


FRAUDULENT  ACTS  OF  OFFICERS. 


§  222.  Massachusetts  decisions  on  this  subject. —  In  a  case 
in  Massachusetts  it  appeared  that  the  treasurer  of  a  railroad  cor- 
poration had  for  a  private  debt  placed  fraudulently  issued  stock 
with  his  creditor  as  security  in  the  creditor's  name  and  the  cred- 
itor had  afterwards  used  it  as  a  collateral  himself  for  a  loan,  but 
upon  payment  of  his  loan  it  was  reassigned  to  him.  The  court  held 
to  this  effect:  That  if  an  officer  of  a  corporation  having  the 


he  could  take  no  part  in  their  issue, 
or  do  any  act  required  by  law,  or  by 
the  by-laws,  essential  to  give  them 
validity.  When  he  issued  such  a  cer- 
tificate in  his  own  nnme,  he  WHS  not 
apparently  acting  within  the  scope  of 
any  general  authority  conferred  upon 
him  by  the  corporation.  The  defend- 
ant cannot  justly  be  held  liable  for 
the  misuse  of  a  power  which  it 
never  created.  This  case  has  no 
feature  in  common  with  the  Fifth 
Avenue  Bank  against  the  same  de- 
fendant, 137  N.  Y.  231.  There  [this 
officer],  at  a  time  when  he  was 
treasurer  and  transfer  agent,  and  in- 
vested with  authority  in  both  capaci- 
ties to  sign,  countersign  and  seal  valid 
certificates  of  stock,  forged  the  name 
of  the  president  to  a  certificate  and 
issued  it  to  a  confederate,  who 
negotiated  a  loan  upon  it  at  the  bank, 
which,  before  receiving  it,  caused 
inquiry  to  be  made  at  the  office  of  the 
defendant,  and  was  informed  that  the 
certificate  was  genuine.  [He]  was 
there  acting  within  the  scope  of  his 
apparent  authority,  and  whether  the 
rertiticate  had  been  actually  signed 
by  the  president  and  was  issued  in 
the  regular  course  of  the  administra- 
tion of  the  affairs  of  the  company, 
were  facts  peculiarly  within  his 
knowledge,  and  the  countersigning 
and  issue  of  the  certificate  in  due 
form  was  a  representation  by  him  that 
these  conditions  had  been  complied 
with,  and  that  the  facts  existed,  upon 
which  his  right  to  act  depended. 
Here  there  was  a  total  lack  of  dele- 


gated power  to  [him]  to  do  a  single 
lawful  act  in  the  issue  of  the  certifl- 
cntc  in  the  form  in  which  it  was  pre- 
sented to  the  plaintiff.  There  was  no 
negligent  or  wrongful  use  by  him  of 
nny  authority  derived  from  the  [cor- 
poration]. It  was  a  willful  and 
criminal  net,  perpetrated  for  private 
gain  and  not  connected  with  the 
exercise  of  any  official  authority  or 
semblance  of  authority  which  he 
possessed  as  the  [corporation's]  agent. 
The  plaintiff  insists  that  there  is 
another  ground  upon  which  a  re- 
covery is  permissible.  When  [this 
officer]  made  the  loan  and  pledged  the 
forged  certificate,  he  represented  to 
the  plaintiff  that  it  was  a  genuine 
certificate  of  the  stock  of  the  corpora- 
tion ;  and  as  he  was  then  its  president 
and  chief  administrative  officer,  the 
claim  is  made  that  the  [corporation] 
fs  bound  by  his  representations. 
*  *  *  [This  officer],  when  he 
negotiated  the  loan,  was  not  engaged 
in  the  transaction  of  the  [corporation's] 
business,  or  in  the  discharge  of  any 
duty  imposed  upon  him  by  the  [cor- 
poration]. The  declarations  of  an 
agent  are  only  admissible  against  his 
principal  when  made  as  a  part  of  a 
transaction  undertaken  in  behalf  of 
his  principal,  or  in  the  performance  of 
the  duties  of  his  agency.  First  Nat. 
Bk.  of  Lyons  c.  Ocean  Nat.  Bk., 
60  N.  Y.  278.  Or,  as  is  sometimes 
-i.it. •.!.  the  representations  of  the 
agent,  when  not  expressly  authorized 
l>v  the  principal,  must,  in  order  to 
bind  him,  be  within  the  scope  of  his 


342  FRAUDULENT  ACTS  OF  OFFICERS.  [§222 

power,  either  alone  or  with  others,  to  issue  certificates  of  stock, 
fraudulently  issues  as  security  for  his  private  debt  a  certificate  to 
his  creditor  in  the  latter's  name,  such  creditor  cannot  rely  upon 
the  certificate  and  recover  damages  from  the  corporation  upon 
its  refusal  to  recognize  it  as  valid,  although  he  has  no  knowledge 
of  the  fraud ;  but  if  upon  taking  it  he  fails  to  investigate 
the  title  to  the  stock  he  is  affected  with  notice  of  what- 
ever he  might  have  discovered  upon  making  proper  inquiry.1 

agency,  which  is  but  another  form  of  ciple  from  Moores  v.  Citizens'  National 
expressing  the  same  proposition.  N.  Bank,  111  U.  S.  156.  In  that  case  Mr. 
Y.  Life  Ins.  Co.  v.  Beebe,  7  N.  Y.  364.  Justice  BRADLEY  dissented,  and  the 
But,  without  determining  what  are  decision  has  been  the  subject  of  some 
the  duties  of  the  officers  of  a  corpora-  criticism.  Lowell  Transfer  of  Stock, 
tion,  when  called  upon  to  respond  to  §  112,  note  2.  The  ground  of  that  de- 
the  inquiries  of  intending  purchasers  of  cisiou  as  stated  in  the  opinion  is  as  fol- 
the  stock,  there  is  a  sufficient  reason  lows:  The.  plaintiff  '  having  distinct 
why  the  plaintiff  cannot  avail  himself  notice  that  the  surrender  and  transfer 
of  the  representations  of  [this  officer]  of  a  former  certificate  were  prereq- 
in  regard  to  the  genuineness  of  this  uisites  to  the  lawful  issue  of  a  new 
certificate.  They  ware  made  in  a  one,  and  having  accepted  a  certificate 
private  and  personal  transaction,  that  she  owned  stock  without  taking 
undertaken  for  his  individual  benefit  any  steps  to  assure  herself  that  the 
and  so  understood  by  the  plaintiff,  legal  prerequisites  to  the  validity  of 
The  plaintiff  knew  that  [this  officer],  her  certificate  which  were  to  be  ful- 
in  the  negotiation  of  the  loan,  was  not  filled  by  the  former  owner  and  not  by 
acting  as  the  officer  or  agent  of  the  the  bank  had  been  complied  with,  she 
[corporation],  or  in  its  behalf,  and  that  does  not,  as  against  the  bank,  stand  in 
his  personal  interest  in  the  transaction  the  position  of  one  who  receives  a  cer- 
might  lead  him  to  betray  his  prin-  tificate  of  stock  from  the  proper  offl- 
cipal.  It  is  an  old  doctrine,  from  cers  without  notice  of  any  facts  im- 
which  there  has  never  been  any  de-  pairing  its  validity.'  Upon  a  review 
parture,  that  an  agent  cannot  bind  his  of  the  authorities  in  the  opinion  it  is 
principal  even  in  matters  touching  his  said:  '  This  review  of  the  cases  shows 
agency,  where  he  is  known  to  be  act-  that  there  is  no  precedent  for  holding 
ing  for  himself,  or  to  have  an  adverse  that  the  plaintiff,  having  dealt  with 
interest."  See,  also,  Stone  v.  Hayes,  3  the  cashier  individually  and  lent  money 
Denio,  575;  Bentley  v.  Columbia  Ins.  to  him  for  his  private  use,  and  received 
Co.,  17  N.  Y.  423;  Claflin  r.  Farmers  from  him  a  certificate  in  her  own 
&  Citizens'  Bank,  25  N.  Y.  293;  Wil-  name,  which  stated  that  shares  were 
son  n.  M.  E.  R.  Co.,  120  N.  Y.  145;  transferable  only  on  the  books  of  the 
Moores  c.  Citizens'  Nat.  Bank,  111  U.  bank  and  on  surrendered  former  cer- 
S.  156;  Farrington  t.  South  Boston  R.  tificates,  and  no  certificate  having  been 
R.  Co.,  150  Mass.  406.  surrendered  by  him  or  by  her,  and 

1  Farrington  v.  South  Boston  Rail-  there  being  no  evidence  of  the  bank 
road  Company,  (1890)  150  Mass.  406.  having  ratified  or  received  any  benefit 
Arguendo,  it  was  said:  "The  present  from  the  transaction,  can  recover  from 
case  cannot  be  distinguished  in  prin-  the  bank  the  value  of  the  certificate 


§222] 


FRAUDULENT  ACTS  OF  OFFICERS. 


These  facts  appear  in  another  Massachusetts  case.  Tlu-  by-law* 
of  a  corporation  provided  that  "each  stockholder  shall  be  entitled 
to  a  certificate  of  his  stock  uudrr  the  seal  of  the  corporation  and 
signed  by  its  president  and  treasurer.'*  The  pivsidmt  bad  no 
authority  to  issue  certificates  of  stock.  He  had  access  to  the  stock 
book  and  issued  to  certain  parties  certificates  of  shares  of  the  cor- 
poration, signed  by  himself,  and  forged  the  signature'  «>f  tin-- 


delivered to  her  by  its  cashier.'  In 
that  case  the  president  of  the  bank  had 
left  blank  certificates  of  stock  signed 
by  him  with  the  cashier,  as  in  the 
present  case  the  president  of  the  rail- 
road company  had  left  similar  blank 
certificates  with  the  treasurer.  At  the 
trial  of  that  case  in  tin-  I'nited  States 
Circuit  Court  a  verdict  was  directed 
for  the  defendant  on  the  ground  that 
the  plaintiff  having  had  knowledge  of 
the  fact  that  Moores,  upon  whom  she 
relied  to  have  the  stock  transferred  to 
her,  was  acting  for  himself  as  well  as 
in  his  capacity  of  cashier  —  that  is, 
acting  for  the  bank  upon  one  side  and 
for  himself  on  the  other  in  reference  to 
the  matter  of  issuing  this  certificate  — 
she  is  not,  in  the  judgment  of  this 
court,  an  innocent  holder  of  the  stock. 
Moores  o.  Citizens'  National  Bank,  15 
Fed.  Rep.  141."  The  Massachusetts 
Supreme  Court  resumed:  "  We  have 
decided  in  Allen  r.  South  Boston  Rail- 
road Co.,  150  Mass.  200,  204,  that  a 
purchaser  of  stock  owes  no  positive- 
duty  to  the  corporation  to  see  to  it 
that  the  seller  surrenders  the  old  cer- 
tificate and  makes  an  assignment  of 
the  stock  on  the  books  of  the  company . 
but  that  it  is  the  duty  of  the  corpora- 
tion which  requires  these  things  to  be 
done  to  see  that  they  are  done  before 
a  new  certificate  is  issued  to  the  pur 
chaser.  The  plaintiff,  in  the  rase  ai 
bar,  knew  that  he  was  dealing  with 
the  treasurer  of  the  defendant  in  his 
personal  capacity  as  a  borrower  of 
money.  If  the  by-laws  of  the  com- 
pany had  provided  that  certificates  of 


stock  should  be  signed  only  by  the 
treasurer,  and  if  he  were  charged  with 
the  duty  of  attending  to  tin-  transfer 
of  stock  and  the  issuing  of  certificates, 
any  person  lending  money  to  him  for 
his  private  use  and  taking  in  his  own 
name  a  certificate  of  the  company's 
stock  as  collateral  security,  could 
reasonably  be  required  to  investigate 
the  title  of  the  treasurer  to  the  certifi- 
cate delivered,  because  in  issuing  such 
a  certificate  the.  t reasurer  would  have  a 
personal  interest  adverse  to  tliatof  the 
corporation.  An  agent  cannot  prop- 
erly act  for  his  principal  and  himself 
when  their  interests  are  adverse,  and 
any  person  dealing  with  an  agent  in  a 
matter  affecting  his  principal  and 
knowing  that  the  interests  of  the  agent 
are  adverse  to  those  of  his  principal, 
ought  to  be  held  to  the  duty  of  ascer- 
taining that  the  acts  of  the  agent  are 
authorized  by  his  principal.  The 
difficulty  in  the  present  erase  is  that 
these  considerations  are  only  partially 
applicable  to  it.  It  is  on  account  of  the 
danger  that  one  officer  may  abuse  his 
power  to  issue  stock  certificates  that 
the  by-laws  of  corporations  usually  re- 
quire the  certificates  to  be  signed  by  at 
least  two  officers  of  the  corporation. 
If  one  of  these  neglects  his  duty  or 
delegates  the  performance  of  it  to  the 
other,  the  safeguard  intended  by  this 
requirement  of  the  by  law  In-come* 
ineffectual,  ami  it"  one  of  these  officers 
in  issuing  a  Mock  certificate  has  a  per- 
sonal iiitcre-t  :td  \er-e  to  that,  of  the 

corporation,  a  person  dealing  with  him 
and  knowing  this  uiay  well  be  required 


344 


FRAUDULENT  ACTS  OF  OFFICERS. 


[§222 


treasurer  to  the  same.  The  holders  of  these  certificates  sought 
by  action  to  hold  the  corporation  responsible  for  these  spurious 
certificates  of  stock,  contending  that  the  corporation  was  bound  to 
make  the  certificates  good,  or  was  responsible  for  their  being  bad, 
on  the  ground  that,  in  view  of  his  previous  known  misconduct, 
the  corporation  was  negligent  in  permitting  its  president  to  remain 
in  that  official  position,  and  to  have  control  of  its  certificate  book 
and  seal,  and  that  the  cases  fall  within  the  principle  that,  where 
one  of  two  innocent  persons  must  suffer  a  loss  for  the  fraud  of  a 
third,  the  loss  must  be  borne  by  the  one  whose  negligence  enabled 
the  third  person  to  commit  the  fraud.  The  Supreme  Court  of 
Judicature  of  that  state  held  that  the  corporation  was  not  liable 
for  the  acts  of  its  president  in  issuing  these  certificates.1 


to  take  notice  that  the  rights  of  the 
corporation  are  not  protected  in  the 
transaction  to  the  full  extent  intended 
by  the  by-laws." 

>Hill  v.  C.  F.  Jewett  Publishing 
Co.,  (1891)  154  Mass.  172;  s.  c.,  28  N. 
E.  Rep.  142.  ALLEN,  J.,  said:  "In 
the  absence  of  any  previous  miscon- 
duct on  [the  president's  part],  it  could 
hardly  be  maintained  that  there  was 
any  negligence  on  the  part  of  the  cor- 
poration in  keeping  its  seal  and  book 
of  certificates  of  shares  where  the 
president  could  have  access  to  them, 
so  as  to  be  able  to  remove  blank  cer- 
tificates from  the  end  of  the  book  and 
impress  the  corporate  seal  upon  them. 
We  are  not  aware  that  it  is  customary 
for  corporations  in  this  country  to  keep 
their  seals  or  books  of  certificates  in 
such  a  way  that  access  can  only  be  had 
to  them  when  two  or  more  officers  are 
present.  The  chief  safeguard  in  respect 
to  the  certificates  is  the  necessity  of  two 
signatures.  And,  accordingly,  when 
one  who  has  had  confidence  reposed  in 
him  has  availed  himself  of  his  oppor- 
tunity to  commit  a  fraud  upon  others 
by  means  of  forgery,  it  has  usually 
been  held  in  England  that  the  loss  was 
not  a  natural  or  probable  result  of  the 
confidence  thus  imposed,  even  though 
it  showed  carelessness,  and  that  it  was 


too  remote  to  be  properly  chargeable 
upon  those  who  were  thus  careless  in 
reposing  the  confidence.'  Bank  of 
Ireland  r.  Evans'  Charities,  5  H.  L. 
Cas.  389;  Mayor  etc.,  of  Staple  of 
England  v.  Governor  etc.,  of  Bank 
of  England,  21  Q.  B.  D.  160,  176; 
Swan  r.  North  British  Australasian 
Co.,  2  H.  &  C.  175,  189.  See,  also, 
Vagliano  r.  Bank  of  England,  22  Q. 
B.  D.  103,  117;  s.  c.,  on  appeal,  23  Q. 
B.  D.  243,  255,  263.  The  plaintiffs  rely 
much  on  Shaw  r.  Port  Philip  &  Colo- 
nial Gold  Mining  Co.,  13  Q.  B.  D.  103, 
which  in  many  of  its  general  features 
much  resembles  the  present  case,  but 
with  certain  differences.  In  that  case 
the  secretary  of  the  defendant  com- 
pany issued  a  certificate  of  shares, 
with  the  name  of  a  director  forged  by 
himself.  The  person  to  whom  it  was 
issued  bought  shares  on  the  market, 
through  a  broker,  who  received  a 
transfer  signed  by  the  secretary,  ac- 
companied by  what  purported  and  in 
all  respects  appeared  to  be  a  regularly 
issued  certificate  of  those  shares. 
These  were  deposited  at  the  com- 
pany's office,  with  the  request  for  the 
issue  of  a  new  certificate,  in  the  usual 
way.  The  new  certificate  was  issued 
in  the  usual  form  by  the  secretary, 
but  the  signature  of  a  director,  which 


FRAUDULENT  ACTS  OF  OFFICERS. 


was  required,  was  forged.  It  was  a 
part  of  the  regular  and  authorized 
duty  of  the  secretary  to  receive  and 
examine  transfers  and  certificates  of 
shares,  to  have  transfers  registered,  to 
procure  the  preparation,  execution 
and  signature  of  certificates  with  all 
requisite  and  prescribed  penalties,  and 
thereupon  to  issue  them  to  the  persons 
entitled  to  receive  them.  Moreover, 
the  company,  after  the  issue  of  the 
certificate,  paid  a  dividend  thereon,  by 
check  signed  by  the  secretary  and  two 
directors.  The  decision  of  the  case, 
which  was  not  heard  before  the  Court 
of  Appeal,  was  placed  on  the  ground 
that  the  company  had  made  it  the 


duty  of  the  secretary  to  procure  the 
preparation,  execution  and  signature 
of  certificates  with  the  prescribed  pen- 
alties, and  thereupon  to  issue  them  to 
the  person  entitled  to  receive  them. 
The  principal  facts  upon  which  the 
decision  turned  are  wanting  in  the 
case  before  us.  The  president  of 
the  defendant  corporation  was  not  the 
proper  officer  to  issue  certificates,  and 
the  certificates  which  the  plaintiff  re- 
ceived did  not  come  from  the  office  of 
the  defendant  in  the  regular  course  of 
business,  but  they  were  received  by 
the  plaintiffs  under  private  and  per- 
sonal transactions  between  themselves 
and  Jewett,  the  president." 


CHAPTER  VI. 


PERSONAL  LIABILITY  OF  OFFICERS. 


3  223.  Directors'     liability  —  general 
rules. 

224.  Liability    of    other   officers  — 

general  rules. 

225.  Rules  as  to  liability  of  officers 

for  diversion  of  property  of 
corporation. 

226.  Liability  of  officers  arising  from 

manner  of  execution  of  com- 
mercial paper. 

227.  Liability  of  officers  arising  from 

indorsement  of  commercial 
paper. 

228.  Liability  of  officers  of  savings 

banks. 

229.  Liability  of   a  treasurer  of  a 

corporation  for  payment  of 
orders  on  forged  indorse- 
ments. 

230.  Liability    on    contract    made 

before  complete  organiza- 
tion of  the  corporation. 

231.  Rule  as  to  recovery  in  such  a 

case. 

232.  County   treasurer    liable  upon 

his  receipts  to  collector  for 
money. 

233.  County  treasurer  liable  as  bailee 

of  county  funds. 

234.  County  treasurer  paying  court 

orders  on  forged  instruments. 

235.  Arbitration  as  to  liability  of  a 

treasurer  of  a  township. 

236.  Liability  under  special  provis- 

ions of  charter  or  statute. 

237.  Liability   under    provisions  of 

charter  —  Pennsylvania. 

238.  Statutory  liability  —  California 

statutes. 


§239.  Statutory    liability  —  Colorado 
statutes. 

240.  Statutory       liability  --  Iowa 

statutes. 

241.  Statutory  liability  —  Massachu- 

setts statutes. 

242.  Statutory  liability  —  Minnesota 

statutes. 

243.  Statutory    liability  —  Missouri 

statutes. 

244.  Statute  of  New  York  —  liability 

for  failure  to  file  annual 
report. 

245.  Actions  to  enforce  this  liability. 

246.  What  are,  and  what  are  not, 

"debts"  for  which  liability 
under  this  statute  may  arise. 

247.  A  United  States  Supreme  Court 

decision  on  this  subject. 

248.  Statute  of  New  York — liabili ty 

for  creation  of  debts  in  excess 
of  capital  stock. 

249.  Liability  for  incurring  indebt- 

edness in  excess  of  capital 
stock  —  Illinois  statute. 

250.  United   States  Supreme  Court- 

decision  on  a  similar  stat- 
ute—  the  proper  action  in 
such  a  case. 

251.  New    York    statute  —  liability 

for  false  statement  in  certifi- 
cate, etc.,  filed. 

252.  Illustrations. 

253.  Statutory  liability  —  Rhode  Is- 

land statutes. 

254.  Statutory      liability  —  various 

states. 

255.  Liability  of  directors  or  officers 

under  an  English  statute. 


§  223.  Directors'  liability  —  general  rules. —  Whether  direct- 
ors of  a  corporation  are  to  be  regarded  as  its  agents  or  its  ele- 
ments, impartial  justice  and  public  policy  require  that  as  all  nat- 


§  223]  PERSONAL  LIABILITY  OF  OFFICERS.  '->l  , 

ural  persons  are,  so  they  should  be  held  responsible  to  third 
persons  for  the  malfeasance  by  them  in  fact  committed  or 
commanded.1  Directors  or  officers  of  a  corporation  acting  beyond 
their  power,  whereby  loss  inures  to  the  corporation,  or  disposing 
of  its  property,  or  paying  away  its  money  without  authority,  will 
be  required  to  make  good  the  loss  out  of  their  private  estates.8 
But  they  are  not  liable,  in  the  absence  of  fraud  or  intentional 
breach  of  trust,  for  negligence,  mistakes  of  judgment  and  bail 
management  in  making  investments  on  doubtful  or  insufficient 
security.  Where  they  have  not  profited  personally  by  bad  man- 
agement or  appropriated  any  of  the  property  of  the  corporation 
to  their  own  use,  courts  of  equity  treat  them  with  indulgence.8 
The  directors  of  a  corporation,  as  trustees  of  its  shareholders,  are 
liable  for  all  losses  caused  by  their  willful  failure  to  exercise  the 
care  and  attention  to  the  affairs  of  the  corporation  which  would 
prevent  a  misappropriation  of  the  trust  or  corporate 'funds.4  But 
directors  and  officers  of  a  company  will  not  be  held  personally 
liable  to  its  creditors  on  the  ground  that  they  have  mismanaged 
its  business  and  contracted  an  indebtedness  in  excess  of  the  limit 
prescribed  in  its  charter,  unless  they  are  made  liable  by  the  pro- 
visions of  the  charter  or  some  general  statute  regulating  such  cor- 
porations. And  it  would  make  no  difference  that  the  credit  be 
extended  in  reliance  upon  the  business  character  and  financial 
responsibility  of  the  directors  and  officers.5  If  directors  of  a  cor- 

•Rule  declared  in  Salmon  v.  Rich-  Spering's  Appeal.  71  Pa.  St.  11;  Citi- 

ardson,  (1802)  30  Conn.  SCO,  874,   in  zens'  B.  L.  &  8.  Association  r.  Coriell, 

which  case  the  directors  of  an  insur-  34  N.   J.   Eq.  383,  392;  Swent/el    r. 

ance  company  who  had  fraudulently  Penn.   Bank,  (1891)   147   Pa.   St.   140; 

permitted  false  statements  to  be  offl-  s.  c.,  23  Atl.  Hep.  413;  In  re  Forest  of 

daily    made    by    the    president   and  Dean  Coal  Mining  Co.,  L.  R,  10  Ch. 

secretary  of  the  company,   as  to  its  Div.  450;  Ackerman  r.  Halsey,  37  N. 

assets  and  condition,  which  induced  a  J.  Eq.  363;  Hun  r.  Cary,  82  N.  Y.  65; 

person  to  insure  in  the  company  when  In  re  Denham  &  Co.,   L.  R.,  2*>  Cii. 

the  company  was   utterly  insolvent,  Div.  752;  Watts'  Appeal,  78  Pa.  St. 

and  after  his  loss  he  could  recover  391.     Liability  of  directors  for   acts 

nothing  from  the  company,  were  held  ultra    nrt#    discussed,  and    decisions 

not  to  be  saved  from  personal  liability  showing  the  current  of  authority  in 

for  the  injury  by  reason  of  the  fact  England  on  the  subject  reviewed,  34 

that  they  were  acting  officially.  Solic.  J.  503. 

*  Joint-Stock  Discount  Co.  r.  Brown,  *  I,rwis  r.  St.  Albaus  Iron  &  Steel 

L.  R,  8Eq.  881;   Flitcroft's  Case,  L.  Works,  50  Vt.  477. 

R.,  21  Ch.  Div.  r»19;  Franklin  Ins.  Co.  *  Frost  Manufacturing  Co.  r.  1 

v.  Jenkins.  :{  Wend.  130.  (1880)  76  Iowa,  585;  a  c.,  41  N.  W. 

•Briggs  r.  Spauldiug,  141  U.  >.  !::••;  Kr|>.  '-'l^.     That  din-dors  arc   not  ru- 


348  PERSONAL  LIABILITY  OF  OFFICERS.  [§  223 

poration  are  guilty  of  gross  negligence  and  inattention  to  the 
duties  of  their  trust,  they  will  be  personally  liable  if  they  suffer 
the  corporate  funds  or  property  to  be  wasted  or  lost  by  reason  of 
such  negligence  and  inattention.1  The  care  and  diligence  required 
of  directors  in  the  discharge  of  their  duties  as  such,  must  be 
determined  in  each  case  in  view  of  all  the  circumstances.2  The 
directors  of  a  corporation  in  whom  its  constitution  reposes  an 
enlarged  discretion  in  the  management  of  its  business,  are  respon- 
sible to  its  stockholders  only  for  good  faith  and  reasonable  dili- 
gence ;  a  mere  error  of  judgment  on  their  part  in  compromising 
a  debt  due  to  the  corporation,  would  not  entitle  a  stockholder  to 
relief  Against  the  directors  in  equity.3  The  directors  of  a  manu- 
facturing corporation  have  no  authority  to  divert  the  corporate 
property  by  issuing  accommodation  paper,  or  otherwise  loaning 
its  money  or  credit  without  consideration.4  And  where  officers 
of  such  a  corporation  accept  accommodation  paper  in  the  name  of 
the  corporation,  they  will  be  held  personally  responsible  to  it  for 
payments  made  or  liabilities  incurred  in  consequence  of  such 
acceptance  on  their  part  in  its  behalf.5  A  board  of  directors,  in 
carrying  out  the  vote  of  the  required  majority  of  the  board,  direct- 
ing a  total  cessation  of  the  business  of  the  corporation  and  a 
liquidation  of  its  affairs,  would  be  acting  within  the  sphere  of  its 
lawful  authority  and  would  not  be  held  liable  for  any  loss  occur- 
ring to  the  minority  from  the  step  they  had  taken  in  carrying  out 

lieved  from  liability  by  the  fact  that  *  Horn  Silver  Mining  Co.  v.  Ryan, 

they  act  gratuitously  in  that  capacity,  (1889)42  Minn.   196;    8.  c.,  44  N.  W. 

see   Donaldson  v.  Haldane,  7   Cl.   &  Rep.  56. 

Fin.  771;  Thome®.  Deas,  4  Johns.  84,  3  Smith  v.   Prattville  Manufg.  Co., 

96,  97;  Charitable  Corporation  v.  Sut-  (1857)    29    Ala.    503;   citing  Angell  & 

ton,  2  Atk.  405;  Litchfield  v.  White,  3  Ames  on  Corp.  §§  312-314;  Robinson 

Sandf.  551;    Spering's  Appeal,  71  Pa.  ®.  Smith,  3  Paige,  222;  Forbes  rs.  Whit- 

St.  11,  21;  Giblin  v.  McMullen,  L.  R.,  2  lock,  3Edw.  Ch.  446;   Bushwick,  etc., 

Privy   Council    Cas.    318,  337;    First  Turnpike  Co.  v.  Ebbetts,  3  Edw.  Ch. 

Nat.  Bank  v.  Ocean  Bank,  60  N.  Y.  353;   Van  Cortlandt  v.  Underbill,  17 

295;  Grill  v.  8.  C.  Co.,  L.  R.,  1  C.  P.  Johns.   405;    Dodge   v.   Woolsey,   18 

612;  Beal  v.   R.   R.  Co.,  3  Hurlst.   &  How.  331;    Godbold  v.  Branch  Bank 

Colt.  341;  Nolton  v.  R.  R.  Co.,  15  N.  at  Mobile,  11  Ala.  191;  Mozley  v.  Als- 

Y.  444;  Wilson  v.  Brett,  11  Mees.  &  W.  ton.  1  Phil.  Ch.  790;    Ware  t.  Grand 

113,  115.  Junction  Water  Works  Co.,  2  Russ.  & 

1  Horn   Silver  Mining  Co.  v.  Ryan,  Myl.  470. 

(1889)  42  Minn.  196;  s.    c.,  44  N.  W.  4  Hutchinson  v.  Sutton  Manufactur- 

Rep.  56.  See,  also,  Briakerhoff  v.  Bost-  ing  Co.,  (1893)  57  Fed.  Rep.  998. 

wick,  88  N.  Y.  52.  >  Ibid. 


§  223]  PERSONAL  LIABILITY  OF  OFFICERS.  349 

the  vote  of  the  majority.1  An  action  against  directors  of  a  cor- 
poration for  misfeasance  or  culpable  negligence  in  the  discharge 
of  their  official  duty,  may  be  in  form  legal  or  equitable  according 
to  the  circumstances  of  the  particular  case.  The  proper  plaintiff 
in  such  a  case  is  the  corporation.8  The  complaint  in  such  a 
case  need  not  negative  knowledge  of,  or  acquiescence  on  the  part 
of  the  stockholders  in  the  negligence  or  misconduct  of  the  direct- 
ors.8 Where  directors  waste  or  misappropriate  the  funds,  or 
convert  assets  of  the  corporation  in  violation  of  their  trust,  or  lose 
them  in  speculations,  a  recovery  at  law  may  be  had  against  the 
defaulting  directors,  while  a  suit  in  equity  might  also  be  main- 
tained for  an  accounting,  at  the  election  of  the  corporation.4 
The  directors  of  a  corporation  which  has  purchased  the  fran- 
chises and  property  of  another  corporation  under  an  agreement 
that  its  debts  would  be  paid,  misapplying  the  assets  of  the  latter, 
and  leaving  its  debts  unpaid,  will  be  held  individually  responsible 
to  the  creditors  of  that  corporation  to  the  extent  of  the  assets 
received  and  misapplied.5  Directors  of  a  life  insurance  company 
who  had  transferred  its  entire  stock  and  assets  to  another  in  which 
its  policyholders  reinsured  their  risks,  which  transaction  resulted 
in  great  loss  to  policyholders  and  creditors  of  the  company,  have 
been  held  liable  to  the  receiver  of  the  company  to  the  full  extent 
of  the  damage  caused  by  such  misapplication  and  waste  of  the 
company's  funds.  And  the  fact  that  these  directors  carried  out 

1  Trisconl  v.  Winship,  (1890)  48  La.  8  Ibid.     See    Rolseth   t>.   Smith.  88 

Ann.   45;    8.  C.,   0  So.   Rep.   29.     In  Minn.  14;  8.  c.,  35  N.  W.  Rep.  565. 

Baily,    Receiver,  ».  Burgess,  (1891)  48  *  Franklin  Fire  Ins.  Co.  v.  Jenkins, 

N.  J.  Eq.  411;  8.  c.,  22  Atl.  Rep.  733,  3  Wend.    130;    Robinson  v.  Smith,  8 

a  director  of  a  corporation  who  was  Puige,  222. 

appointed  as  agent  to  secure  a  plant  '  National    Bank    of     Jefferson    r. 

of  another  corporation  for  its  use,  and  Texas  Investment  Co.  (Lim.),  (1889)  74 

to  remove  incumbrances  from  it.  and  Tex.  421;  s.  c.,  12  S.  W.  Rep.  101.    In 

furnished  a  sum  of  money  for  the  pur-  Holt  v.  Bennett,  (1888)  146  Mass.  437; 

pose,  was  held  to  account  to  the  re-  8.  c.,  16  N.  E.  R<>p.  5,  it  was  hold  that 

ceiver   of   the    corporation    for    the  payments  made  by  a  corporation  in- 

amount  not  expended  by  him  as  well  tending  in  good  faith  to  go  on  and 

as  interest  on  various  sums  of  money  develop  valuable  patents  owned  by  it, 

which  he  could  have  applied  to  the  re-  to  its  directors  of  money  borrowed 

moval  of  incumbrances  upon  the  prop-  from  them  in  the  ordinary  course  of 

erty,  but  negligently  delayed  doing  so  business,  were  not  recoverable  from 

wi tli  the  funds  in  his  hands.  Buch  directors  by  a  creditor  of  the 

1  Horn  Silver  Alining  Co.  t.  Ryan,  corporation  whose  debt  at  the  time 

(1889)  42  Minn.  196;   a.  c.,  44  N.  W.  was  not  due  and  payable. 
Rep.  56 


350  PERSONAL  LIABILITY  OF  OFFICERS.  [§  224 

the  transactions  under  the  advice  of  able  and  experienced  counsel 
was  held  not  to  relieve  them  from  their  liability ;  nor  did  the 
action  of  the  policyholders  in  reinsuring  their  risks  in  the  other 
company  to  which  the  assets  were  transferred,  and  receiving,  by 
order  of  court,  dividends  upon  their  policies  from  the  assets  of 
this  company,  amount  to  a  ratification  of  the  illegal  transactions 
of  the  directors  so  as  to  preclude  them  or  a  receiver  of  the  com- 
pany from  maintaining  an  action  against  the  directors  for  their 
misconduct  in  the  matter.1 

§  224.  Liability  of  other  officers  —  general  rules. —  The 
officers  of  a  corporation  are  not  liable  personally,  at  common  law, 
on  a  promissory  note  of  the  corporation,  made  by  them  as  such 
officers,  in  which  the  promise  to  pay  is  made  by  the  corporation, 
and  not  by  the  officers  personally.2  If  any  personal  liability 
exists  against  officers  of  a  corporation  who  have  executed  a  note 
binding  the  corporation  by  its  terms,  and  not  themselves  person- 
ally, and  the  contract  is  made  without  authority,  and  the  corpo- 
ration cannot  be  holden  responsible  on  the  contract,  the  liability 
results  from  the  wrong  done  by  the  officers  in  undertaking  to  act 
without  authority.3  When  a  corporation  has  in  fact  no  authority 
to  contract  debts,  a  contract  of  a  debt  upon  its  supposed  credit  by 
its  officers  would  impose  a  personal  liability  upon  them.4  One,  a 
director,  vice-president  and  general  foreman  of  a  corporation,  who 
signed  the  name  of  the  corporation  to  an  agreement  to  contribute 
to  the  expenses  of  a  suit  at  law,  without  informing  the  other  par- 
ties of  his  want  of  authority  to  do  so,  thus  giving  them  to  under- 
stand that  the  corporation  was  interested,  was  held  by  the  Michi- 
gan Supreme  Court  liable  to  contribute  the  share  of  the  expenses 
otherwise  chargeable  to  the  corporation.5  The  president  of  a  cor- 

1  Pierson  v.  Cronk,  (Sup.  Ct.  N.  Y.  cent  v.  Chapman,  10  G.  &  J.  (Md.)  282, 

Spl.  Term,  1890)  26  Abb.  N.  C.  25;  the  Maryland  Court  of  Appeals  held 

s.  c.,  13  N.  Y.  Supp.  845.  that  there  could  be  imposed  no  per- 

*  Hall  v.  Crandall,  (1866)  29Cal.  567.  sonal  responsibility  upon  the  members 

See,  also,  Blanchard  v.  Kaull,  (1872)  of  the  vestry  of  a  church  by  proceed- 

44  Cal.  440;  Lander  v.  Castro,  43  Cal.  ings  as'vestrymen  pledging  the  corpo- 

497.  rate  funds  to  persons  who  might  per- 

3  Hall  v.  Crandall,  (1866)  29  Cal.  567.  form  work  for  it,   which  the  vestry 

4  Drake  «.  Flewellen,  33  Ala.  106;  then  thought  adequate,  if  the  funds 
Harwood  v.  Humes,  9  Ala.  659.  should  prove  to  be  merely  nominal  and 

5  Solomon  v.  Penoyar,  (1891)  89  Mich,  inadequate;  further,  that  their  subse- 
11;  s.  c.,  50  N.  W.  Rep.  644.     In  Vin-  quently  manifesting  an  impression  that 


PERSONAL  LIABILITY  OF  OFFICERS.  351 

imiy   be    held   individually  liable  on  an  implied   war- 
ranty of   his   authority  where  he  executes  a  written   guaranty 
in  the  name  of  the  corporation   without  authority.1     The  presi- 
dent of  a  corporation  would  not  make  himself  personally  liable 
to  •  stockholder  by  a  promise  upon  his  transferring  the  stock  he 
owned  to  him,  that  when  the  corporation  was  wound  up  the  stock- 
holder should  receive  the  proportion  of  the  proceeds  to  which  he 
would  be  entitled.2     An  officer  of  a  corporation,  in  an  action 
against  him  to  recover  moneys  wrongfully  retained  by  him  belong- 
ing to  the  corporation,  cannot  defend  on  the  ground  that  the 
receipt  of  such  moneys  by  the  corporation  was  for  work  or  busi- 
ness illegal  or  ultra  vires  the  powers  of  the  corporation,  or  that 
its  charter  was  fraudulently  obtained  and  the  election  of  its  offi- 
cers illegal.8     The  president  of  a  bank  has  been  held  chargeable 
with  constructive  notice  of  the  management  of  its  affairs  by  the 
cashier  and  other  subordinate  officers ;  and  where  the  bank  was 
doing  business  without  legal  organization  he  could  not  escape  the 
responsibility  resulting  from  such  notice  by  showing  that  he  sup- 
posed himself  the  president  of  a  legally  constituted  bank,  if  he 
had  contributed  the  influence  of  his  reputation  to  give  undeserved 
credit  to  a  spurious  corporation.4     The  liability  of  an  ostensible 
president  of  a  spurious  bank,  in  a  depositor's  suit  for  damages,  is 
direct  and  original,  and  he  will  be  held  responsible  in  damages 
to  the  same  extent  as  the  bank,  if  legally  constituted,  would  have 
been  liable.5     In  a  Wisconsin  case,  seeking  to  charge  certain  offi- 
cers of  a  corporation  individually  for  negligence  in  the  conduct 
of  its  affairs,  it  appeared   that  these  officers,  president,  secretary 
and  treasurer,  who  had  been  intrusted  with  the  management  by 
the  directors,  who  held  no  meetings  and  gave  no  attention  to  their 
duties,  had  conducted  the  affairs  of  the  corporation  in  good  faith, 
though  negligently  and  in  the  exercise  of  powers  belonging  solely 
to  the  board  of  directors.     The  Supreme  Court  held  that  these 
officers  could  not  be  charged  as  ex  officio  members  of  the  board 

they  had  assumed  a  personal  responsi-  *  Thompson  c.  Stanley,  (1893)  20  N. 

bility,  without  an   act  to  fix  the  lia-  V.  Supp.  317. 

bility,   could  not  vary  the  interprets  *  Haarkr     r.    Knights    of    Liberty 

tion  of  the  instrument  nor  entitle  the  Social  &  Literary  Club,  (1893),  76  Md. 

pledgers  to  a  recovery  upon  a  claim  439;  H.  c.,  25  Atl.  Rep.  422. 

not  otherwise  well  founded.  4  Ilauser  «.  Tate.  (1881)  85  N.  C.  81. 

1  Nelligan    t.   Campbell.    (1893)  65  •  Ibid. 
Hun.  622;  R.  c.,  20  N.  Y.  Supp.  284. 


352  PERSONAL  LIABILITY  OF  OFFICERS.  [§  224 

of  directors,  and  that  neither  of  them  was  liable  for  the  negli- 
gence or  unauthorized  acts  of  the  others  in  which  he  did  not  par- 
ticipate.1 The  court  also  ruled  upon  some  questions  of  evidence 
in  such  a  case  as  follows  :  That  mere  proof  of  failure  to  collect 
certain  moneys  due  to  the  corporation  was  not  proof  that  such 
moneys  were  lost ;  also,  that  in  respect  to  losses  alleged  to  have 
been  sustained  because  of  insufficient  payments  to  the  corporation 
on  certain  accounts,  a  report  of  the  secretary  was  not  competent 
evidence  against  the  president  and  treasurer  to  charge  them  with 
such  losses  or  to  show  that  no  more  was  paid  to  him  than  he 
reported.2  A  corporation  obligating  itself  to  aid  another  in  its 
enterprise,  and  placing  funds  in  the  hands  of  its  treasurer  for  the 
purpose  of  meeting  the  obligation,  cannot  hold  him  liable  for  the 
funds  where  he  has  expended  them  in  the  interest  of  the  other 
corporation  and  this  expenditure  has  been  assented  to  by  resolu- 
tion of  the  corporation's  board  of  directors  entered  in  the  records 

1  North  Hudson  Mutual  Building  croft's  Case,  L.  R.,  21  Ch.  Div.  519; 
&  Loan  Association  v.  Childs,  (1892)  Franklin  Ins.  Co.  v.  Jenkins,  3  Wend. 
82  Wis.  460;  s.  c.,  52  N.  W.  Rep.  600.  130.  *  *  *  This  is  the  rule  where 
The  Wisconsin  Supreme  Court  de-  the  disposition  made  of  money  or 
clared  the  rules  as  to  liability  of  property  of  the  corporation  is  one 
officers  in  these  words:  "  The  liability  either  not  within  the  lawful  power  of 
of  officers  to  the  corporation  for  dam-  the  corporation,  or,  if  within  the  power 
ages  caused  by  neglect  or  unauthor-  of  the  corporation,  is  not  within  the 
ized  acts  rests  upon  the  common-law  power  or  authority  of  the  particular 
rule,  which  renders  every  agent  liable  officer  or  officers.  Where  the  ground  of 
who  violates  his  authority,  or  neglects  liability  is  for  nonfeasance,  negligence 
his  duty  to  the  damage  of  his  princi-  or  mis  judgment  in  respect  to  matters 
pal.  It  seems  to  be  now  universally  within  the  scope  of  the  proper  powers 
agreed  that,  no  matter  whether  the  act  of  the  officer,  he  will  be  held  responsi- 
is  prohibited  by  the  charter  or  by-laws,  ble  only  for  a  failure  to  bring  to  the  dis- 
the  liability  is  on  the  ground  of  viola-  charge  of  his  duties  such  degree  of 
tion  of  authority  or  neglect  of  duty,  attention,  care,  skill  and  judgment  as 
Thomp.  Liab.  Off.  Corp.  357;  Briggs  are  ordinarily  used  and  practiced  in 
v.  Spaulding,  141  U.  S.  146.  There  the  discharge  of  such  duties  or  em- 
can  be  no  doubt  that  if  the  directors  ployments;  the  degree  of  care,  skill 
or  officers  of  a  company  do  acts  clearly  and  judgment  depending  upon  the 
beyond  their  power,  whereby  loss  subject  to  which  it  is  to  be  applied, 
ensues  to  the  company,  or  dispose  of  the  particular  circumstances  of  the 
its  property  or  pay  away  its  money  case  and  the  usages  of  business." 
without  authority,  they  will  be  re-  8  North  Hudson  Mutual  Building 
quired  to  make  good  the  loss  out  of  &  Loan  Association  v.  Childs,  (1892) 
their  private  estates.  Thomp.  Liab.  82  Wis.  460;  8.  c.,  52  N.  W.  Rep. 
Off.  Corp.  375;  Joint-Stock  Discount  600. 
Co.  v.  Brown,  L.  R.,  8  Eq.  381;  Flit- 


§  224]  PERSONAL  LIABILITY  OF  OFFICERS. 

of  the  corporation.1  The  treasurer  of  a  railroad  corporation  gave 
a  bond  to  the  corporation,  conditioned  that  he  should  "  faithfully 
discharge  the  duties  of  the  office,  and  well  and  correctly  behave 
therein."  The  Supreme  Court  of  North  Carolina  held;  in  an 
action  against  him  and  his  sureties  on  this  bond,  that  the  bond 
did  not  bind  him  to  keep  the  money  of  the  corporation  safely 
against  all  hazards  ;  that  it  only  bound  him  to  an  honest,  diligent 
and  competently  skillful  effort  to  keep  the  money.  The  treas- 
urer having  deposited  the  money  of  the  corporation  to  his  credit 
as  treasurer  in  a  banking  house,  at  the  time  in  good  standing  and 
credit,  and  considered  by  the  community  a  safe  place  of  deposit 
for  money,  the  treasurer  and  his  sureties  were  held  not  to  be  lia- 
ble for  its  loss  by  the  sudden  and  unexpected  failure  of  the  bank- 
ing house.2  An  action  of  contract  by  the  corporation  against  a 
person  to  whom  the  treasurer  of  the  corporation  has,  without 
authority,  loaned  to  that  person,  thus  misappropriating  its  funds, 
will  not  be  held  such  a  ratification  of  the  treasurer's  act  as  will 
relieve  him  from  liability  to  the  corporation.8  It  appeared  also 
in  this  case  that  in  the  action  brought  against  the  borrower  of  its 
funds  from  its  treasurer  the  corporation  attached  personal  prop- 
erty of  the  borrower,  a  manufacturing  corporation,  of  an  uncer- 
tain value ;  that  a  mortgagee  duly  notified  the  officer  that  he 
claimed  the  attached  property  under  a  mortgage ;  that  a  receiver 
of  the  corporation  appointed  in  New  Jersey,  where  it  was  incor- 
porated, offered  to  pay  the  plaintiff,  in  settlement  of  the  suit, 
almost  fifty  per  cent  of  its  claim  ;  that  the  plaintiff  notified  its 
treasurer  and  the  sureties  on  the  treasurer's  bond  of  this  offer,  and 
offered  to  permit  him,  upon  paying  the  amount  due  the  plaintiff, 
to  assume  the  control  of  the  suit,  and  to  assign  to  him  its  cause 
of  action.  The  treasurer  declined  this  proposition  and  the  plain- 
tiff made  a  compromise  with  the  borrower  of  its  funds  through 

1  Bay  View  Homestead  Assn.  t.  *  Goodyear  Dental  Vulcanite  Co.  «. 

Williams,  (1875)  50  Cal.  353.  Caduc,  (1887)  144  Mass.  85;  s.  c.f  10 

•Atlantic  &  North  Carolina  R.  R.  N.  E.  Rep.  483.  The  court  said:  "T« 

Co.  c.  Cowles,  (1878)  69  N.  C.  59.  That  hold  that  bringing  a  suit  under  such 

the  rule  does  not  apply  to  public  offl-  circumstances  not  only  ratifies  the 

cers  or  officers  of  public  corporations,  loan,  so  far  as  the  borrower  is  con- 

the  same  court  has  held  in  Comrs.,  etc.,  cerned,  but  condones  the  offense  of 

v.  Clarke,  73  N.  C.  255;  Havens  c.  the  agent  and  relieves  him  from  all  lia- 

Lathene,  75  N.  C.  505.  bility,  would  be  carrying  the  doctrine 
45 


354  PERSONAL  LIABILITY  OF  OFFICERS.  [§ 

the  receiver,  and  gave  a  release  reserving  to  itself  its  rights  against 
the  treasurer.  The  court  held  that  this  compromise,  under  the 
facts  stated,  did  not  release  the  treasurer  from  his  liability  to  the 
corporation  for  misappropriation  of  its  funds.1 

§  225.  Rules  as  to  liability  of  officers  for  diversion  of 
property  of  corporation. —  The  New  Jersey  Court  of  Errors 
and  Appeals  has  declared  the  following  rules  as  to  the  liability  of 
directors  who  have  diverted  the  property  of  the  corporation,  and 
the  principles  upon  which  they  are  founded.  Referring  first  to 
the  change  of  legislation  in  that  state  repealing  the  "  act  to  pre- 
vent frauds  by  incorporated  companies,"  MAGIE,  J.,  said  :  "  But 
in  my  judgment  the  change  in  legislation  has  not  deprived  cred- 
itors of  incorporated  companies  of  all  rights  in  respect  to  the 
property  out  of  which  their  debts  must  be  paid,  if  at  all.  As 
between  creditors  and  stockholders,  the  corporate  property  has 
always  been  held  to  be  a  fund  for  the  payment  of  debts,  to  which 
creditors  have  a  right  in  preference  to  stockholders.  2  Story's 
Eq.  Juris.  §  1252.  So  the  assets  of  a  corporation  cannot  be 
divided  among  its  stockholders,  nor  diverted  to  uses  not  contem- 
plated by  its  charter,  for  the  benefit  of  stockholders  to  the  detri- 
ment of  creditors.  Nat.  Trust  Co.  v.  Miller,  6  Stew.  Eq.  155  ; 
Guild  v.  Parker,  14  Yr.  430.  Nor  can  directors,  by  fictitious 
credits,  or  by  accepting  overvalued  property  in  payment  for 
stock  subscriptions,  deprive  creditors  of  the  fund  out  of  which 
their  debts  should  be  paid.  Wetherbee  v.  Baker,  8  Stew.  Eq. 
501.  These  doctrines  do  not  at  all  depend,  as  I  conceive,  on  the 
existence  of  a  corporation  bankrupt  law,  or  other  like  legislation, 
nor  on  the  prohibitions  of  the  statutes  respecting  transactions  in 
fraud  of  creditors,  but  rather  on  principles  inherent  in  the  nature 
of  corporations  as  to  artificial  persons  whose  creditors  can  only 
enforce  their  debts  by  a  resort  to  the  property  the  corporation 
has  acquired.  So,  upon  like  principles,  I  apprehend  that  the 
property  of  an  incorporated  company  is  devoted  to  the  payment 

of   implied    ratification  to  an    unrea-  where  the  corporation  has  not  qualified 

sonable  and  unjust  extent."  itself  to  do  business  in  that  state  upon 

1  Goodyear  Dental  Vulcanite  Co.  v.  contracts  made  on  behalf  of  that  cor- 

Caduc,  (1887)  144  Mass.  85;  s.  c.,  10  poration,     see     Lasher     T.     Stimson. 

N.  E.  Rep.  483.     As   to  the  personal  (1892)  145  Pa.  St.  30;    s.  c.,   23  All. 

liability  of  an    agent    representing  a  Rep.  552;  29  W.  N.  C.  (Pa.)  404. 
foreign  corporation  in  Pennsylvania, 


§  I'liy]  PERSONAL  LIABILITY  OF  OFFICERS.  355 

of  the  creditors  thereof,  at  least  to  this  extent,  that  it  may  not  bo 
diverted  to  other  purposes.  The  corporation  and  its  officers  owe 
to  their  creditors  this  duty,  not  to  divert  the  corporate  property 
from  tin;  general  purpose  of  paying  the  creditors.  While  they 
may  dispose  of  the  corporate  property,  and  even  prefer  one  cred- 
itor to  another,  they  may  neither  give  away  the  corporate  prop- 
erty by  a  direct  gift,  nor  by  sale  at  less  than  its  full  and  fair  value, 
to  the  detriment  of  creditors.  A  violation  of  this  duty  will 
entitle  the  creditors  who  suffer  thereby  to  relief.  If  the  diversion 
of  the  corporate  property  from  the  payment  of  debts  is  effected 
by  a  mere  gift,  it  is  not  necessary  to  discuss  what  relief  could  be 
afforded  to  creditors.  If  the  diversion  is  effected  under  the  guise 
of  a  sale,  and  the  sale  is  not  objectionable,  as  being  made  with 
intent  to  defraud  creditors,  then  it  is  plain  that  relief  cannot  be 
afforded  to  creditors  by  setting  aside  the  sale,  for  that,  as  we  have 
seen,  is  not  now  prohibited.  But,  in  such  a  case,  it  is  equally 
plain  that  the  directors  who  have  effected  such  a  diversion  of 
corporate  property  from  the  payment  of  debts,  have  violated  a 
duty,  and  will  be  personally  liable  to  make  up  to  creditors  what 
Las,  by  their  acts,  been  thus  diverted.  "When  such  diversion  is 
charged  to  have  been  produced  by  a  sale  of  corporate  property 
to  a  stranger,  the  complaining  creditors  could  obtain  relief  only 
by  clear  proof  that  by  the  fault  of  the  directors,  and  in  violation 
of  their  duty,  the  sale  was  made  for  less  than  the  full  and  fair 
value  of  the  property.  But  when  directors  make  sale  of  corpo- 
rate property  to  one  of  their  number,  who  takes  part  in  the  trans- 
action, as  both  buyer  and  seller,  and  creditors  are  thereby  deprived 
of  the  opportunity  to  enforce  their  debts,  then  it  results  from  the 
relation  ai>ove  mentioned  as  existing  between  them  and  the  cred- 
itors ;  that  it  devolves  on  the  directors  to  show  that  the  transac- 
tion was  made  in  good  faith,  and  that  the  sale  produced  the  full 
value  of  the  property.  If  they  fail  to  show  these  facts,  creditors 
are  entitled  to  compel  them  to  account  for  the  full  value  of  the 
property.  The  fact  that  by  reason  of  the  sale  it  has  been  ren- 
dered difficult  to  determine  the  real  value  of  the  property  sold, 
will  not  alter  the  measure  of  the  directors'  liability.  If  there  is  a 
conflict  of  evidence  respecting  value,  the  fact  that  by  the  act  of 
one  of  the  parties,  the  determination  of  the  question  has  been  ren- 
dered difficult  or  impossible,  may  be  considered,  but  it  cannot 
enlarge  the  liability  of  the  directors,  which  is  only  for  so  much 


356  PERSONAL  LIABILITY  OF  OFFICERS.  [§  225 

as  has  been  lost  to  the  creditors  by  their  misconduct.1  In  an 
action  by  a  receiver  of  an  insolvent  Illinois  corporation  against  its 
directors  to  recover  misappropriated  moneys*  of  the  corporation, 
the  Supreme  Court  of  that  state  has  held  that  if  the  directors  of 
an  incorporated  company  apply  the  funds  of  the  corporation  to 
the  discharge  of  their  own  indebtedness,  or  wrongfully  pay  an  out- 
going president  a  salary  for  past  services  not  agreed  to  be  paid 
until  after  their  performance,  they  will  be  liable  to  the  creditors 
of  the  company  for  the  amount  of  the  funds  thus  misapplied.  It 
was  also  held  that  where  a  president  of  an  incorporated  company 
performs  services  as  such,  without  any  by-law  or  resolution  pro- 
viding compensation  for  his  services,  and  afterwards  accepts  a 
salary  voted  to  him  for  past  services,  he  will  be  liable  to  refund 
the  same  in  favor  of  creditors  of  the  company.2  The  court  fur- 
ther held,  in  this  case,  that  the  Statute  of  Limitations  was  no  bar 
to  a  recovery,  by  the  receiver  of  the  insolvent  corporation,  from 
the  directors,  of  the  sums  of  money  misappropriated  by  them.8 

1  Wilkinson  v.  Bauerle,  (1886)  41  N.  ington  &  Mississippi  Ry.  Co.,  tfl  111. 
J.  Eq.  635,  645,  646,  in  which  the  106;  Gridley  v.  La  Fayette,  Blooming- 
principles  of  the  text  were  applied  to  ton  &  Mississippi  Ry.  Co.,  71  111.  200; 
the  case  before  the  court.  See,  also,  Illinois  Linen  Co.  t.  Hough,  91  111.  63. 
on  this  subject,  Dodd  v.  Wilkinson,  The  rule  is  analogous  to  that  govern- 
(1886)  41  N.  J.  Eq.  566.  ing  trustees  generally,  who,  at  com- 

*  Ellis®.   Ward,  (1890)  137  111.  509.  mon  law,  were  not  entitled  to  compen- 

The  court  said,  upon  this  last  point:  sation.  except  as  there  was   warrant 

"The  doctrine  is  well  settled  in  this  therefor  in  the  contract  or  statute  un- 

court  that  the  law  will  not  imply  a  der  which  they  acted. " 
promise,  on  the  part  of  a  private  cor-       3  Ellis  v.  Ward,  (1890)  137  111.  509. 

poration,   to  pay  its  officers  for  the  In  this  connection,  it  was  said:  "  It  is 

performance    of    their    usual    duties,  a  principle  of  general  application,  and 

In  order  that  such  officers  may  legally  recognized    by  this    court,    that    the 

demand  and  recover  for  such  services,  assets  of  a  corporation  are,  in  equity, 

or  the  corporation  legally  make  all  a  trust  fund  (St.  Louis  &  Sandoval 

awards    and    payment    therefor,     it  Coal  &  Mining  Co.  v.  Sandoval  Coal  & 

must  appear  that  a  by-law  or  resolu-  Mining  Co.,  116  111.  170),  and  that  the 

tion  has  been  adopted,  authorizing  and  directors  of  a  corporation  are  trustees, 

fixing  such  allowance  before  the  serv-  and  have  no  power  or  right  to  use  or 

ices  were  rendered.      American  Cen-  appropriate  the  funds  of  the  corpora- 

tral  Ry.  Co.  v.  Miles,  52  111.  174;  Mer-  tion,  their  cestui  que  trust,   to  them- 

rick  v.  Peru     Coal.  Co.,  61  111.  472;  selves,    or    to    waste,    destroy,    give 

Rockford,  Rock  Island   &  St.    Louis  away,  or  misapply  them.     Holder  v. 

Railroad  Co.   v.    Sage,    65    111.    328;  La  Fayette,  Bloomington  &  Mississippi 

Cheeney  v.  La  Fayette,  Bloomington  Ry.  Co.,  71  111.   106;    Cheeney  r.   La 

&  Mississippi  Ry .  Co.,  68  111.  570;  87  Fayette,   Bloomington  &  Mississippi 

m.  446;  Holder  v.  La  Fayette,  Bloom-  Ry.  Co.,  68  111.  570;  1  Morawetz  oa 


ri  KSONAI.  LIAIJILITY  OF  OFFICERS.  357 

§  226.  Liability  of  officers  arising  from  manner  of  execution 
of  commercial  paper. —  In  a  case  befon:  the  Appellate  Court  of 
Illinois  the  notCKUf<l  <>M  wussuliscriluMl  by  the  defendants  with  the 
affix  t->  "la-  -ignature  "  Pres.,"  to  the  other  "  Sec.,"  and  below  the 
Mgnziturfs  k'  Suit-in  Coal  and  Mining  Co."  They  specially  pleaded 
that  the  note  was  the  note  of  the  coal  and  mining  company.  It 
was  held  by  the  court  that  the  fact  that  the  note  was  signed  by 
defendants  as  officers  of  a  corporation,  and  the  name  of  the  cor- 
poration attached,  <li<l  not  release  them  from  individual  liability, 
in  the  absence  of  evidence  that  they  were  officers,  and  that  the 
note  was  intended  as  the  note  of  the  corporation  only.1  In  a 
case  before  the  Minnesota  Supreme  Court,  the  note  given  to  the 
plaintiff  was  signed  by  the  defendant  with  the  affix  "  Pres."  to 
his  signature.  Its  defense  was  that  he  was  the  president  of  a 
certain  "  club,"  a  corporation  organized  under  the  laws  of  that 
state,  and  that  he  made  the  contract  for  articles  for  that  club  and 
gave  this  note  for  it.  The  Supreme  Court  held  that  where 
defendant  undertook  to  overcome  the  plaintiff sprima  facie  case 
by  testimony  tending  to  show  that  the  notes  were  executed  by 
him  in  behalf  and  as  the  act  of  a  corporation  of  which  he  was 

Private  Corpor.  §§  516,  517.  And  it  cable,  and  such  appears  to  be  the  re- 
is  equally  well  settled  that  no  lapse  of  lation  established  by  law  between 
time  is  a  bar  to  a  direct  or  express  directors  and  the  corporation.  2  Pom- 
trust  as  between  the  trustee  and  eroy's  Eq.  §  6;  Id.  §§  1088-1090, 1094. 
fixt'ii  quo  trutt.  Chicago  &  Eastern  And  see,  also,  as  respects  stockholders, 
Illinois  Railroad  Co.  r.  Hay,  119  111.  Hightower  «.  Thornton,  8  Ga.  486; 
493;  Wood  on  Limitation  of  Actions,  Payne  v.  Bullard,  23  Miss.  88;  Curry 
§  200,  and  cases  cited  in  note.  If  the  r.  Woodward,  53  Ala.  371." 
trust  assumed  by  the  directors  of  a  '  Williams  v.  Miami  Powder  Co., 
corporation  in  respect  of  the  corporate  (1890)  ,38  111.  App.  107.  The  court  said: 
property  under  their  control,  is  to  be  "  The  absence  of  all  evidence  on  these 
regarded  as  a  direct  trust,  as  contra-  questions  renders  it  necessary  to  con- 
distinguished  from  simply  an  implied  strue  these  notes  according  to  the  face 
trust,  then  it  is  apparent,  under  the  of  the  notes,  and  in  doing  so  the  rec- 
rule  announced,  the  statute  presents  ords  'Pres.' and  'Secy.'  are  to  be  re  - 
no  bar  to  this  proceeding  by  the  re-  gardcd  as  ilewriptiontg  persona  merely, 
ceiver  of  the  corporation.  Ordinarily,  They  must  be  held  according  to  their 
an  express  trust  is  created  by  a  deed  contract."  Citing  Hypes  t.  Griffin, 
or  will,  but  there  are  many  fiduciary  Admr.,  etc.,  89  111.  184;  Stobic  t>.  Dills, 
relations  established  by  law,  and  62  111.  482;  Bickford  r.  First  Nat.  Bank 
regulated  by  settled  legal  rules  and  of  Chicago,  42  111.  238;  Trustees  of 
principles,  where  all  the  elements  of  Schools  r.  Ilautcnbcrg,  88  111.  219; 
an  express  trust  exist,  and  to  which  Powers  r.  Briggs,  79  111.  493;  Scaulan 
the  same  legal  principles  arc  appli-  r.  Keith,  102  111.  634. 


358 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§226 


president,  and  for  its  debt,  and  that  this  was  well  known  and 
understood  by  the  payee  of  the  notes,  to  sustain  the  defense  he 
should  have  gone  further,  and  shown  that  not  only  the  debt  was 
one  which  the  corporation  had  the  power  to  incur,  but  that  the 
corporation  authorized  it  to  be  incurred.1 


8  Brunswick- Balke  Collcuder  Co.  v. 
Boutell,  (Ib90)  45  Minn.  21;  s.  c.,  47 
N.  W.  Rep.  261.  The  court  said:  "  It 
is  well  settled  in  this  court  tlmt  when 
such  a  word  as  'agent'  or  'trustee,' 
which  may  be  descriptive  of  the  per- 
son, or  may  be  descriptive  of  the  char- 
acter in  which  the  signer  contracts,  is 
affixed  to  the  name  of  the  party  enter- 
ing into  a  contract,  it  is  prima  facie 
descriptive  only,  and  that  it  may  be 
shown  by  extrinsic  evidence  that  the 
attached  word  was  understood  by  all 
interested  as  determining  the  character 
in  which  the  person  using  it  contracted. 
Pratt  «.  Beaupre,  13  Minn.  187,  189; 
Bingham  v.  Stewart,  14  Minn.  153,  214; 
Deeringfl.  Thorn,  29  Minn.  120;  s.  c., 
12  N.  W.  Rep.  350;  Peterson  v.  Ho- 
mau,  44  Minn.  166;  s.  c.,  46  N.  ,W. 
Rep.  303.  In  the  earlier  of  these  cases, 
where  the  words  '  Agents  Steamer 
Flora,'  had  been  affixed  to  the  defend- 
ants' signatures  to  a  shipping  contract, 
it  was  also  settled  that  where  a  party 
seeks  to  change  the  prima  facie  char- 
acter of  the  contract  on  the  ground  of 
agency,  it  is  incumbent  upon  him  to 
prove  the  fact  of  the  agency.  To  es- 
tablish that  he  acted  in  a  representa- 
tive capacity  he  must  first  show  the 
existence  of  the  capacity.  If  he  as- 
sumes to  act  as  an  agent  he  must  prove 
his  authority  to  do  so,  or  his  liability 
upon  the  contract  is  necessarily  of  a 
personal  character."  In  Fraukland  K. 
Johnson,  (1893)  147  111.  520,  an  action 
was  brought  upon  a  note  which  was 
in  these  words  :  "  On  or  before,  etc., 
the  Western  Seamen's  Friend  Society 
agrees  to  pay  or  order  the  sum  of 
*  *  *  with  interest,  etc.,  [signed] 
[defendant's  name]  general  superiu- 


Where  in  a  negotiable 


tendent,"  against  the  signer  individ- 
ually. The  Supreme  Court  of  Illinois 
said  of  this  writing  :  "  [It]  is  not  dis- 
tinctly the  note  of  [defendant].  A  per- 
sonal note  by  him,  in  proper  form, 
would  have  used  the  personal  pronoun 
'  I '  instead  of  the  name  of  the  corpo- 
ration, and  would  have  been  signed 
without  the  description  '  Gen.  Supt.' 
Neither  is  it  by  its  terms  the  note  of 
a  corporation.  As  such  it  should  have 
been  signed  with  the  name  of  the  cor- 
poration by  its  president,  secretary  or 
other  officers  authorized  to  execute  it, 
or,  as  in  Scaulan  v.  Keith,  102  111.  634, 
by  the  proper  officers  designating 
themselves  officers  of  the  corporation 
for  which  they  assumed  to  act,  or,  as 
in  Newmarket  Savings  Bank  v.  Gillet, 
100  111.  254,  using  the  corporate  name 
both  in  the  body  of  the  note  and  in  the 
signatures  to  it.  But  if  it  be  conceded 
that,  prima  facie,  a  general  superin- 
tendent of  a  corporation  has  authority 
to  make  promissory  notes  in  its  name, 
and  this  instrument  be  held  to  appear 
on  its  face  to  be  the  obligation  of  the 
society,  rather  than  of  [defendant], 
certainly  it  could  not  even  then  be  con- 
tended that  it  was  conclusively  so.  It 
is  well  understood  that  if  the  agent, 
either  of  a  corporation  or  an  individ- 
ual, makes  a  contract  which  he  has  no 
authority  to  make,  he  binds  himself 
personally  according  to  the  terms  of 
the  contract.  Angell  &  Ames  on  Corp. 
§  303.  It  was  said  by  SUTHER- 
LAND, J.,  in  Mott  v.  Hicks,  1  Cow.  513. 
s.  c.,  13  Am.  Dec.  556  :  '  It  is  perfectly 
well  settled  that  if  a  person  undertake 
to  contract,  as  agent,  for  an  individual 
or  corporation,  and  contracts  in  a  man- 
ner which  is  not  legally  binding  upon 


§226] 


PERSONAL  LIABILITY  OF  OFFI<  I  I:-. 


promissory  note,  given  for  the  debt  of  a  corporation,  the  language 
of  the  promise  does  not  disclose  the  corporate  obligation,  and  tin: 
signatures  to  it  arc  in  the  names  of  individuals  who  wen-  in  fact 
officers  of  the  corporation,  a  ///,/,,/  #//,  holder,  without  notice  of 
the  circumstances  of  its  making,  is  entitled  to  hold  it  as  the  per- 
sonal undertaking  of  its  Miners,  although  they  have  atlixed  to 
their  names  the  titles  of  their  respective  offices,  as  this  will  be 
regarded  as  descriptive  of  the  persons  and  not  of  the  character 
of  the  liability.1 


his  principal,  he  is  persourlly  respon- 
sible (citing  authorities).  And  the 
agent,  when  sued  upon  such  a  con- 
tract, can  exonerate  himself  from  per- 
sonal liability  only  by  showing  his 
authority  to  bind  those  for  whom  he 
has  undertaken  to  act.  It  is  not  for 
the  plaintilT  to  show  that  he  hud  not 
authority.  The  defendant  must  show 
atlirmativcly  that  he  had.'  This  rule 
is  quoted  with  approval  in  Wheeler  v. 
Reed,  36  111.  91."  They  then  consider- 
ing it  a  question  of  fact  which  had 
been  properly  referred  to  the  jury,  and 
the  latter,  upon  what  the  court  deemed 
the  strength  of  the  testimony,  having 
determined  adversely  to  the  defend- 
ant, held  their  conclusion  not  subject  to 
review.  As  to  such  notes  being  priinti 
facie  the  personal  notes  of  the  signers, 
sec  McNeil  r.  Shober  &  Carqueville 
Lithographing  Co.,  (1893)  144  III.  238; 
Sturdivant  r.  Hull,  59  Me.  172;  Tucker 
Manuf.  Co.  r.  Fairbanks,  98  Mass.  101; 
Savage  e.  Kix,  9  N.  H.  263;  Bank  r. 
Hooper,  5  Gray,  567;  Trustees  r. 
Rautcnberg,  88  111.  219;  Powers  t>. 
Briggs,  79  111.  493;  Stobie  r.  Dills,  62 
111  }:«;  FSske  r.  Eldridge.  12  Gray, 
474;  Seaver  r.  Coburn,  10  Cush.  324. 
As  to  the  admissibility  of  parol  evi- 
dence in  such  cases  to  show  whose  note 
it  was,  sec  La  Salle  National  Bank  r. 
Tnlu  Uock&RyeCo.,14  111.  App.  141; 
Mechanics' Bunk  r.  Bank  of  Columbia, 
5  Wheat.  326;  Baldwin  r.  Bank  of  New- 
bury.  1  Wall.  234;  Brockway  r.  Allen. 
17  Wend.  40;  Kt-au  r.  Davis,  21  N.  J.  L. 


688;  Haile  r.  Peirce,  :fc>  M<1.  :527;  Rich- 
mond R.  Co.  ».  Snead,  19  Gratt.  354; 
La/ariis  r  Shearer,  2  Ala.  718;  Owing* 
r.  Grubbs'  Adinr.,  6.1.  J.  .Marsh.  81; 
McClellan  r.  Reynolds,  49  Mo.  312; 
Hardy  r.  Pilchcr,  :>?  .Mi>s.  lis;  Hager 
r.  Rice,  4  Col.  90;  Magill  r.  Uinsdale, 
6  Conn.  464;  Mann  /•.  Chandler,  9  Mass. 
335;  Neill  r.  Spencer.  5  111.  App.  -IT:!; 
Western  Union  r.  Smith,  To  111.  496; 
Bowles  r.  Lambert,  54  111.  2:57;  Stookey 
T.  Hughes,  18  111.  55;  Scanlan  r.  Keith, 
102  111.  634. 

1  Casco  National  Bank  of  Portland  r. 
Clark,  (1893)  139  N.  Y.  307;  «.  c.,  34  N. 
E.  Rep.  908.  In  this  case  the  note  sued 
on,  given  for  the  debt  of  the  corpora- 
tion, was  written  on  a  blank  having 
printed  on  its  margin  the  name  of  the 
corporation.  No  reference  to  the  corpo- 
ration was  made  in  the  body  of  the  note, 
which  read :  ' '  We  promise  to  pay. "  It 
was  signed  by  the  president  of  the  cor- 
poration in  his  individual  name,  with 
"  Prest."  written  after,  and  in  the  same 
manner  by  its  treasurer,  with  "Treas." 
added  to  his  signature.  The  note  was 
discounted  by  the  bank  for  the  payee 
before  maturity.  The  New  York 
Court  of  Appeals  held  that  an  action 
against  the  signers  individually  was 
maintainable;  that  the  appearance  in 
print  upon  the  margin  of  the  name  of 
the  corporation  was  not  a  fact  carry- 
ing any  presumption  that  the  note  was, 
or  was  intended  to  be.  the  note  of  the 
company;  that  it  was  competent  for 
the  officers  to  obligate  themselves  per- 


380 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§227 


§  227.  Liability  of  officers  arising  from  indorsement  of 
commercial  paper. —  A  promissory  note  executed  by  a  corpora- 
tion, the  name  of  which  was  subscribed  to  the  note  and  those  of 
the  president  and  secretary  attached,  and  the  names  of  its  direct- 
ors indorsed  upon  the  back  of  it,  designating  themselves  as 


sonally,  and  apparently  they  did  so  by 
the  language  of  the  note.  The  court 
said:  "This  must  be  regarded  as  the 
long  and  well-settled  rule.  Byles  on 
Bills,  §§  36,  37,  71;  Pentz  v.  Stanton, 
10  Wend.  271;  Taft  ».  Brewster,  9 
Johns.  334;  Hills  v.  Bannister,  8  Cow. 
31;  Moss  v.  Livingston,  4  N.  Y.  308; 
De  "Witt  v.  Walton,  9  N.  Y.  571;  Bot- 
tomley  «.  Fisher,  1  Hurlst.  &  Colt.  211. 
It  is  founded  on  the  general  principle 
that  in  a  contract  every  material  thing 
must  be  definitely  expressed,  and  not 
left  to  conjecture.  Unless  the  lan- 
guage creates,  or  fairly  implies,  the 
undertaking  of  the  corporation,  if  its 
purpose  is  equivocal,  the  obligation  is 
that  of  its  apparent  makers.  It  was 
said  in  Briggs  v.  Partridge,  64  N.  Y. 
357,  363,  that  persons  taking  nego- 
tiable instruments  are  presumed  to 
take  them  on  the  credit  of  the  parties 
whose  names  appear  upon  them,  and 
a  person  not  a  party  cannot  be  charged 
upon  proof  that  the  ostensible  party 
signed  or  indorsed  as  his  agent.  It 
may  be  perfectly  true,  if  there  is  proof 
that  the  holder  of  negotiable  _paper 
was  aware,  when  he  received  it,  of  the 
facts  and  circumstances  connected 
with  its  making,  and  knew  that  it  was 
intended  and  delivered  as  a  corporate 
obligation  only,  that  the  persons  sign- 
ing it  in  this  manner  could  not  be  held 
individually  liable.  Such  knowledge 
might  be  imputable  from  the  language 
of  the  paper,  in  connection  with  other 
circumstances,  as  in  the  case  of  Mott 
•n.  Hicks,  1  Cow.  513,  where  the  note 
read,  'the  president  and  directors 
promise  to  pay,'  and  was  subscribed 
by  the  defendant  as  '  president.'  The 
court  held  that  that  was  sufficient  to 


distinguish  the  case  from  Taft  r. 
Brewster,  supra,  and  made  it  evident 
that  no  personal  engagement  was 
entered  into  or  intended.  Much  stress 
was  placed  in  that  case  upon  the  proof 
that  the  plaintiff  was  intimately  ac- 
quainted with  the  transaction  out  of 
which  arose  the  giving  of  the  corpo- 
rate obligation.  In  the  case  of  Bank 
of  Genesee  v.  Patchin  Bank,  19  N.  Y. 
312,  referred  to  by  the  appellant's 
counsel,  the  action  was  against  the  de- 
fendant to  hold  it  as  the  indorser  of  a 
bill  of  exchange,  drawn  to  the  order 
of  '8.  B.  Stokes,  Cas.,'  and  indorsed 
in  the  same  words.  The  plaintiff  bank 
was  advised,  at  the  time  of  discount- 
ing the  bill,  by  the  president  of  the 
Patchin  Bank,  that  Stokes  was  its 
cashier,  and  that  he  had  been  directed 
to  send  it  in  for  discount,  and  Stokes 
forwarded  it  in  an  official  way  to  the 
plaintiff.  It  was  held  that  the  Patchin 
Bank  was  liable,  because  the  agency 
of  the  cashier  in  the  matter  was  com- 
municated to  the  knowledge  of  the 
plaintiff  as  well  as  apparent.  Inci- 
dentally, it  was  said  that  the  same 
strictness  is  not  required  in  the  execu- 
tion of  commercial  paper  as  between 
banks;  that  is,  in  other  respects,  be- 
tween individuals.  In  the  absence  of 
competent  evidence  showing  or  charg- 
ing knowledge  in  the  holder  of  nego- 
tiable paper  as  to  the  character  of  the 
obligation,  the  established  rule  must 
be  regarded  to  be  that  it  is  the  agree- 
ment of  its  ostensible  maker  and  not 
of  some  other  party,  neither  disclosed 
by  the  language  nor  in  the  manner  of 
execution."  To  obviate  the  effect  of 
this  rule,  the  appellant  in  this  case 
proved  that  one,  a  director  of  the  cor- 


PERSONAL  LIABILITY   OJ    "I  1  •  l«  I  I>. 


361 


"board  of  director.-,"  was  the  cause  of  action  in  a  Kansas  case. 
The  lower  court  refused  any  evidence  as  to  tin-  eircum-tances 
uiiclrr  whieh  tin-  names  of  the  directors  were  indorsed  ujxm  the 
note,  and  thev  were  held  l>ound  as  guarantors  of  the  note  of  the 
••oi-|. oration.  The  Supreme  Court  held  that  as  between  the  origi- 


poration,  the  payee  company,  was  also 
a  director  in  the  plaintiff  bank  at  the 
time  whi-n  the  note  was  discounted, 
und  it  was  argued  that  the  knowledge 
chargeable  to  him  as  director  of  the 
former  company  was  imputablc  to  the 
I'laimilT.     To  this  argument  the  Court 
of  Appeals  said:  "But  that  fact  is  in- 
sufficient to  charge  the  plaintiff  with 
knowledge  of  tho  character  of  the  ob- 
ligation.    He  in  no  sense  represented 
or  acted  for  the  bank  in  the  transac- 
tion, and  whatever  his  knowledge  re- 
specting the  note,  it  will  not  be  imput- 
able  to  the  bank.     National  Bank  r. 
Norton.  1  Hill,  572,  579;  Mayor,  etc., 
tt  Tenth  National  Rink,  111  N.  Y.  446, 
457;  Farmers',  etc..  Bank  r.  Payne,  25 
Conn.   444.     He  was  but  one  of  the 
plaintiff's  directors,   who  could   only 
act  as  a  board.     National  Bank  r.  Nor- 
ton, supra.     If  he  knew  the  fact  that 
these  were  not  individual,  but  corpo- 
rate, notes,  we  cannot  presume  that  he 
communicated  that  knowledge  to  the 
hoard.     An    officer's    knowledge,   de- 
ived  as  an  individual,  and  not  while 
cting  officially  for  the  bank,  cannot 
Derate  to  the  prejudice  of  the  latter. 
Fink  of  U.  8.  v.  Davis,  2  Hill,  451. 
'In-  knowledge  with  which  the  bank 
n*  his    principal   would    be   deemed 
<  Una-able  so  as  to  affect  it  would  be 
wfere,  as  one  of  the  board  of  directors 
am  participating  in  the  discount  of 
thepapcr,  he  had  actetl  affirmatively. 
or  Juudulently,  with  respect  to  it,  as 
in  tc  case  of  Bank  r.  Davis,  m/mi, 
by  afraudulent  perversion  of  the  bills 
f nnii In •  object  for  which  drawn;  or 
aa  it  Holden  r.   New  York  &  Eric 
llank?2   N.  V.  286,  whore  tin-  presi- 
dent  f  the  bank,  who  represented  it 
46 


in  all  the  transactions,  was  engaged  in 
a  fraudulent  scheme  of  conversion. 
It  was  said  in  the  latter  case  that  the 
knowledge  of  the  president,  an  an  in- 
dividual or  as  an  executor,  was  not 
imputablc  to  the  bank  merely  because 
he  was  the  president,  but  because 
when  it  acted  through  him  as  pr«->i- 
dent,  in  any  transaction  where  that 
knowledge  was  material  and  applica- 
ble, it  acted  through  an  agent.  The 
rule  may  be  stated,  generally,  to  be 
that  where  a  director  or  an  officer  hat* 
knowledge  of  material  facts  respecting 
a  proposed  transaction,  which  his  re- 
lations to  it,  as  representing  the  bank, 
have  given  him,  then,  as  it  becomes 
his  official  duty  to  communicate  that 
knowledge  to  the  bank,  he  will  be  pre- 
sumed to  have  done  so,  and  his  knowl- 
edge will  then  be  imputed  to  the 
bank."  See,  also,  Merchants'  Na- 
tional Bank  of  Gardner  P.  Clark,  (1893) 
139  N.  Y.  314  (an  action  upon  similar 
notes  to  those  in  the  case  above,  made 
by  the  same  parties  defendant).  ID 
Bremen  Saving  Bank  ».  Branch - 
Crookes  Saw  Company,  (1891)  104  Mo. 
425,  the  defendant  corporation  was 
sued  on  a  note  purporting  to  bo  signed 
by  it  as  maker  and  one  B.  as  indorser. 
It  defended  in  its  answer  on  the  ground 
that  it  was  a  manufacturing  and  busi- 
ncss  corporation;  that  its  name  was 
used  by  B.,  the  then  president  of  tin- 
corporation,  for  his  own  accommoda- 
tion, and  for  the  purpose  of  satisfying 
his  prior  individual  debt;  that  the  note 
was  so  executed  without  any  consul  - 
oration  moving  to  the  defendant,  and 
that  the  plaintiff,  when  it  accepted  thr 
note,  had  knowledge  of  the  foregoing 
facts.  The  court  held  that  if  the 


362  PERSONAL  LIABILITY  OF  OFFICERS.  [£-^~ 

nal  parties  or  any  subsequent  holder  of  this  note  accepting  the 
same  as  collateral  with  full  notice  of  all  the  facts  and  circum- 
stances connected  with  the  execution  and  delivery  thereof, 
extrinsic  evidence  was  admissible  to  show  not  only  that  the 
president  and  secretary  executed  the  instrument  in  their  officia, 
capacity  as  officers  of  the  corporation,  but  also  that  the  directors 
signed  the  note  on  the  back  thereof  solely  as  officers  of  the  cor- 
poration and  to  bind  the  corporation  only.1  In  a  Georgia  case  the 
promissory  note  on  which  the  action  was  brought  was  signed  by 
one  as  "  ag't "  payable  to  another,  "  pres't,"  and  indorsed  by  the 
latter  "president  [name  of  corporation]."  The  action  was 
brought  by  the  indorsee,  a  bank,  against  the  indorser  individually 
and  the  corporation.  In  addition  to  the  statutory  form  of  such 
actions  in  that  state,  it  was  alleged  that  the  maker  was  the  agent 
and  the  indorser  the  president  of  the  corporation,  and  that  the 
money  borrowed  from  the  bank,  and  for  which  the  note  was 
given,  was  received  and  used  by  the  corporation,  and  it  under- 
took and  promised  to  pay  the  bank.  The  effect  of  the  statute  of 
Georgia,  that  "where  the  agency  is  known,  and  this  credit  is 

plaintiff  was  induced  by  defendant's  of  which  the  note  was   payable,  as- 

couduct  under  the  circumstances  to  sured  these  directors  that  the  only  way 

believe  in  good  faith  that  the  defend-  to  make  a  corporation  note  was  for  the 

ant    had    assumed  to   pay  the  debt,  officers  and  directors  of  the  corpora- 

though  it  did  not  in  fact  assume  to  tion  to  sign  their  names  and  affix  their 

pay  it,  defendant  was  liable.     Citing  official  positions  thereto,  and  that  the 

Deere  v.  Marsden,  88  Mo.  512;  Craw-  note  was  thus  signed  under  his  direc 

ford  ».  Spencer,  92  Mo.  498;  Fitzger-  tion  to  bind  the  corporation,  but  no 

aid  v.  Barker,  96  Mo.  661;  Mechanics'  the  officers  individually.     The  coui 

Banking  Assn.  v.  N.  Y.,  etc. ,  White  said:    "  If  the  parties  who  wrote  ther 

Lead  Co.,  35  N.  Y.  505;  National  Park  names  upon  the  back  of  the  note  s 

Bank   n.  German-American  Mut.   W.  directors  had  signed  their  names  upn 

&    S.   Co.,   116  N.   Y.  292;   National  the    face    thereof,    they  could    hare 

Bank  of  Republic  v.  Young,  (N.  J.)  7  shown  by  extrinsic  evidence  that  tfey 

Atl.  Rep.  488;  Holmes,  Booth  &  Hay-  were  acting  for  the  corporation  o»y, 

dens  0.  Willard,  24  N.  Y.   St.  Repr.  and  we  perceive  no  reason  why,  asbe- 

260;  Second  National  Bank  r.  Pettier  tween  the  original  parties  or  any  ub- 

&  Stymus  Mfg.  Co.,  18  N.  Y.  St.  Repr.  sequent  holder  of  the  note  acceding 

954;  Supervisors  -c.  Schenck,  5  Wall,  the  same  as  collateral,  with  full  ntice 

784;  La  Fayette  Savings  Bank  r.  Stone-  of  all  the  facts  and  circurnstancefcon- 

ware  Co.,  2  Mo.  App.  299.  nected  with  the  execution  and  .eliv- 

1  Kline  c.  Bank  of  Tescott,  (1892)  50  ery  thereof,  the   same    rule  wi  not 

Kans.  91.     It  was  claimed  in  the  case  apply  when  such  signatures  ar  upon 

that    the    cashier  of    this  bank,    the  the    back  of    the   instrument  oefore 

assignee  of  the  note,  who  was  also  a  delivery." 
director  of  the  corporation  to  the  order 


§  2'2>  |  1M  USOXAI.   I.IAItll.ITY  OF  OFFICERS.  363 

not  expressly  given  to  the  agent,  lie  is  not  personally  responsible 
npon  the  contract.  The  question  to  whom  the  credit  is  given  is  a 
question  of  fact  to  be  decided  by  the  jury  under  the  circum- 
stances of  each  case,"  was  considered.  The  Supreme  Court  held 
that  the  suit  against  the  payee  individually  was  demurrable,  the 
liability  sought  to  be  enforced  being  that  of  the  corporation  and 
not  of  its  president  individually  ;  that  the  declaration  showing  on 
its  face  that  the  agency  of  the  president  was  known,  and  that 
credit  was  extended  to  the  principal,  there  being  no  allegation 
that  credit  was  expressly  extended  to  the  agent;  there  wa-  n<> 
issue  which  required  submission  to  the  jury.  It  was  arguo<l  to 
the  court  that  the  statute  had  no  application  to  the  law-mercliant 
ami  promissory  notes  the  offspring  of  that  law,  and  that  the 
payee  having  been  designated  as  "  Pres't "  merely  when  made 
the  payee  by  the  face  of  the  note,  was  responsible  individually, 
because  he  could  not  by  the  indorsement  explain  what  that  term 
"  Pres't "  meant ;  and  when  he  turned  over  the  note  to  the  bank  by 
his  indorsement  and  gave  them  the  control  of  the  paper  and  title 
to  sue  it,  he  could  not  then  limit  his  liability  and  indorse  only  as 
president.  Of  this  contention  the  court  said  :  "  We  cannot  see 
the  logic  of  any  such  conclusion,  nor  do  we  think  that  any  such 
point  has  ever  been  adjudicated,  even  under  the  laws  governing 
commercial  paper  unaffected  by  statute,  as  it  is  here,  by  the  alle- 
gation that  [the  payee]  and  [maker]  had  power  to  contract  for  the 
corporation,  and  did  so,  and  borrowed  the  money  for  the  corpo- 
ration that  used  it."  It  was  also  held  that  outside  of  the  statute 
prior  to  indorsing  the  note  payable  to  the  order  of  the  payee  no 
liability  arose  against  him  ;  and  when  he  indorsed  it,  the  terms  of 
such  indorsement  determined  the  contract  between  the  indoreer 
and  indorsee,  and  the  indorser  could  limit  his  liability  by  the 
terms  thereof.1 

§  228.  Liability  of  officers  of  savings  banks. —  In  a  case 
where  the  trustees  of  a  savings  bank,  the  business  of  which  had 
been  a  losing  one  from  the  start,  its  deposits  not  large  and  its 
expenses  exceeding  its  income,  doing  business  in  hired  room-. 
purchased  real  estate  for  a  large  sum  out  of  the  funds  in  its  care 

1  Bank  of  the  University  r.  Hamil-  Veneer  Mfir.  Co..  4  N.  Y.  8upp.  885; 

ton,  (1886)  78  Ga.  312.     Cases  as  to  in-  Shrridan   Klivtrir  Light  Co.  r.  Chat- 

dorscment  of  paper  by  oilier rs:   Mid-  ham   Nntional   Hank.  .VJ   Hun,  "• 

dlesex    County    Hnuk  r.  Hirsch  Bros,  c.,  5  N.  Y.  Supp.  529. 


364.  PERSONAL  LIABILITY  OF  OFFICERS.  [§  228 

and  agreed  to  erect  a  building  thereon  at  a  further  large  cost, 
before  the  completion  of  the  same  the  bank  became  hopelessly 
insolvent  and  passed  into  the  hands  of  a  receiver.  The  receiver 
brought  his  action  against  the  trustees  for  damages  on  account 
of  an  improper  investment  of  its  funds  on  their  part  in  the  matter 
above  stated.  The  New  York  Court  of  Appeals,  considering 
the  relation  between  these  trustees  and  the  bank  to  be  that  of 
agents  and  principals,  and  between  them  and  the  depositors  as 
similar  to  that  of  trustee  and  cestui  que  trust,  held,  that  in 
transcending  the  limits  placed  upon  their  power  in  the  charter 
of  the  bank  and  causing  damage  to  the  bank  or  its  depositors, 
they  would  be  personally  liable  for  the  damages.  They  affirmed 
the  judgment  against  the  trustees  in  the  lower  courts  and  dis- 
missed the  appeal.1  As  agents  of  the  bank  such  trustees  are 

•Hun,  Receiver,  v.  Gary,  (1880)  82  ordinary  skill  and  judgment.     As  he 

N.  Y.  65,  affirming  59  How.  Pr.  426.  is  bound  to  exercise  ordinary  skill  and 

The  contention  in  this  case  on  the  part  judgment,  he  cannot  set  up  that  he 

of  the  defense  involved  the  extent  of  did  not  possess  them.     When  damage 

the  care  to  be  exercised  by  such  trus-  is  caused  by  his  want  of  judgment  he 

tees  of  the  funds  and  the  uses  to  which  cannot  excuse  himself  by  alleging  his 

they  devoted  them.     EARL,  J.,  speak-  gross  ignorance.     One  who  volunta- 

ing  for  the  court,  after  referring  to  the  rily  takes  the  position  of  director,  and 

following  cases:    Scott  v.  De  Peyster,  invites  confidence  in  that  relation,  un- 

1  Edw.  Ch.  513;  Spering's  Appeal,  71  dertakes,  like  a  mandatory,  with  those 

Pa.  St.   11;  Hodges  v.  New  England  whom  he  represents  or  for  whom  he 

Screw   Co.,  1  R.  I.  312;  s.  c.  in  3  R.  acts,  that  he  possesses  at  least  ordinary 

I.  1;  The  Liquidators  of  Western  Bank  knowledge  and  skill,  and  that  he  will 

v.    Baird,     11    Sess.   Cas.   (3d  series)  bring  them  to  bear  in  the  discharge  of 

112  (Scotch);  The  Charitable  Corpora-  his  duties.   Story  on  Bailments,  §  182. 

tion  v  Sutton,  2  Atk.  405,  and  Litch-  Such  is  the  rule  applicable  to  public 

field  v.  White,  3  Sandf.  545,  said:  "In  officers,  professional  men  and  to  me- 

Spering's  Appeal  Judge  SHARSWOOD  chanics,  and  such  is  the  rule  which 

said  that  directors  '  are  not  liable  for  must  be  applicable  to  every   person, 

mistakes  of  judgment,  even  though  who  undertakes  to  act  for  another  in  a 

they  may  be  so  gross  as  to  appear  to  situation    or    employment    requiring 

us  absurd  and    ridiculous,    provided  skill  and  knowledge,  and  it  matters 

they  were  honest,  and  provided  they  not  that  the  service  is  to  be  rendered 

are    fairly    within    the  scope  of  the  gratuitously.    These  defendants  volun- 

powers  and  discretion  confided  to  the  tarily  took  the  position  of  trustees  of 

managing    body.'     As   I   understand  the  bank.     They  invited  depositors  to 

this  language  I  cannot  assent  to  it  as  confide  to  them  their  savings,  and  to 

properly  defining  to  any  extent  the  intrust  the  safe  keeping  and  manage- 

nature  of  a  director's  responsibility,  ment  of  them  to  their  skill  and  pru- 

Like  a  mandatory,  to  whom  he  has  dence.     They  undertook  not  only  that 

been  likened,  he  is  bound  not  only  to  they  would  discharge  their  duties  with 

exercise  proper  care  and  diligence,  but  proper  care,  but  that  they  would  exer- 


PERSONAL  LIABILITY  OF  OFFICERS.  365 

responsible  to  it  for  misfeasance  or  nonfeasance  causing  damage 
to  tin-  bank,  upon  the  same  principle  that  any  agent  is  for  like 
Cciusi-  n-j>oii>il>le  to  his  princijuil.1  Tin-  Cli.-iiM-rry  C'l.urt  <>f  Ncu 
Jersey  has  held  the  treasurer  of  a  savings  bank,  at  the  same  time 
one  of  its  managers,  who  had  assigned  to  the  bank  a  bond  and 
mortgage  owned  by  him  on  land  not  worth  double  the  mortgage 
as  required  by  the  bank's  charter,  and  without  submitting  the 
investment  to  the  finance  committee  for  approval,  as  required  by 
its  by-laws,  personally  liable  for  the  loss  sustained  on  the  bond 
and  mortgage.  Further,  that  the  fact  that  the  manager  did  not 
object  or  repudiate  the  transaction  for  six  years  was  no  defense 
whether  his  breach  of  duty  was  known  or  not  known  by  the 
other  managers.* 

cise  the  ordinary  skill  and  judgment  theless,  in  violation  of  bis  duty  and 

requisite  for  the   discharge  of   their  trust,  as  it  was  in  violation  of  the  duty 

delicate  trust."  and  trust  of  the  president,  took  from 

'Hun  t>.  Cary,  (1880)  82  N.  Y.  65.  the  funds  of  the  bank,  by  check  drawn 

That  they  may  be  treated  as  agents  of  by  himself  as  treasurer,  the  amount  of 

the  bank,  see  In  re  German   Mining  the  bond  and  mortgage  on  the  assign  - 

Co.,  27  Eng.  Law  &  Eq.  158;  Belknap  ment  of  these  instruments  to  the  bank. 

«.  Davis,    19    Me.  455;    Bedford    R.  Nor  can  he  shelter  himself  under  the- 

R.   Co.    v.    Bowser,  48    Pa.    St.    29;  suggestion  that  though  he  was  a  mana- 

Butts  c.  Wood,  38  Barb.  181;  Austin  ger  and  officer,  he  is  to  be  regarded  as 

«.  Daniels,  4  Denio,  299;  O.  &  N.  R.  standing  in  the  relation  of  a  stranger 

R.  Co.  v.  McPherson,  85  Mo.  13.     As  to  the  bank  in  this  transaction.     He 

tn  the  liability  of  trustees  to  restore  was  a  trustee,  and,  as  such,  bound  to 

the  money  illegally  invested  by  them,  protect  the  interests  of  his  cextuis  qu? 

see  Adair  v.  Brimmer,  74  N.  Y.  553;  trust.      That    obligation    involved    a 

Ix>ndon  t.  Birmingham  R.  R.  Co.,  5  strict  adherence  to  the  provisions  of 

DC  Gex  &  Smales,  414.  the  charter  and  the  regulations  of  the 

1  Williams,  Receiver,  t>.  Rilcy,  (1881)  bank  designed    for    their   protection. 

34  N.  J.  Eq.  898.     It  was  said  by  the  He  would  not  have  been  at  liberty  to 

chancellor:  "The  defendant  willfully  disregard  them  if  the  application  had 

disregarded  the  regulations  made  by  come  from  a  stranger.     On  what  prin- 

the  board  of  managers  for  the  security  ciplc  can  he  be  justified  in  disregard  - 

of  the  depositors,  by  which  it  was,  in  ing  them  in  his  own  dealings  with  the 

effect,    provided    that  no  investment  bank?    Had  a  stranger  sought  to  obtain 

should  be  made  unless  approved  by  from  the  bank  the  money  for  the  bond 

the  finance  committee,  and  that    all  and  mortgage,  it  would  have  been  the 

applications   for    investment    of    the  duty  of  the  defendant,  if  the  matter 

funds  should  be  made  to  them  alone,  came  to  his   knowledge  in  time,   to 

With  full  knowledge  that  the  invest-  object  to  it,  and  if  his  objection  had 

ment  not    only    had    not    been  duly  been  unheeded  it  would  have  then  lu-en 

authorized,  but  was  one  forbidden  by  incumbent  on  him  to  do  what  he  could 

the  charter,  he,  with  the  concurrence  to    prevent    the    illegal     transaction. 

of  the  president,  indeed,  but,  never-  Crane  c.  Ilearn,  11  C.  E.  Green  (N.  J.), 


366 


PEKSONAL  LIABILITY  OF  OFFICERS. 


[§229 


§  229.  Liability  of  a  treasurer  of  a  corporation  for  pay- 
ment of  orders  on  forged  indorsements. —  Certain  orders  upon 
the  treasurer  of  a  building  association,  a  Pennsylvania 'corpora- 
tion, signed  by  the  president  and  attested  by  the  secretary,  to  cer- 
tain payees,  were  paid  by  the  treasurer  to  the  secretary,  the  latter 
having  forged  indorsements  of  the  payee  upon  the  same.  The 
association  brought  its  action  upon  the  bond  of  the  treasurer  to 
hold  him  liable  for  these  improper  payments,  as  they  contended. 
The  Supreme  Court  of  the  state  held  that  the  treasurer  should 
have  had  judgment  in  his  favor.1 


878.  Manifestly  he  is  -without  excuse 
now.  He  has  been  guilty  of  a  misappli- 
cation, at  least,  of  the  funds  of  the  bank, 
and  where  there  has  been  a  waste  or 
misapplication  of  the  funds  of  a  cor- 
poration by  an  officer  or  agent  of  the 
corporation  suit  may  be  brought  in 
equity,  in  the  name  of  the  company, 
to  compel  him  to  account  for  such  waste 
or  misapplication  or  breach  of  trust. 
Citizens'  Loan  Association  v,.  Lyon,  29 
N.  J.  Eq.  110;  s.  c.,  affd.  on  appeal, 
30  N.  J.  Eq.  782.  Here  the  misappli- 
cation was  by  one  who  was  not  only 
an  officer  of  the  institution  but  a  trus- 
tee also.  Stockton  «.  Mechanics  & 
Labor.  Sav.  Bank,  32  N.  J.  Eq.  163; 
Hannon  v.  Williams,  34  N.  J.  Eq.  255. 
And  he  is  bound  to  indemnify  his 
cestuis  que  trust,  and  the  receiver  may 
maintain  suit  against  him  to  obtain  the 
indemnity." 

1  Hibernia  Building  Assn.  ».  Me- 
Grath,  (1893)  154  Pa.  St.  296.  The 
opinion  rendered  by  THOMPSON,  Jus- 
tice, fully  presented  the  facts  and  the 
by-laws  regulating  the  conduct  and 
acts  of  officers,  and  fully  discussed  the 
law  applicable  to  such  a  case,  as  fol- 
lows: "The  ground  of  liability  was 
negligence  in  making  these  payments, 
although  made  upon  orders  signed  by 
the  president  and  secretary,  who  also 
attested  the  signatures  of  the  payees. 
The  money  was  either  paid  in  cash  to 
the  secretary,  or  by  cheques  payable 
to  his  order.  Under  the  by-laws  the 


president  was  required  to  sign  all  or- 
ders drawn  upon  the  treasurer  for 
appropriations  made  by  the  board,  the 
secretary  to  keep  accurate  minutes,  to 
attest  all  orders  drawn  on  treasurer 
for  appropriations  made  by  the  board, 
the  treasurer  to  pay  all  orders  drawn 
on  him  by  order  of  the  board,  if  signed 
by  the  president  and  attested  by  the 
secretary.  The  orders  upon  which 
these  payments  were  made  were  in  the 
usual  form,  and  signed  by  the  presi- 
dent and  attested  by  the  secretary. 
The  [treasurer]  having  no  reason  to 
suspect  or  doubt  the  integrity  of  either 
the  president  or  the  secretary,  and 
acting  in  good  faith,  paid  them.  As 
the  [treasurer]  served  without  compen- 
sation for  his  services  he  became  & 
gratuitous  bailee,  and  as  such  is  to  be 
held  liable  for  gross  negligence  only. 
In  Tompkins  v.  Saltmarsh,  14  Serg.  & 
R.  275,  it  was  said :  '  Tompkins  is 
charged,  as  the  bailee  of  Saltmarsh, 
on  an  undertaking  to  perform  a  gra- 
tuitous act,  from  which  he  was  to  re- 
ceive no  benefit,  and  the  benefit  was 
solely  to  accrue  to  the  bailor,  in  which 
case  the  bailee  is  only  liable  for  gross 
negligence,  dolo  proximus,  a  practice 
equal  to  a  fraud.'  This  rule  thus 
stated  is  repeated  in  Scott  v.  Bank  of 
Chester  Valley,  72  Pa.  St.  471;  Bank 
of  Carlisle  v.  Graham,  79  Pa.  St.  117. 
His  designation  as  treasurer  did  not 
change  the  character  of  the  bailment. 
As  provided  in  the  by-laws  the  money 


§230]  rKi:-"N.u.  UAHii.rn   "i    .MIL:  367 

$  230.  Liability  on  a  contract  made  before  complete  organ- 
ization of  the  corporation.  In  an  Ohio  <-HM-  it  appeared  that 
individuals  who  had  undertaken  to  have  an  association  known  a*» 
the  '•  Wool  (iruwer-'  K  \ehanire"  incorporated  under  the  laws  of 
Ohio  obtained  a  certificate  of  incorporation,  and  before  the 
requirement  of  the  law  as  to  the  Mil>*cription  to  tin-  stock  of  a 
in  percentage  of  the  capital  stoek  before  doinj;  business  bad 

was  deposited  with  him  to  be  paid  out  fully  perform  tin-  duties  in  regard  to 
when  required  upon  orders  drawn  in  the  bailment  that  the  law  required 
tin;  manner  as  stated.  A  treasurer  or  him  to  perform.  It  is,  however,  con- 
a  director  may  become  a  gratuitous  tended  that,  as  the  bond  provides  that 
bailee,  and  his  official  position  and  he  shall  discharge  all  the  duties  now 
designation  will  not  in  any  degree  requin-d  or  may  hereafter  be  required 
change  his  liability  as  such  bailee.  In  of  him  as  treasurer  by  the  conslitu- 
Sweni/.el  /.  K-mk,  147  Pa.  St.  !•>{,  it  tion,  charter,  by-laws,  rules  and  regu- 
was  held  that  directors  who  are  gra-  lations  of  said  association,  and  as  the 
tuitous  mandatories  were  only  liable  board  passed  a  resolution  that  all 
for  fraud  or  such  gross  neglect  that  applications  for  withdrawals  of  stock 
amounts  to  fraud.  In  this  case  the  must  be  approved  by  the  board  of 
[treasurer]  had  no  office  or  place  in  directors  at  regular  or  special  meet- 
which,  as  treasurer,  he  transacted  the  ings  of  the  association  before  payments 
business  of  the  association.  When  are  made,  the  [treasurer]  was  guilty  of 
orders  were  to  be  paid  he  testifies  he  negligence,  without  examining  the 
would  get  notice  from  the  secretary  to  minutes  and  without  satisfying  him- 
come  down  and  see  him;  that  he  had  self  that  the  board  had  acted  upon  the 
some  that  he  wanted  paid,  and  that  he  withdrawals  for  which  the  orders  in 
would  go  to  the  secretary's  store  and  question  purported  to  have  been 
would  there  pay  them  to  him.  Tin;  drawn.  It  is  established  by  the  proofs 
iation's]  business  was  managed  that  no  entries  were  made  upon  the 
principally  by  its  secretary,  who  came  minutes  for  [of?]  application  of  [for?] 
in  contact  directly  with  its  members,  withdrawals  after  1884.  In  point  of 
In  view  of  the  by-law  and  the  modes  fact  the  secretory,  after  this  date,  kept 
of  payment,  it  is  very  clear  that  he  no  record  in  the  minutes  of  any  with- 
was  a  gratuitous  bailee,  and  is  to  be  drawals.  The  duty  of  the  president 
held  only  to  that  diligence  required  as  is  to  preside  at  all  meetings  of  the 
such.  It  is  true  he  gave  a  bond  as  re-  board  and  to  sign  all  orders  for  appro- 
quired  by  the  by-law  for  the  faithful  priations  authorized  by  the  board; 
performance  of  his  duties,  but  that  did  that  of  the  secretary  is  to  keep  accu- 
not  change  the  duty  cast  upon  him  by  rate  minutes  of  all  meetings  of  the 
law  as  a  bailee.  The  condition  of  tin;  board,  the  accounts  of  the  association, 
bond  was  that  he  should  perform  and  and  to  attest  all  orders  on  the  treasurer 
discharge  the  duties  of  the  office,  and  for  appropriations  of  the  board.  These 
shall  keep  a  just  and  true  account  of  orders  in  question  were  signed  by  the 
the  moneys  received,  and  shall  pay  to  president  and  were  attested  by  the 
his  successor  the  moneys  received,  and  secretary  in  the  usual  form.  The 
shall  account  for  the  moneys  so  re-  president  was  and  is  still  regarded  as- 
ceived.  The  condition  of  the  l>ond,  an  upright  man;  the  secretary  was 
therefore,  was  that  he  should  faith-  also  at  this  time  so  regarded;  the  asso- 


/  ^ 


368  PERSONAL  LIABILITY  OF  OFFICERS.  [§  '1  -" 

been  complied  with,  had  a  meeting  of  stockholders  and  were 
elected  directors  and  officers  of  the  association.  They  then 
entered  into  a  contract  for  the  purchase  of  wool,  and  for  an  unpaid 
balance  gave  a  note  through  the  officers  of  the  association.  The 
holder  of  the  note  brought  action  upon  the  note  as  the  founda- 
tion of  the  suit  against  these  directors  as  personally  liable  on  the 
contract  under  the  facts  disclosed  in  the  case.  The  Supreme 
Court  of  Ohio  held  them  liable  personally  on  the  contract.1  The 

ciution  trusted  both  of  them  implicitly,  court  discussed  quite  at  length  the  lia- 

and  had  no  reason  or  cause  to  doubt  bility  of  agents  under  such  circum- 

them.     If  it  treated  them  thus,  it  was  stances,  and  then  said:  "While,  how- 

natural  that  the  [treasurer]  should  in  ever,  the  authorities  generally  agree 

no  manner   suspect  or  doubt    them,  that  a  person  who,  without  having  in 

These  orders,  therefore,  came  to  him  fact  authority  to  make  a  contract  as 

with  the  certificate  of  the  presiding  agent,  yet  does  so  under  the  bonajide 

officer,  whose  duty  it  was  to  preside  belief  that  such  authority  is  vested  in 

at  all  meetings,  and  with  the  attesta-  him,  is  nevertheless  personally  respon- 

tion  of  the  secretary,   whose  duty  it  sible  to  those  who  contract  with  him 

was  to  keep  all  records  of  the  meet-  in  ignorance  of  his  want  of  authority, 

ings.     If  the  [treasurer]  had  gone  to  a  diversity  of  opinion  is  found  in  the 

the  secretary  he  would  doubtless  have  cases  in  regard  to  the  exact  nature  of 

been  assured  that  the  board  had  acted  the  liability,  and  the  character  of  the 

upon  these  withdrawals,  and  having  action  by  which  it  may  be  enforced, 

been  so  advised  he  would  have  been  In  Jenkins  P.  Hutchinson,  13  Ad.  &  K. 

justified  in  paying  them.     It  can  be  746,  it  is  intimated  by  ERLE,  J.,  that 

scarcely  said  to  be  want  of  ordinary  an  action  of  decit  would  lie  in  such 

diligence  to  have   paid   these    orders  cases,  notwithstanding  the  good  faith 

under  these  circumstances  and  with  of  the  agent,  and  some  authorities  may 

these  signatures.     They  were,  in  fact,  be  found  to  that  effect.     Another  class 

as  express  an  authorization  as  if  he  of  cases  hold  that  the  liability  is  upon 

had  seen  these  officers  officially.     It  the  contract;  but,  it  is  believed,  that 

was  said  in  Swenzel  v.  Penn.  Bank,  whether  the  agent  is  so  liable,  depends 

supra:  '  Nor  do  we  think  the  directors  upon  the  intention  of  the  parties  as 

were  bound  to  regard  the  statements  discovered    from  the   contract  itself; 

submitted  to  them  as  false,  and  the  and  on  this  question  the  form  of  the 

president,  cashier  and  clerks  as  thieves,  agreement  and  the  mode  of  signature 

They  had  nothing  to  arouse  suspicion,  may  be  quite  conclusive.     The  rule  on 

All  of  these  gentlemen    stood  high,  this  subject,   as  stated  in    Story  on 

They  were  the  trusted  agents  of  the  Agency,  is  that  an  agent  cannot  be 

corporation.'    The  [treasurer]  was  not  sued  on  the  very  instrument  itself,  as 

guilty  of  negligence  in  trusting  the  a  contracting  party,  unless  there  be 

secretary  and  in  putting  full  faith  in  apt  words   to    charge    him.     Section 

his  action,  and  that  of  the  president  in  264a.     Still  another  class  of  cases  es- 

signing  and  sending  to  him  the  orders  tablish  the  rule,  which  we  are  inclined 

in  question."  to  adopt,  that  in  cases  like  the  one  we 

1  Trust  Co.  v.  Floyd,  (1890)  47  Ohio  are   considering,  the   agent  is   liable 

St.  525;  s.  c.,  26  N.  E.  Rt-p.  110.   The  upon  his  implied  promise  that  he  poa- 


§230] 


PERSONAL  LIABILITY  OF  OFFICERS. 


Supreme  Court  of  Kansas  affirmed  a  judgment  against  alleged 
directors  of  an  athletic  association  upon  ;i  contract  for  goods  fur- 
nished, holding  them  individually  liable  on  the  ground  that  the 
corporation  had  not  been  fully  organ 'zed  under  the  law.  They 
said  upon  the  subject  generally :  "  The  rule  is  well  established 


•MMB  the  Authority  he  assumes  to 
have.  Smith's  Leading  Cases,  vol.  2, 
pt.  1,  408  (8th  ed.),  and  cases  there 
cited;  Lewis  t>.  Nicholson,  83  Eng.  C. 
L.  512.  In  Whit.-  9.  M:i.lis,,n.  26  N. 
Y.  117,  in  a  learned  opinion,  it  is  held 
that  the  liability  of  the  agent  in  such 
cases  rests  upon  the  ground  that  he 
warrants  his  authority,  and  not  that  the 
contract  is  to  be  deemed  his  own. 
Bartholomew  r.  Bentley,  15  Ohio,  659, 
is  referred  to  as  establishing  both  that 
the  liability  of  the  agent  in  cases  of 
this  kind  is  founded  on  fraud,  and  that 
the  petition  should  charge  a  fraudulent 
intent  in  direct  terms.  That  was  an 
action  in  case  for  deceit  under  the 
practice  which  prevailed  before  the 
adoption  of  the  Code  of  Civil  Proced- 
ure. The  questions  arising  upon  the 
demurrer  related  to  the  form  of  the 
remedy,  and  the  sufficiency  of  the  dec- 
laration in  such  an  action.  They  are 
stated  by  BIRCHAKD,  J.,  to  be:  'First. 
Can  a  special  action  on  the  case  for 
fraud,  which  has  resulted  in  damage 
of  the  plaintiffs,  be  maintained  in  a 
case  like  this  upon  sufficient  declara- 
tion ?  Second.  Is  this  declaration  good 
upon  demurrer  ? '  The  court  answers 
the  first  question  in  the  affirmative, 
and,  in  speaking  of  the  declaration, 
says:  '  The  objection  taken  by  counsel 
is  a  want  of  certainty.  The  action  is 
founded  on  a  fraudulent  combination, 
and  for  holding  out  false  colors  at  the 
commencement  of  the  banking  opera- 
tions, and  at  various  subsequent 
periods.  The  only  direct  charge  of  a 
fraudulent  intention  is  in  the  with- 
drawal of  the  funds,  and  this,  for 
aught  that  appears,  may  have  been 
47 


long  since  the  bills  in  plaintiff's  hands 
were  issued.  *  *  *  It  is  thought 
that  the  averment  of  a  fraudulent  de- 
sign should  have  been  made  in  positive 
terms  as  to  each  specific  act  n  linl 
upon  to  sustain  the  action.'  Under 
the  practice  then  in  force,  pleadings 
were  subject  to  demurrer,  unless  they 
were  appropriate  in  their  form  and 
allegations  to  the  particular  action 
pursued;  and  we  do  not  understand  it 
to  be  there  decided  that  no  other  action 
could  be  maintained  on  the  facts  of 
that  case.  A  different  action  was 
maintained  in  Medill  r.  Collier,  16 
Ohio  St.  599,  which,  so  far  as  the 
ground  upon  the  liability  of  the  bank 
directors  was  placed,  is  not  greatly 
dissimilar  to  the  case  before  us.  Under 
our  present  system  of  pleading,  it  is 
not  important  what  was  formerly  the 
most  appropriate  remedy.  Upon  the 
facts  stated  in  the  petition,  the  law, 
we  think,  implied  a  promise  on  the 
part  of  the  defendants,  that  in  making 
the  contract  with  the  plaintiff,  they 
had  authority  to  bind  the  corporation 
they  assumed  to  represent;  and  if  they 
had  not,  they  are  answerable  for  the 
consequences.  That  they  were  with- 
out such  authority  seems  clear.  Upon 
the  lack  of  authority  upon  the  part  of 
the  directors,  it  was  then  said:  '  It  was 
held  by  this  court  in  Bartholomew  r. 
Bentley,  1  Ohio  St.  :J7,  that  while 
mere  irregularities  in  organizini:  a. 
corporation  would  not  subject  the 
officers  to  private  liability,  to  protect 
them  from  such  liability,  the  provisions 
of  the  act  of  incorporation  mu-t  be 
substantially  pursued.  By  our  stat- 
utes, under  which  the  proceedings 


370  PERSONAL  LIABILITY  OF  OFFICERS.  [§  230 

that  a  corporation  must  have  a  full  and  complete  organization 
and  existence  as  an  entity,  and  in  accordance  with  the  law  to 
which  it  owes  its  origin,  before  it  can  assume  its  franchise  or  enter 
into  any  kind  of  a  contract  or  transact  any  business ;  and  what- 
ever be  the  mode  prescribed  by  the  act  of  incorporation,  a  sub- 
stantial compliance  with  all  the  provisions  of  the  law  under  which 
it  is  created  is  required  before  the  corporation  can  be  said  to  have 
such  an  existence  as  will  entitle  it  to  do  business.1  And  it  is  con- 
ceded in  this  case  that  nothing  was  done  to  perfect  the  organiza- 
tion after  the  charter  was  tiled.  A  corporation  cannot  act  with- 
out officers  and  agents,  and  it  is  powerless  to  do  anything  until 
its  incorporators  or  promoters  give  it  the  means  whereby  it  can 
act.  The  words  "organize''  or  "organization"  have  a  well- 
understood  meaning ;  and  as  we  construe  them  they  mean  the 
election  of  officers,  providing  for  the  subscription  and  payment 
of  the  capital  stock,  the  adoption  of  by-laws  and  such  other  steps 
as  are  necessary  to  endow  the  legal  entity  with  the  capacity  to 

•were  taken  for  the  formation  of  the  contend  that  it  is,  nevertheless,  a  cor- 
corporation  referred  to  in  the  petition,  por&tionde  facto,  and  estopped  to  deny 
the  corporate  powers,  business  and  its  liability  to  the  plaintiff.  If  it  were, 
property  of  corporations  formed  for  it  is  not  readily  perceived  how  this 
profit  must  be  exercised,  conducted  would  aid  the  defendants.  Until  there 
and  controlled  by  a  board  of  directors,  were  stock  subscriptions  to  an  amount 
all  of  whom  must  be  stockholders;  the  warranting  the  organization,  the  sub- 
articles  of  association  must  state  the  scribers  could  not  be  compelled  to  pay 
amount  of  the  capital  stock,  and  beyond  the  sum  -required  at  the  time 
the  number  of  shares  into  which  it  is  of  the  subscription;  nor  would  the 
divided;  and  at  least  ten  per  cent  of  statutory  liability  attach,  unless  there 
that  amount  must  be  subscribed  be-  were  some  ground  of  estoppel,  not  ap- 
fore  directors  can  be  chosen.  So  that  peariug  in  the  case.  The  implied 
the  subscription  of  the  necessary  undertaking  of  the  defendants  was 
amount  of  the  capital  stock  to  author-  that  they  represented  a  corporation 
ize  the  election  of  directors  is  not  only  with  the  capital  stock  required  by  law; 
a  matter  of  substance,  but  is  essential  while  the  one  to  which  they  insist  the 
to  the  organization  of  the  corporation,  plaintiff  shall  be  compelled  to  resort 
and  necessary  to  the  transaction  of  was,  if  a  de  facto  corporation,  so  only 
business  by  it.  It  is  the  security  which  in  name,  without  substance  or  capac- 
the  law  requires  shall  be  provided  be-  ity;  and  if  the  doctrine  of  estoppel 
fore  the  corporation  enters  upon  its  could  be  brought  to  the  aid  of  the 
business  for  the  protection  of  those  plaintiff  against  it,  the  defendants  are 
who  may  deal  with  it.  The  statutory  not  in  a  position  to  require  a  resort  to 
liability  of  the  stock  subscribers  is  an  that  remedy  to  relieve  them  from  the 
additional  security.  In  the  effort  to  form  liability  they  have  incurred.'  " 
the  corporation  in  question,  neither  of  '  Citing  4  Am.  &  Eng.  Encycl.  of 
these  securities  was  provided.  Counsel  Law,  197,  and  authorities  cited  there. 


It)]  PERSONAL  LIABILITY  OF  OFFICERS.  371 

transact  the  legitimate  !»u.-iness  for  whieh  it  was  created.  In 
tin.-  .-en-e  tin,-  corporation  was  not  fully  organi/ed.  While  it  had 
an  e\i>tenee.  the  organization  was  never  completed  so  that  the 
corporation  eoiild  do  business.  In  the  case  of  Hart  v.  Salisbury, 
r.."»  Mo.  :;io,  which  was  an  action  brought  upon  a  note  purporting 
to  have  been  executed  by  the  directors  of  an  agricultural  associa- 
tion, the  suit  was  brought  against  the  directors  upon  the  gronnd 
that  the  a.->oeiation  was  not  incorporated  at  the  time  the  note  was 
given,  and  that  the  directors  were,  therefore,  individually  liable. 
It  appeared  that  the  association  was  not  fully  incorporated  when 
the  note  was  executed.  The  law  required  the  charter  to  be  filed 
with  the  recorder  of  the  county  where  the  corporation  was  located, 
and  also  in  the  office  of  the  secretary  of  state.  The  charter  was 
only  filed  with  the  recorder.  The  court  held  that  the  officers  of 
the  corporation  had  no  power  to  issue  the  note,  and  that  a  note 
issued  and  signed  by  them  would  bind  them  personally  and  not 
the  corporation.  The  court  said,  in  speaking  of  the  attempted 
organization  of  that  corporation :  It  had  organized  under 
section  2,  chapter  69,  General  Statutes  of  1885,  page  367,  by  sign- 
ing and  acknowledging  and  recording  in  the  recorder's  office  of 
the  proper  county  tlie  articles  of  the  association.  This  step  being 
taken,  it  was  an  organized  corporation,  not  for  the  transaction  of 
business,  but  for  the  purpose  of  taking  the  next  and  last  step  to 
complete  its  authority  to  transact  business  and  give  date  to  its 
legal  existence.  Until  the  officers  took  this  final  and  necessary 
step  by  depositing  and  filing  in  the  office  of  the  secretary  of 
state  a  copy  of  the  articles  of  association  as  they  stood  recorded 
in  the  county,  this  corporation  had  no  power  to  issue  the  note 
sued  on.  As  it  had  no  power  to  issue  this  note,  the  defendants 
are  undoubtedly  liable."  "  If  a  corporation  be  illegally  formed, 
its  members  or  stockholders  are  liable  as  partners  for  its  acts  or 
contracts  ;  and  directors,  officers  or  agents  acting  and  contracting 
in  its  name  render  themselves  personally  liable."  Beach  Priv. 
Corp.  §  16;  Marshall  v.  Harris,  55  Iowa,  182  ;  Kaiser  v.  Savings 
Bank,  56  Iowa,  104 ;  Coleman  v.  Coleman,  78  Ind.  344.  The 
Kansas  court  resumed  :  "  While  in  this  case  the  charter  was  filed 
with  the  secretary  of  state,  the  corporation  had  no  officer  outside 
of  the  directors  named  for  the  first  year.  No  portion  of  the 
capital  stock  had  been  subscribed  and  no  books  opened,  as 
required  by  section  1173  of  the  General  Statutes  of  1889.  In 


372  PERSONAL  LIABILITY  OF  OFFICERS.  [§  231 

fact  nothing  had  been  done  to  complete  the  preliminary  business 
of  organizing  the  corporation.  We  do  not  understand  that  a  cor- 
poration can  proceed  to  the  transaction  of  business  without  any 
portion  of  its  capital  stock  being  subscribed  or  paid.  It  may  have 
been  the  English  rule,  but  in  the  United  States  it  is  otherwise. 
Boone  Corp.  §  113.  The  corporation  has  no  means  or  capacity 
to  act  until  some  portion  of  the  capital  stock  named  in  the  charter 
has  been  subscribed  and  paid.  Some  states  have  by  a  legislative 
rule  made  directors  of  certain  corporations  jointly  and  severally 
liable  for  all  debts  of  the  corporation  until  the  whole  amount  of 
the  capital  stock  has  been  paid  in.  Rev.  Stat.  of  Wis.  1878> 
§  1901."1 

§  231.  Rule  as  to  recovery  in  such  a  case. —  The  measure 
of  damages  in  such  a  case  was  one  of  the  questions  in  this  Ohio 
case.  Referring  to  the  theory  upon  which,  as  it  appeared,  the 
case  was  tried,  that  if  the  defendants  were  liable  at  all,  the  amount 
which  the  plaintiff  was  entitled  to  recover  was  the  balance  due  on 
the  contract,  the  Supreme  Court  of  Ohio  said :  "  This  was  not 
necessarily  the  measure  of  recovery.  As  we  have  already  seen, 
the  action  in  such  cases  is  not  founded  on  the  contract  made  for 
the  supposed  principal,  but  as  the  implied  promise  of  the  agent 
that  he  had  authority  to  bind  the  principal ;  and  the  damages 
which  may  be  recovered  for  its  breach  is  the  loss  sustained  by 
the  plaintiff  by  reason  of  his  not  having  the  valid  contract  which 
the  agent  undertook  that  he  should  have.  The  damages  may 
sometimes  exceed  the  amount  due  on  the  contract  made  in  the 
name  of  the  principal,  for  it  is  held  they  may  include  the  costs 
and  expenses  of  an  unsuccessful  action  against  the  principal  to 
enforce  the  contract.  White  v.  Madison,  26  N.  Y.  117;  Simons 
v.  Patchett,  7  E.  &  B.  568 ;  Collen  v.  Wright,  7  E.  &  B.  301 ;  2 
Smith's  Leading  Cases,  410.  In  Morawetz  on  Corporations  it  is 
said  that  the  measure  of  damages  in  an  action  against  directors 
or  officers  of  a  corporation,  who  induce  a  person  to  deal  with  it 
before  the  capital  indicated  in  its  charter  has  in  fact  been  pro- 
vided, is  the  loss  sustained  '  by  reason  of  the  difference  between  the 
capital  which  he  has  received  and  that  which  he  was  entitled  to 
expect.'  Under  this  rule,  we  think,  the  plaintiff  might  properly 
recover  the  balance  remaining  unpaid  and  the  purchase  price  of 

1  Walton  v.  Oliver,  (1892)  49  Kans.  107,  112,  113, 114;  s.  c.,  30  Pac.  Rep.  172. 


12]  PERSONAL  LIABILITY  OF  OFFICERS.  373 

the  wool  sold.  Prima  fcwie,  that  is  the  amount  of  the  plaintiffs 
loss,  and  it  does  not  exceed  the  amount  of  the  capital  which  the 
corporation  was  required  by  law  to  have  before  it  could  be  repre- 
hfiiti-d  by  the  directors,  and  which  the  defendants,  by  assuming 
to  act  tor  it,  undertook  that  it  did  him-.  It  i-  true  the  petition 
alkies  that  the  corporation  is  insolvent  with  an  indebtedness 
exceeding  ten  per  cent  of  the  capital  !-t'»rk  ;  but  whether  the 
claims  of  other  creditors  stand  upon  a  like  footing  with  that  of 
the  plaintiff,  or  will  be  enforced  against  the  defendants,  does  not 
appear.  Besides,  if  the  proper  stock  subscriptions  had  been 
obtained,  the  corporation  might  not  have  become  insolvent,  or, 
before  it  did,  the  plaintiffs  claim  might  have  been  paid  or  secured. 
If,  in  such  case,  the  plaintiff  could  recover  no  mere  than  a  sum 
equal  to  the  proportion  of  the  capital  which  should  have  been 
provided  that  his  claim  bears  to  the  whole  indebtedness  contracted 
in  the  corporate  name,  it  would  be  necessary  to  take  an  account 
of  the  assets  and  liabilities  to  determine  the  amount  of  the 
recovery.  That  rule,  applied  to  this  case,  would  require  that  the 
defendants  be  charged  with  an  amount  equal  to  the  necessary 
stock  subscriptions,  and  the  statutory  liability  of  the  subscribers, 
and  that  all  the  creditors  be  brought  in  to  have  their  claims 
adjusted,  before  the  amount  of  the  verdict  could  be  arrived  at."1 

§  232.  County  treasurer  liable  upon  his  receipts  to  col- 
lector for  money. —  A  county  auditor  in  California  made  a 
settlement  with  a  collector  of  license  taxes  of  the  county,  deter- 
mined the  amount  due  the  county  from  this  collector  and  certified 
the  same  to  the  county  treasurer.  The  county  treasurer  gave  a 
receipt  for  the  amount  to  the  collector,  and  the  collector,  upon 
presenting  it  to  the  county  auditor,  received  his  discharge,  and  the 
auditor  charged  the  same  to  the  treasurer.  The  latter,  also, 
debited  himself  to  that  amount  in  his  account  with  the  county. 
When  he  went  out  of  office  there  was  a  deficiency  of  a  certain 
amount,  and  an  action  was  brought  upon  his  bond  by  the  county 
to  recover  the  deficiency.  The  defense  made  by  the  treasurer 
and  his  sureties  was  that,  in  reality,  the  sum  of  money  due  from 
the  collector  was  not  paid  in  full  to  him,  and  that  the  collector 
was  the  one  indebted  to  the  county.  The  Supreme  Court  of 

'Trust  Company  r.  Floyd,  (1890)  47  Ohio  St.  525,  542,  548;  s.  c.,  26  N.  E. 
Rep.  110. 


374 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§233 


California  held  that,  assuming  the  facts  to  he  as  contended  by  the 
treasurer  and  his  sureties,  they  did  not  constitute  a  defense  to  the 
action.1 

§  233.  County  treasurer  liable  as  bailee  of  county  funds.— 
In  a  Colorado  case  the  governing  authorities  of  a  county  sought, 
claiming  a  shortage  in  the  accounts  of  a  county  treasurer, 
deceased,  to  follow  the  funds  as  trust  funds  in  his  estate  as  held 
by  his  representatives  and  to  have  a  preference  over  other  credit- 
ors of  the  estate.  The  Supreme  Court  in  its  opinion  first  con- 
sidered the  question  of  the  relationship  held  by  a  county  treas- 
urer to  the  funds  coming  into  his  hands  by  virtue  of  his  office, 


1  San  Luis  Obispo  County  V.  Pettit, 
(Cal.  1893)  34  Pac.  Rep.  1082.  The 
court  said:  "  Section  115  of  the  County 
Government  Act  (St.  1891,  p.  323)  re- 
quires the  county  auditor  to  settle  the 
accounts  of  all  persons  holding  moneys 
payable  into  the  county  treasury,  and 
to  certify  the  amount  to  the  treasurer; 
and  provides  that,  upon  the  presenta- 
tion and  filing  of  the  treasurer's  re- 
ceipt therefor,  he  shall  give  to  such 
persons  a  discharge,  and  charge  the 
treasurer  with  the  amount  received  by 
him.  In  Butte  Co.  v.  Morgan,  76  Cal. 
1;  s.  c.,  18  Pac.  Rep.  115,  it  was  held 
that  the  auditor  is  not  required  to  go 
to  the  treasurer  and  ask  him  whether 
the  amount  has  been  actually  paid, 
or,  in  other  words,  whether  the  receipt 
states  the  truth.  He  is  authorized  to 
accept  the  receipt  as  sufficient  evidence 
of  the  fact  of  payment.  This  case 
presents  many  points  similar  to  the 
present  one,  and  must  be  regarded  as 
controlling.  Section  80  of  the  County 
Government  Act  requires  the  treasurer 
to  settle  his  accounts  with  the  auditor 
on  the  first  Monday  of  each  month, 
and,  for  the  purpose  of  making  such 
settlement,  to  make  a  statement  under 
oath  of  the  amount  of  money  received 
prior  to  the  period  of  such  settlement, 
the  sources  whence  the  same  was  de- 
rived, and  the  amount  remaining  on 
hand.  These  settlements  and  state- 


ments were  made  by  [this  treasurer], 
and  he  ought  not  now  to  be  permitted  to 
exonerate  himself  from  liability  to  the 
county  by  showing  that  these  state- 
ments were  false,  and  that,  instead  of 
requiring  [the  collector]  to  pay  the 
money  into  the  treasury,  he  had  taken 
his  individual  promise  to  pay  it  at  a 
subsequent  date.  By  delivering  to  the 
auditor  his  receipt  for  the  moneys 
which  [the  collector]  had  collected, 
he  had  authorized  the  auditor  to  enter 
upon  his  books  a  discharge  of  [the 
collector's]  liability,  and  is  thereby 
estopped  from  questioning  the  correct- 
ness of  his  receipt.  If  he  chose  to 
permit  [the  collector]  to  retain  this 
money  upon  his  promise  to  subse- 
quently pay  it  to  him,  to  that  extent 
he  failed  to  perform  his  official  duty 
in  requiring  the  money  to  be  paid  into 
the  treasury,  and  must  be  regarded  as 
having  become  himself,  rather  than 
the  county,  the  creditor  of  [the  col- 
lector]. If  any  loss  occurred  by  rea- 
son of  [the  collector's]  subsequent 
failure  to  pay  his  check,  it  should  be 
borne  by  [the  treasurer],  rather  than 
by  the  county,  since  the  loss  had  been 
made  possible  by  reason  of  [the  col- 
lector's] violation  of  his  official  duty, 
and  his  sureties  are  liable  to  the  county 
equally  with  him  for  such  misappro- 
priation or  loss  of  the  money." 


§  233]  PERSONAL  LIABILITY  OF  OFFICERS.  375 

the  contention  by  the  county  authorities  Inking  that  the  relation 
was  that  of  bailee  of  the  funds,  and  that  of  the  representatives  of 
the  estate  that  the  relation  of  debtor  and  creditor  existed  between 
him  and  the  county.  The  court  said:  "Without  determining 
where  the  weight  of  authority  lies  on  this  question,  as  there  is 
much  conflict  between  the  adjudged  cases,  we  think  that,  under 
the  provisions  of  the  statute  relating  to  a  county  treasurer,  the 
money  collected  and  received  by  him  belongs  to  the  county,  and 
that  he  holds  a  fiduciary  relationship  thereto  that  constitutes  him 
a  bailee,  with  express  and  extraordinary  liability.  The  bond  lie 
is  required  to  give  before  entering  upon  the  duties  of  his  office  is 
conditioned  that  he  '  shall  faithfully  and  promptly  perform  the 
duties  of  said  office  *  *  *  pay,  according  to  law,  all  moneys 
which  shall  come  to  his  hands  as  treasurer,  and  shall  render  a 
just  and  true  account  thereof,  whenever  required  by  said  board 
of  commissioners  or  by  any  provision  of  law,  and  shall  deliver 
over  to  his  successor  in  office,  or  to  any  other  person  authorized 
by  law  to  receive  the  same,  all  moneys,  books,  papers,  and  other 
things  appertaining  thereto  or  belonging  to  his  otftce.'  Mills' 
Ann.' St.  §  886.  Section  890  of  Mills'  Annotated  Statutes  pro- 
vides :  '  It  shall  be  the  duty  of  the  county  treasurer  to  receive 
all  moneys  belonging  to  the  county  from  whatever  source  they 
may  be  derived.  *  *  *  All  moneys  received  by  him  for  the 
use  of  the  county  shall  be  paid  out  by  him  only  on  the  orders  of 
the  board  of  commissioners,  according  to  law,  except  where  spe- 
cial provision  for  the  payment  thereof  is  or  shall  be  otherwise 
made  by  law.'  It  is  further  provided  in  section  901  of  Mills' 
Annotated  Statutes :  '  Upon  the  resignation  or  removal  from 
office  of  any  county  treasurer  all  the  books  and  papers  belonging 
to  his  office  shall  be  delivered  to  his  successor  in  office,  upon  the 
oath  of  such  preceding  treasurer,  or,  in  case  of  his  death,  upon 
oath  of  his  executors  or  administrators,  etc.'  The  Supreme 
Court  of  Indiana  having  announced  the  doctrine  in  several  cases 
that  a  township  trustee,  in  common  with  a  county  treasurer,  was 
not  a  mere  bailee,  but  the  owner  of  the  money  that  came  into  his 
hands  by  virtue  of  his  office,  that  court  distinguished  and  limited 
such  ownership  in  Rowley  v.  Fair,  104  In<l.  isi»;  8.  c.,  3  N.  E. 
Rep.  860,  as  follows:  '  lint  the  title  of  a  township  trustee  in  the 
money  for  which  he  is  held  accountable  is  only  recognized  to  the 
extent  that  is  necessary  for  the  Ixjtter  preservation  of  the  various 


376  PERSONAL  LIABILITY  OF  OFFICERS.  [§  234: 

funds  which  the  money  represents,  and  is,  in  fact,  a  legal  title 
only  in  a  technical  and  very  limited  sense.  The  equitable  title 
to,  and  the  beneficiary  interest  in,  such  money  is  in  the  township, 
and  in  that  view  the  money  for  which  the  trustee  is  liable  upon 
his  bond  really  belongs  to  the  township.3  It  follows  that,  if  the 
money  received  by  the  treasurer  by  virtue  of  his  office  belongs  to 
the  county,  it  constitutes  a  trust  fund,  which,  if  diverted  and 
misappropriated,  may  be  recovered  in  an  action  upon  his  bond, 
or  the  county  may,  if  it  elect,  treat  it  as  a  trust  fund,  and  follow 
it  wherever  it  can  be  traced." l 

§  234.  County  treasurer  paying  court  orders  on  forged 
indorsements. —  It  appeared  in  a  Minnesota  case  that  a  deputy 
clerk  of  the  District  Court  issued  false  and  fraudulent  certificates, 
in  which  he  certified  that  certain  named  persons  had  served  as 
jurors  in  said  court,  and  were  each  entitled  to  a  stated  sum  of 
money  payable  to  their  order  as  compensation.  He  obtained  the 
written  order  of  the  county  auditor  on  each,  directing  the  county 
treasurer  to  pay  the  same.  He  forged  the  names  of  the  respec- 
tive payees  on  the  back  of  each  certificate,  presented  the  same  to 
the  treasurer,  and  the  latter  paid  over  to  him  the  amounts  called 
for  out  of  the  county  funds,  without  attempting  to  satisfy  him- 
self of  the  genuineness  of  the  indorsements  upon  the  backs  of 
the  instruments.  The  Supreme  Court  held  that  the  treasurer 
was  liable  to  the  county  for  the  sums  so  paid  out.2 

1  McClure  r.  Board  of  Comrs.  of  La  pay  to  the  bearer.  This  he  did  with- 

Plata  County,  (Colo.  1893)  34  Pac.  out  knowledge  of  any  defect  in  the 

Ilep.  763;  citing  Sauer  v.  Town  of  title  of  the  bearer,  and  it  was  held, 

Nevadaville,  14  Colo.  54;  s.  c.,  23  such  payment  being  in  good  faith 

Pac.  Rep.  87.  every  way,  that  the  county  was  ex- 

*  Board  of  County  Commissioners  of  onerated  from  further  liability.  The 
Ramsey  Co.  v.  Nelson,  (1892)  51  Minn,  conclusion  of  the  court  was  expressly 
79.  Arguendo,  the  court  said:  "The  placed  upon  the  fact  that  in  good 
distinction  between  a  case  arising  on  faith  the  county  treasurer  had  paid 
these  facts  and  *  *  Sweet  v.  these  obligations  precisely  as  he  was 
County  Commissioners  of  Carver  authorized  and  directed  to  do,  to  the 
County,  16  Minn.  106,  is  obvious,  person  who  presented  them,  the  bearer 
There  the  county  orders  or  warrants  thereof.  But  the  cases  are  not  analo- 
had  been  issued  and  accepted,  made  gous,  for,  giving  to  defendant  the  ben- 
payable  to  a  certain  named  person  or  efit  of  all  that  is  possible,  namely, 
to  bearer.  They  were  transferable  by  that  together  the  certificates  as  issued 
simple  delivery,  and,  in  terms,  the  ^ind  the  indorsements  thereon  as  made 
treasurer  was  expressly  authorized  to  by  the  county  auditor  amounted  to 


§  235] 


PERSONAL  LIABILITY  OF  OFFICERS. 


377 


§  235.  Arbitration  as  to  liability  of  a  treasurer  of  a  town- 
ship.—  The  treasurer  of  a  township  Imvinir  UM-d  the  moneys  of 
the  public  corporation  there  was  a  submission  of  the  question  of 
the  extent  of  his  liability  upon  his  bond  to  arbitration,  and  a 
settlement  made  upon  the  basis  of  the  award,  the  bondsmen 
-rd  and  in  part  settlement  of  the  matter  notes  given  to  the 
township.  In  an  action  upon  one  of  these  notes  the  treasurer 
intervened,  and  the  ilisistment  on  his  behalf  was  that  the  arbitra- 
tion could  not  be  sustained  because  the  corporation's  powers  wi-iv 
only  such  as  were  given  by  statute,  and  no  express  power  was 
given  to  submit  to  arbitration.  To  this  the  Supreme  Court  of 


orders  or  warrants  upon  the  county 
treasury,  the  prominent  and  stubborn 
fact  remain*  that  the  amounts  said  to 
be  due  thereon  were  not  to  be  paid  to 
a  bearer  of  the  instruments,  but  t<>  the 
order  of  the  several  persons  named 
therein  as  payees.  As  in  the  case  ju-t 
referred  to,  the  authority  to  pay  was 
express  and  distinct,  but  instead  of 
directing  that  such  payment  should 
be  to  whomsoever  might  present  the 
orders  or  warrants,  the  direction  was 
that  payment  should  be  made  to  the 
order  of  a  person  designated  by  name. 
And  at  this  time  it  may  be  well  to 
state  that  it  does  not  appear  in  the 
complaint,  as  appellant's  counsel  seem 
to  assume,  that  fictitious  or  nonexistent 
persons  were  named  as  payees  in  these 
certificates.  It  is  of  no  importance, 
probably,  but  from  the  language  of 
the  pleading  the  presumption  is  other- 
wise. Payments  were  not  made  to 
the  persons  named  as  payees,  or  to 
their  order,  in  accordance  with  the 
terms  of  the  certificates,  but  were 
made  to  *  *  *  the  very  person 
who  as  deputy  clerk  had  the  oppor- 
tunity and  had  fraudulently  issued  the 
name,  solely  upon  the  false  and  f urged 
indorsements  of  the  names  of  the 
payees.  Common  prudence  ought  to 
have  suggested  to  [the  treasurer)  that 
before  innking  such  payments  it  was 
ineiimhent.  upon  him  to  ascertain  and 
satisfy  himself  of  the  genuineness  of 


the  signatures   which    he    found   iti- 

dnr.-ed    Upon    tin:    back*  of  the    ill*tni- 

ineiits  purporting  t->  he  those  of  the 
payers  therein  named.  He  failed  so 
to  do,  and  this  of  itself  is  sufficient  to 
sustain  the  charge  of  negligence  in  the 
performance  of  his  official  duty.  As 
was  said  by  the  learned  trial  judge, 
had  defendant  observed  the  rule  of 
law  which  governs  in  commercial 
transactions  of  the  same  nature,  he 
would  have  detected  the  forgeries  at 
the  outset,  and  there  could  have  been 
no  great  loss  to  the  county  or  to  him- 
self. His  disregard  of  this  rule  was 
negligence,  undoubtedly,  and  it  was 
the  immediate  and  proximate  cause 
of  the  loss  to  the  county,  for  which 
defendant  must  be  held  responsible, 
unless  the  fact  that  the  certificates 
were  fraudulently  issued  by  the  dep- 
uty of  another  county  officer  for 
whose  malfeasance  such  officer  was 
also  responsible  to  the  county  can  be 
allowed  to  excuse  and  relieve  him. 
The  instruments  in  question  were  cer- 
tificates of  indebtedness  for  jurors' 
services  falsely  stated  to  have  been 
rendered  by  the  payees  therein  named, 
and  on  whose  order  payment  was  to 
be  made.  At  most,  they  were  Un- 
orders of  one  officer  of  a  municipal 
corporation  upon  another  officer  for 
the  paving  out  of  miinici|»il  funds. 
Although  negotiable  in  form,  they 
were  not  commercial  jwper  in  any 


378 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§235 


Iowa  said  :  "  A  corporation  has,  however,  not  only  such  powers 
as  are  expressly  conferred,  but  such  others  as  are  reasonably 
incident  to  the  exercise  of  those  expressly  conferred.  The  inter- 
venor's  theory  is  that  the  plaintiff  [the  corporation]  should  be 
confined  to  its  remedy  by  action.  But  the  power  which  it  is 
conceded  that  the  plaintiff  has  to  maintain  an  action  does  not 
appear  to  be  expressly  conferred.  The  plaintiff  has  express 
power  to  make  settlement  with  its  treasurer,  and  must  be  deemed, 
by  implication,  to  have  power  to  enforce,  by  action,  both  settle- 
ment and  payment,  if  necessary.  But  an  arbitration  of  differ- 


sense.  That  they  were  in  fact  fraud- 
ulently issued  could  not  relieve  the 
defendant  treasurer  from  the  obliga- 
tion which  rested  upon  him  to  see  to 
it  that  he  paid  the  same  to  the  persons 
to  whom  payment  was  directed.  Had 
he  done  this  in  good  faith,  we  are  un- 
able to  see  why  his  duty  would  not 
have  been  performed,  and  in  his 
failure  to  pay  as  directed  lies  the 
claim  that  he  was  negligent.  Had  the 
certificates  been  regularly  issued  pay- 
ment upon  forged  indorsements  would 
not  have  excused  the  defendant  treas- 
urer, nor  could  it  have  relieved  the 
county  from  a  just  indebtedness  for 
jurors'  services.  The  liability  of  the 
county  treasurer  for  the  funds  in- 
trusted to  his  care  cannot  be  allowed 
to  depend  upon  the  fidelity  of  some 
other  county  officer,  but  is  with  him 
alone,  and  to  be  determined  by  his 
actions.  Nor  can  the  right  of  the 
county  to  require  of  him  that  he 
account  for  the  public  funds  be 
limited  or  controlled  by  the  fact  that 
it  may  also  look  elsewhere  for  relief 
in  case  of  loss.  For  the  bad  conduct 
of  the  deputy  in  fraudulently  issuing 
the  certificates  the  county  may  have  a 
right  of  action  against  his  principal, 
the  clerk  of  the  court;  but  it  is  not  con- 
fined to  that  action;  it  is  not  obliged 
to  look  to  him  alone.  Unless  it  be 
upon  the  theory  that  as  these  certifi- 
cates were  issued  without  the  rendi- 
tion of  services,  and  fraudulently,  the 


payees  must  necessarily  have  been 
fictitious  and  nonexistent,  we  do  not 
quite  understand  the  assertion  of 
counsel  that  no  payees  were  named, 
and,  therefore,  the  instruments  were 
payable  to  bearer;  or  the  pertinency 
of  the  authorities  collated  by  counsel 
to  the  effect  that,  where  a  payee's  name 
is  left  blank  in  a  bill  or  note  when  the 
same  issued,  such  bill  or  note  is  in 
legal  effect  payable  to  bearer,  and 
until  the  payee  is  actually  named  the 
paper  will  circulate  as  though  made 
pay  able' to  bearer  in  terms.  We  have 
already  stated  that  from  the  averments 
of  the  complaint  the  presumption  is 
that  the  payees  named  were  not  ficti- 
tious or  nonexistent,  but  in  any  event 
the  weight  of  authority  is  that  the 
rule  cited  by  counsel  applies  only  to 
paper  put  into  circulation  by  a  maker 
with  knowledge  that  the  name  of  the 
payee  does  not  represent  a  real  person. 
Shipman  v.  Bank  of  New  York,  126 
N.  Y.  318;  s.  c.,  27  N.  E.  Rep.  371. 
The  rule  can  have  no  application  to 
the  issuance  of  county  orders  or  war- 
rants. There  is  absolutely  nothing  in 
the  appellant's  position  that  the 
county  is  estopped  from  saying  that 
the  payees  named  were  fictitious  and 
the  indorsements  forged.  The  wrong- 
ful acts  of  the  officers  of  a  municipal 
corporation  cannot  create  an  estoppel 
against  the  corporation,  the  taxpayers, 
or  the  people."  Citing  Mayor  v.  Ray, 
19  Wall.  468. 


§  2o»;|  PERSONAL  LIABILITY  OF  OFFICERS.  379 


is  just  as  legitimate  a  mode  of  settlement  as  by  action. 
Courts,  indeed,  are  disposed  to  encourage  n-ttlt  -incuts  by  arbitra- 
tion. Zook  v.  Spray,  38  Iowa,  273.  We  may  add  that  such 
settlements  seem  to  be  peculiarly  appropriate  when-  arbitrators, 
possessing  more  or  less  of  an  expert  character,  can  be  called  into 
re<|iii-ition.  We  presume  that  the  intervenor  could  not  deny 
that  private  corporations  may  submit  to  arbitration.  Hut,  in  our 
opinion,  the  power  may  properly  enough  be  exercised  by  public 
corporations  also.  It  was  held  in  Dix  v.  Town  of  Duimnerston, 
19  Vt  262,  that  selectmen,  having  power  to  audit  and  allow 
claims,  might  submit  to  a  reference.  As  having  some  bearing 
upon  the  same  question,  see,  also,  Inhabitants  of  Boston  v.  Brazer, 
11  Mass.  447;  Brady  v.  Mayor  of  Brooklyn,  1  Barb.  584."1 

§  236.  Liability  under  special  provisions  of  charter  or 
statute.  —  Where  the  charter  of  a  corporation  makes  every 
director  personally  liable  for  the  debts  of  the  corporation  during 
his  administration  to  an  amount  not  to  exceed  a  h'xed  sum,  an 
action  in  equity  may  be  maintained  by  a  creditor  against  the 
directors  as  it  would  prevent  a  multiplicity  of  suits,  and  the 
liability  of  all  the  parties  interested  could  be  determined  in  the 
one  suit.  In  such  case  the  corporation  would  not  be  a  necessary 
party  defendant  when  the  suit  is  first  brought,  nor  would  it  be 
necessary  to  make  all  the  creditors  parties  plaintiff.2  And  it 

1  District  Township  of  Walnut  v.  their  entire  claims,  while  others  less 

Rankin,  (1886)  70  Iowa,  65,  66,  67.  prompt  would  not  receive  anything. 

•Bauer  r.  Platt,  (1893)72  Hun,  826;  If  the  directors  should  find  that  the 

H.  c.,  25  N.  Y.  Supp.  426.  PAUKEK,  amount  of  their  statutory  liability 

J.,  speaking  for  the  court  said  :  "  The  would  not  equal  the  deficiency  of  the 

purpose  of  the  provision  [of  the  company  to  its  creditors  some  or  all 

charter]  was  not  only  to  insure  vigil-  of  them  might  arrange  for  a  prcf- 

ance  on  the  part  of  the  directors,  but  erence  of  creditors  by  answering, 

to  further  assure  to  the  creditors  of  the  or  demurring  in  some  cases,  while 

company  payment  of  their  claims,  suffering  default  in  others.  By  sui-h 

It  has  for  its  object  the  protection  of  methods,  which  even  the  vigilant 

all  creditors,  not  a  portion  of  them,  prosecutor  could  not  overcome,  some 

That  result  might  not  be  effectuated  creditors  might  be  paid  in  full  \\hile 

if  each  creditor  should  be  compelled  others  would  receive  little  or  nothing. 

to  resort  to  an  action  at  law.  The  As  the  statute  was  intended  for  the 

liability  of  each  director  does  not  ex-  benefit  of  all  creditors,  and  all  of 

ceed  five  thousand  dollars.  If  then,  them,  as  well  as  some  of  them,  must 

each  director  should  suffer  judgment  be  presumed  to  h-ive  tni-ted  in  part 

to  go  against  him  by  default,  the  to  the  protection  assured  them  by  its 

creditors  first  suing  might  recover  provisions,  it  is  no  more  than  just 


PERSONAL  LIABILITY  OF  OFFICERS.  [§236 

would  be  of  advantage  to  the  directors  to  bring  them  all  into 
court  on  the  equity  side,  as  they  cannot  be  decreed  to  pay  more 
individually  than  the  liability  named  in  the  charter  and  assured 
by  them  when  they  became  directors.  Besides,  such  a  suit  is 
adapted  for  their  protection  in  such  cases  from  the  possibility  of 
vexatious  litigation.  If  the  amount  due  creditors  equals  or 
exceeds  the  aggregate  of  the  statutory  liability  of  the  directors, 
the  judgment  decreeing  that  each  make  payment  of  the  sum  for 
which  he  is  liable  will  relieve  him  from  the  annoyance  and  expense 
of  further  litigation  ;  on  the  other  hand,  if  it  should  prove  to  be 
less,  the  judgment  will  provide  for  a  ratable  payment,  and,  in 
addition  to  the  other  litigation  which  would  otherwise  be 
threatened,  possibly  an  action  for  contribution  may  be  avoided.1 
The  trustees,  directors  or  managers  of  any  society  or  corporation 
organized  under  the  provisions  of  this  New  York  statute,2  by  a 
section  of  that  statute  are  made  "  jointly  and  severally  liable  for 
all  debts  due  from  said  society  or  corporation  contracted  while 
they  are  trustees,  provided  said  debts  are  payable  one  year  from 
the  time  they  shall  have  been  contracted,  and  provided  a  suit  for 
the  collection  of  the  same  shall  be  brought  within  one  year  after 
the  debt  shall  become  due  and  payable."  In  an  action  brought 
against  a  trustee  of  a  club  which  was  organized  under  this  statute 
for  the  recovery  of  the  amount  of  a  promissory  note  of  the  club 
payable  at  four  months  from  date,  it  was  held  by  the  Court  of 
Common  Pleas  of  the  city  of  New  York,  in  General  Term,  that 
a  judgment  against  the  corporation  was  not  requisite  ;  also  that  a 
judgment  against  one  trustee  upon  his  several  liability  would  not 
discharge  or  affect  the  liability  of  another  trustee.3  The  Supreme 
Court  of  New  York,  in  General  Term,  has  sustained  the  con- 
stitutionality of  this  statute.  And  they  have  also  held  that  the 
creditor  under  it  seeking  to  charge  the  trustees  need  not  exhaust 
his  remedy  against  the  corporation  before  suing  the  trustees,  and 

that  each  creditor  should  share  ratably  ?>.  Simpson,  74  N.   Y.   137,  as  directly 

in  the  fund  which  an  enforcement  of  applicable  and  controlling  in  this  case, 

the  liability  of  the  directors  will  pro-  '  PARKER,    J. ,    in    Bauer  n.    Platt, 

duce."    The  court  referred  to  Board  (1893)  72  Hun,   326;   s.  c.,  25  N.  Y. 

of  Supervisors  v.  Deyoe,  77  N.  Y.  219;  Supp.  426. 

Weeks  r.   Love,  50  N.  Y.  568,  which  *  N.  Y.  Laws,  1875,  chap.  267. 

followed    Bank    of    Poughkeepsie  t>.  3  Strauss  v.   Trotter,  (1893)  6  Misc. 

Ibbotson,  24  "Wend.  473;  and  Garrison  Rep.  77;  s.  c.,  26  N.  Y.  Supp.  20. 
r.  Howe,  17  N.  Y.  458;  also  to  Pfohl 


§236] 


PERSONAL  LIABILITY  OF  OFFICERS. 


381 


the  action  may  be  maintained  against  any  or  all  of  the  trustees.1 
They  also  held  that,  to  create  a  liability  on  the  part  of  the  trustees 
of  this  club  (the  action  being  upon  promissory  notes  of  the  club), 
they  must  have  been  directors  of  the  corporation  at  the  time  of 
the  creation  of  the  indebtedness,  and  that  the  fact  that  they  were 
trustees  of  the  club  at  the  time  of  the  giving  of  the  notes,  if  they 
were  given  for  a  past  indebtedness,  was  not  sutHcient  to  charge. 
them  with  liability.*  A  prior  recovery  of  a  judgment  against  a 
corporation  is  not  essential  to  the  maintenance  of  an  action  to 
enforce  the  personal  liability  of  a  director  where,  under  the 
charter  of  the  corporation,  every  director  is  made  personally  liable 
in  an  action  at  law  for  the  corporate  debts.  And  other  creditors 
and  directors  need  not  be  joined  as  parties  in  such  actions.8  The 
Supreme  Court  of  New  York,  in  General  Term,  has  held  that  the 
obtaining  of  a  judgment  against  a  corporation  by  a  creditor,  who 
at  the  same  time  was  a  stockholder  and  trustee,  with  the  coop- 
eration of  the  board  of  the  associate  trustees,  the  corporation 
being  insolvent,  was  a  violation  of  the  statute  of  New  York  which 
prohibits  the  assigning  or  disposing  of  its  property  by  any  cor- 
poration's officers,  for  the  payment  of  a  debt,  or  from  making 
any  transfer  in  contemplation  of  insolvency ;  also  that  a  sale  of 
the  property  under  such  a  judgment  was  void  as  to  other  judg- 
ment creditors.4  But  should  there  not  appear  an  intent  to 
defraud  creditors,  except  as  derived  from  the  statute,  and  this 
judgment  creditor  purchase  the  property  at  the  sale  under  his 
judgment,  and  afterwards  satisfy  a  given  mortgage  upon  it, 
besides  other  outstanding  indebtedness  of  the  corporation,  the 
lien  of  the  other  judgment  creditors  would  be  subject  to  such  mort- 
gage and  indebtedness.5  A  provision  in  a  charter  of  a  corpora- 
tion that,  "  If  the  indebtedness  of  said  company  shall  at  any  time 
exceed  the  capital  stock  paid  in  the  directors  assenting  thereto 
shall  be  individually  liable  to  the  creditors  for  said  excess,"  has 
been  held  by  the  Tennessee  Supreme  Court  to  impose  an  individ- 
ual liability  upon  them  for  such  specific  debts  only  as  were  con- 

1  Metzger   r.  Carr,    (1804)  79  Hun,  Goodrich,  (CU  Com.  PI.  1898)  2  Misc. 

258;  8.  c.,  29  N.  Y.  Supp.  410.  Rep.  578;  21  N.  Y.  Supp.  949. 

'Ibid.  'King  t.  Union  Iron  Co..  (1891)  58 

•State  Bank  t>.  Andrews,  (Ct.  Com.  Hun,  601;  a.  c.,  11  N.  Y.  Supp.  608. 

PI.  N.  Y.   1898)  2  Misc.  Rep.  394;  8.  » Ibid. 

o.,  21  N.  Y.  Supp.  948;    Merrill  vf 


382  PERSONAL  LIABILITY  OF  OFFICERS.  [§  237 

tracted  with  their  assent  in  excess  of  the  paid-up  capital  and 
remain  unpaid  after  the  corporate  assets  are  exhausted.1 

§237.  Liability  under  provisions  of  charter  —  Pennsyl- 
vania.— The  charter  of  a  Pennsylvania  corporation  provided  that 
if  the  directors  failed  to  make  an  annual  statement  of  the  nature 
and  character  of  the  property  of  the  association,  or  if  they  made 
a  false  statement,  they  should  be  liable  for  the  debts  of  the  cor- 
poration. The  directors  made  no  statement  for  three  years. 
They  then  published  a  statement,  in  lumping  items  only,  on  the 
face  of  which  the  company  was  solvent.  As  a  matter  of  fact  the 
company  was  insolvent  at  the  time,  and  two  days  afterwards  a 
receiver  was  appointed.  In  an  action  against  the  directors,  they 
filed  an  affidavit  of  defense  in  which  they  averred  that  they  had 
made  the  statement  with  ordinary  care  and  prudence,  and  in  the 
belief  that  the  association  was  solvent.  This  affidavit  of  defense 
was  held  by  the  Supreme  Court  of  Pennsylvania  to  be  insufficient 
to  prevent  judgment,  as  the  delay  in  making  the  statement  and 
its  defective  character  brought  the  directors  within  the  personal 
liability  clause  of  the  charter.2 

1  Allison  r.  Coal  Company,  (1888)  8  gible  statement  of    it  in  conformity 

Pickie,  (Tenn.)    60;     s.  c.,   9    S.  W.  with  the  act  of  assembly.     It  was  a 

Rep.  226.     A  case  illustrating  the  cir-  duty  the  association  owed  to  the  pub- 

cumstances  under  which  a  by-law  of  a  lie,  and  the  default  of  their  predeces- 

corporation  making  the  director  liable  sors  should  have  hastened  their  per- 

for  creating  an  indebtedness  exceed-  formance  of  it.     But  they  neglected  to 

ing    the    amount    of   the    subscribed  make  any  statement  for  three  months, 

capital  stock  would  be  held  to  have  and  until  the  association  was  about  to 

been    waived  :      Underbill    v.    Santa  pass  into  the  hands  of  a  receiver,  and 

Barbara  Land,  Building  &  Imp.  Co.,  when  they  did  make  one  it  was  defec- 

(1891)  93  Cal.  300;  s.  c.,  28  Pac.  Rep.  tive.     It  did  not  set  forth  with  reason- 

1049.  able    particularity    the    '  nature    and 

5  Githers  v.  Clarke,  (1893)  158  Pa.  St.  character  of  the  property  of  the  cor- 
616;  s.  c.,  28  Atl.  Rep.  232;  33  W.  N.  poration.'  It  represented  the  associa- 
C.  462.  The  court  said:  "  It  is  quite  tion  as  solvent,  when  in  fact  it  was  not 
clear  that  their  belief  that  the  corpora-  able  to  pay  more  than  ten  per  cent  of 
tion  was  solvent  was  no  excuse  for  its  liabilities.  It  may  be  true  that  the 
their  failure  to  make  an  earlier  state-  directors  believed  the  corporation  was 
ment,  and  that  '  ordinary  care  and  pru-  solvent,  and  that  the  assets  were  as 
dence '  in  making  it  when  they  did  valuable  as  represented,  but  it  is  very 
cannot  relieve  them  from  the  liability  evident  that  their  belief  was  not  war- 
incurred  by  their  delay.  They  were  ranted  by  the  facts  nor  consistent  with 
chargeable  with  knowledge  of  the  con-  the  knowledge  of  its  affairs  which  the 
dition  of  the  association,  and  they  law  imputes  to  them." 
ought  to  have  made  a  true  and  intelli- 


'.8J  PERSONAL  LIABILITY  OF  OFFICERS.  383 

238.  Statutory  liability  —  California  statutes.— To  make 
<lirectors  of  a  corporation  personally  liable  under  the  provision  of 
the  Civil  Code  of  California  that  "  tin-  directors  of  corporations 
must  not  *  *  create  debts  beyond  the  .subscribed  capital 

.-lock  *  *  V  and  then  affixes  a  liability  upon  them  for  its 
violation  to  the  full  amount  of  the  debt  contracted,  it  must  appear 
that  the  corporation  must  have  been  indebted  at  the  same  time  in 
an  aggregate  amount  exceeding  the  amount  of  the  capital  stock. 
This  statute  has  been  held  a  penal  one  and  subject  to  a  strict  con- 
struction against  the  liability.  I7nder  that  construction  the  pro- 
hibited debts  have  been  held  to  be  ordinary  subsisting  debts  in 
excess  of  the  capital  stock,  and  not  the  aggregate  of  the  debts  of 
the  c.nnpany  created  during  its  entire  corporate  exi-tence.  The 
prohibition  applies  to  debts  in  excess  of  all  the  subscribed  capital 
stock,  whether  it  has  all  been  paid  in  or  only  part  of  it,  and 
regardless  of  the  disposition  which  may  have  been  made  of  it.  A 
purchase  of  mines  for  the  full  amount  of  the  capital  stock,  to  be 
paid  for  in  the  stock  of  the  corporation,  a  portion  of  which  only 
is  paid  in,  does  not  make  all  debts  thereafter  created  in  excess  of 
the  subscribed  capital  stock.  The  subscribed  capital  stock  of  a 
corporation  is  the  fund  upon  which  the  transactions  of  the  corpo- 
ration are  to  be  made,  and  is  a  guaranty  to  creditors  that  all  obli- 
gations to  that  amount  will  be  met ;  but  it  cannot  be  considered 
as  a  debt  of  the  corporation,  whether  paid  in  or  not,  in  estimating 
the  amount  of  indebtedness  beyond  which  the  directors  of  the 
corporation  may  make  themselves  personally  liable.  Debts  to  be 
thus  considered  are  only  those  created  by  voluntary  act  of  the 
directors.1  The  directors  of  a  mining  corporation  are  not  ren- 
dered liable  for  the  penalty  imposed  by  the  statute  of  California 
requiring  the  directors  of  such  corporations,  on  the  first  Monday 
of  each  and  every  month,  to  post  in  the  office  of  the  corporation 
a  verified  balance  sheet  for  the  previous  month,  and  providing 
that  upon  their  failure  so  to  do  they  shall  be  liable  in  an  action 
by  any  stockholder  in  the  penal  sum  of  $1,000  for  each  failure  to 
comply  with  its  requirements.  It  would  seem  that  under  the 
provisions  of  the  statute  the  stockholder  or  stockholders  might, 
at  their  election,  proceed  against  the  directors  for  a  single  delin- 
quency, or  might  forbear  to  do  so  until  more  than  one  dereliction 
of  duty  on  the  part  of  their  trustee;*,  had  occurred,  but  in  neither 

1  Moore  r.   Lent,  (1889)  81  Gal.  502;  s.  c.,  22  1^.  Rep.  875. 


384  PERSONAL  LIABILITY  OF  OFFICERS.  [§  239 

event  could  more  than  one  penalty  be  recovered.1  The  statute 
of  California  requiring  the  directors  and  officers  of  mining  cor- 
porations to  make  and  post  an  account  or  balance  sheet  on  the 
first  Monday  of  each  month  has  been  held  to  be  mandatory,  and 
the  officers  and  directors  of  such  corporations  must  be  presumed 
to  know  at  all  times  the  condition  of  the  business  and  property 
under  their  control,  and  in  the  absence  of  a  showing  of  impossi- 
bility to  have  made  and  posted  the  account  as  required,  they  can- 
not avail  themselves  of  any  presumption  that  their  duty  has  been 
performed.  Nor  can  they  relieve  themselves  from  liability  to  a 
stockholder  for  liquidated  damages  under  the  statute  by  showing 
that  the  account  was  posted  after  the  time  required  by  law  and 
the  day  before  the  commencement  of  the  action.2 

§  239.  Statutory  liability  —  Colorado  statutes. —  The  direct- 
ors of  a  corporation,  coming  into  office  after  an  indebtedness  has 
been  created  against  it,  and  after  the  previous  board's  default  in 
failing  to  file,  as  required  by  the  statutes  of  Colorado,  a  report 
showing  the  amount  of  the  corporate  indebtedness,  will  not  be 
held  liable  under  the  general  statute  which  provides  "  that  all  the 
directors  or  trustees  of  the  company  shall  be  jointly  and  severally 
liable  for  all  the  debts  of  the  company  that  shall  be  contracted 
during  the  year  next  preceding  the  time  when  such  report  should 
*  *  *  have  been  made  and  filed,  and  until  such  report  shall 
be  made."  3  A  complaint  against  directors  of  a  corporation  to 
enforce  their  liability  under  the  statutes  of  Colorado  which  makes 
directors  and  trustees  of  corporations  "  liable  for  all  the  debts  of 
the  company  that  shall  be  contracted  during  the  year  next  pre- 
ceding the  time  when  such  report  should  by  this  section  have 
been  made  and  filed  and  until  such  report  shall  be  made,"  refer- 
ring to  the  annual  report  of  the  amount  of  its  capital  and  the 
proportion  actually  paid  in,  etc.,  must  aver  the  contract  of  indebt- 
edness, the  default  of  the  corporation  and  the  directorship  of  the 
defendants,  and  as  of  such  dates  to  show  the  liability  of  the 
defendants  under  the  statute.4 

1  Loveland  v.  Garner,  (1887)  71  Cal.  ton  v.  Otis,  21  N.  Y.  261;  Quarry  Co. 

541;  s.  c.,  12  Pac.  Rep.  616.  v.  Bliss.  27  N.  Y.  299. 

*  Schenck  v.  Bandmann,  (1889)  81  4  Anfenger  v.  Anzeiger  Pub.  Co., 

Cal.  231;  s.  c.,  22  Pac.  Rep.  654.  (1866)  9  Colo.  377;  s.  c.,  12  Pac.  Rep. 

•Austins.  Berlin,  (1889)  13 Colo.  198;  400.  As  to  construction  of  the  Colo- 

8.  c.,  22  Pac.  Rep.  433 ;  citing  Bough-  rado  statutes  imposing  liability  upon 


§  240]  PERSONAL  LIAMIUTY  OF  OFFICERS.  886 

§  240.  Statutory  liability  Iowa  statutes. —  It  mu.-t  appear. 
in  order  to  render  officers  of  a  corporation  liable,  under  the  stat- 
utes  of  Iowa  for  diversion  of  funds  or  paying  dividends  so  as  to 
leave  insufficient  funds  to  meet  liabilities,  that  the  entire  property 
of  the  corporation  is  not  sufficient  to  pay  its  indehtedne.-s.1  The 
word  "  liability"  in  this  statute  mcan>  existing  indebtedness,  the 
payment  of  which  can  be  enforced.  It  does  not  include  corpo- 
rate liability  for  payments  of  capital  stock,  the  liability  being 
reunite  and  contingent.2  There  bein«;  sufficient  assets  in  the  pos- 
session of  a  corporation  to  pay  all  its  debts  at  the  time  a  dividend 
is  declared,  the  payment  of  a  dividend  will  not  IKJ  held  illegal  on 
a  diversion  of  funds  to  objects  other  than  tho>c  authorixed.3  The 
statutory  provision  in  Iowa  that  intentional  fraud  in  failing  to 
comply  substantially  with  the  articles  of  incorporation,  or  in 
deceiving  the  public,  that  any  person  who  has  sustained  injury  from 
such  fraud  may  recover  damages  against  those  guilty  of  partici- 
pating in  the  fraudulent  act,  only  applies  to  officers  or  others 
guilty  of  intentional  fraud.  Hence,  in  an  action  to  recover  from 
individual  officers  of  a  corporation  the  amount  of -a  judgment 
against  the  corporation  on  the  ground  that  such  officers,  have  ren- 
dered themselves  liable  by  fraud,  they  will  be  relieved  from  liability 
by  a  proof  of  the  absence  of  intentional  fraud  and  diversion  of  assets 
to  their  own  use.4  In  an  action  for  damages  under  this  statute, 
the  particular  respect  in  which  there  was  a  failure  to  comply  with 
the  articles  of  incorporation  resulting  in  damages  to  the  complain- 
ant, or  the  particular  act  of  deception,  must  be  specified.5  I'nder 
the  statute  of  Iowa  making  the  directors  of  a  railroad  company 
receiving  taxes  in  aid  thereof  liable  to  any  of  its  stockholders  in 
double  the  amount  of  the  par  value  of  his  stock  in  the  event  of 
their  voting  to  bond  or  mortgage  the  road  to  exceed  certain  lived 
amounts  per  mile,  the  Supreme  Court  of  Iowa  held  that  no  lia- 
bility on  the  part  of  the  directors  arose  where  such  an  incum- 
brance  was  voted  prior  to  the  voting  of  the  tax,  and  the  mortgage 
was  executed  and  recorded  before  the  tax  in  aid  of  the  railroad 
was  collected  and  paid  to  the  company.6 

officers  of  corporations  for  failure  to  Ibid, 

tniike  certain  annual  reports,  and  for  Ibid. 

signing  a  false  report  knowing  it  to  be  Hoffman  r.  Dickey,  54  Iowa,  135. 

fa'se,  see  Matthews  r.  Patterson,  (1891)  White  r.  Hosford,  87  Iowa,  566. 

16  Colo.  215;  8.  c.f  26  Pac.  Rep.  812.  Walker     r.     Birchard,    (1891)    82 
1  Miller  v.    Bradish,   69  Iowa,  278.    Iowa,  888. 
49 


386  PERSONAL  LIABILITY  OF  OFFICERS.  [§  24:1 

§241.  Statutory  liability  —  Massachusetts  statutes.— 
The  statute  of  Massachusetts  makes  the  officers  of  a  corporation 
jointly  and  severally  liable  for  the  debts  of  the  corporation  in 
case  there  are  false  statements  in  the  certificate  of  the  condition 
of  the  corporation  which  they  are  required  by  law  to  make  at 
certain  stated  times.1  A  tax  is  a  debt  within  the  meaning  of 
that  statute.2  The  directors  and  officers  signing  a  certificate  of 
the  condition  of  the  corporation,  knowing  it  to  be  false,  are  liable 
for  the  debts  of  the  corporation  then  existing,  as  well  as  for 
debts  incurred  thereafter.3  But  under  this  Massachusetts  statute 
directors  cannot  be  made  liable  for  the  debts  of  a  corporation,  unless 
the  certificate  required  by  law  be  willfully  false.4  Debts  due 
from  a  corporation  to  one  of  the  directors  are  debts  within  the 
meaning  of  the  Massachusetts  statute  making  the  president  and 
directors  of  a  corporation  liable  to  the  extent  of  the  excess  of  its 
debts  over  its  capital.5  On  a  bill  brought  to  enforce  this  liability 
by  a  judgment  creditor,  the  plaintiffs  may  prove,  not  only  their 
judgment  debt,  but  a  further  sum  due  them  on  simple  contract.6 
Where  the  debts  of  the  corporation  exceed  the  capital  a  director 
of  the  corporation,  who  is  also  a  creditor,  cannot  share  with  other 
creditors,  who  are  not  directors,  in  the  amount  which  he,  or  he 

1  Pub.  St.  Mass.  chap.  106,  §£  54,  had  examined  and  been  misled  by  the 
60.  false  certificate,  as  it  should  be  if  the 

3Felkera.  Standard  Yarn  Co.,  (1889)  idea  of  the  defendant  were  followed 
148  Mass.  226;  s.  c.,  19  N.  E.  Rep.  out.  It  is  not  even  limited  to  debta 
220.  and  contracts  which  come  into  exist- 

3  Ibid.  It  was  said  by  the  court :  ance  after  the  filing  of  the  certificate, 
"  And  no  doubt  one  important  reason,  but  is  general  in  its  terms,  and  pro- 
perhaps  the  principal  reason,  for  the  vides  that  the  officers  who  knowingly 
statutory  provisions  is  to  enable  per-  make  the  false  certificate  '  shall  be 
sons  who  may  have  occasion  to  deal  jointly  and  severally  liable  for  its  debts 
with  corporations  to  ascertain  their  and  contracts.'  Pub.  St.  Mass.,  chap, 
condition,  and  their  title  to  credit,  so  106,  §  60.  The  construction  of  this 
that  a  person  whose  debt  already  language  includes  existing  debts  and 
exists  at  the  time  of  the  filing  of  the  contracts,  and  we  find  nothing  else- 
certificate  certainly  has  not,  by  any  where  sufficient  to  show  that  the 
false  statements  contained  therein,  legislature  meant  otherwise." 
been  misled  into  giving  credit  to  the  4Felker?;.  Standard  Yarn  Co.,  (1889) 
corporation,  and  may  not  in  any  way  150  Mass.  264;  s.  c.,  22  N.  E.  Rep. 
be  injured  thereby.  But  in  imposing  896. 

the  penalty  of  liability  for  its  debts       6  Thacher  ?;.  King,   (1892)  156  Mass, 
and     contracts,    the    statute    is     not   490;  s.  c.,  31  N.  E.  Rep.  648. 
limited  to  such  debts  and  contracts  as       6  Ibid, 
were  created  in  favor  of  persons  who 


12]  PERSONAL  LIABILITY  OF  OFFICERS.  387 

ami  other  directors,  may  bo  compelled  t.i  pay  towards  the  debts 
of  the  c'orjx>ration  in  consequence  of  such  excess  under  this 
statute.1  The  statute  of  Massachusetts  making  officers  of  cor- 
porations jointly  and  severally  liable  for  the  debts  thereof,  when 
they  exi-rrd  the  capital,  "to  the  extent  of  such  excess  existing  at 
tin-  tinif  of  the  commencement  of  the  suit  against  the  corporation 
upon  the  judgment  in  which  the  suit  in  equity  to  enforce  such 
liability  i<  brought,"  has  had  the  consideration  of  the  federal 
court  for  the  district  of  Vermont,  and  the  court  construed  the 
statute  and  held  the  liability  under  it,  before  suit  brought  to  fix  it, 
not  to  be  a  debt,  nor  any  fixed  obligation  to  pay,  but  only  that 
from  which,  by  the  prescribed  course,  an  obligation  to  pay  might 
be  raised.* 

§  242.  Statutory  liability  —  Minnesota  statutes. —  There  is 
a  statute  in  Minnesota  to  this  effect :  "  If  any  corporation 
organized  and  established  under  the  authority  of  this  act  shall 
violate  any  of  its  provisions,  and  shall  thereby  become  insolvent, 
the  directors  ordering  or  assenting  to  such  violation,  shall  be 
jointly  and  severally  liable  in  an  action  founded  on  this  statute 
for  all  debts  contracted  after  such  violation  as  aforesaid."8  The 
Supreme  Court  of  Minnesota  held  that  the  ultra  vires  acts  of  the 
directors  of  the  corporation  in  the  case  before  them  in  executing 
accommodation  paper  in  the  name  of  the  corporation,  and  in 
lending  the  funds  of  the  corporation  to  others,  constituted  a 

1  Ibid. ;    citing  Potter    t>.     Stevens  purpose.     Pollard  v.  Bailey,  20  Wall. 

Machine  Co.,   127  Muss.  592;  Thayer  520;  Fourth  National  Bank  p.  Franck- 

0.  Union  Tool   Co.,  4  Gray,   75,  79;  lyn,  120  U.   S.  747;   s.  c.,  7  Sup.  Ct. 

Merchants'    Bank   t>.    Stevenson,     10  Rep.   757.     Such  a  liability  under  a 

Gray,  283;   Cambridge  Water  Works  statute  like  this,  before  suit  brought 

v.  Somerville  Dyeing  &  Bleaching  Co.,  to  fix  it,  is  not  a  debt,  nor  any  fixed 

4    Allen,    239;    Merchants'    Bank    v.  obligation    to  pay,  but  is    only   that 

Stevenson,  5  Allen,  398,  401,  402,  and  from  which,  by  the  prescribed  course, 

7  Allen,  489;    First  National  Bank  r.  an  obligation  to  pay  may  be  raised. 

Hingham  Manufg.  Co.,  127  Mass.  563.  Ripley    r.    Sampson,    10    Pick.    371; 

•Knower  r.   Haincs,  (1887)  81  Fed.  Bangs?.  Lincoln,  10  Gray,  000.     This 

Rep.  518.     WHEELER,  J.,  said  :  "No  Is  different  from  cases  where  the  law 

liability  of  officers  or  stockholders  of  a  raises  the  liability  from  the  acts  of  the 

corporation  exists  at  common  law,  but  officers  or  stockholders  and  leaves  it 

only  by   statutes  of  the  sovereignty  to    be  enforced    by  the   appropriate 

creating  it.     When  so  created,  it  exists  remedy.      Wiudham   Provident  Inst. 

only  as  created,  and  can  be  enforced  r.  Sprague,  48  Vt.  502." 
only   as    provided    by   such  statutes       *  Laws  Minn.  1878,  chap.   11,  §  28 

•when  they  make  provision   for  that  (Gen.  Sts.  Minn.  1878,  chap*.  84,  §  142.) 


388  PERSONAL  LIABILITY  OF  OFFICERS.  [§  245 

violation  of  the  statute  "  by  the  corporation  "  within  its  meaning. 
As  to  the  "  assent "  required  to  make  a  director  liable,  they 
held  that  to  constitute  "  assent "  there  must  be  something  more 
than  mere  negligence  on  the  part  of  a  director  in  not  knowing  what, 
in  the  exercise  of  proper  care,  he  ought  to  have  known.  There 
must  be  some  willful  or  intentional  violation  of  duty  —  assenting 
to  it,  knowing  that  the  act  is  being  or  about  to  be  done.  But  ifr 
with  such  knowledge,  he  neither  objects  to  nor  opposes  it  when 
his  duty  requires,  and  when  he  has  the  opportunity  of  doing  so, 
this  would  be  "  assent."  Further,  if  a  series  of  acts  or  a  con- 
tinuous course  of  conduct  on  the  part  of  the  directors,  in  viola- 
tion of  the  statute,  finally  producing  the  insolvency  of  the. corpo- 
ration, is  begun  before  the  debt  of  a  creditor  is  contracted,  the 
debt  is  one  contracted  "  after  such  violation,"  although  the  series 
of  acts  or  course  of  conduct  is  not  completed  or  the  insolvency  of 
the  corporation  consummated  until  afterwards.1  These  rules  were 
declared  as  to  actions  to  enforce  this  liability  under  the  statute, 
to  wit :  A  creditor  of  the  corporation  may  sue  one  or  more  of 
the  directors  to  enforce  the  liability  without  joining  all  the  creditors 
to  whom  they  are  liable,  or  all  the  directors  subject  to  the  liability. 
His  right  of  action  is  neither  taken  away  nor  suspended  bv  the 
fact  that  the  affairs  of  the  corporation  may  have  been  placed  in 
the  hands  of  a  receiver.  Nor  is  it  necessary  that  the  creditor  sue 
the  corporation  and  obtain  judgment  against  it  before  suing  the 
directors.  The  corporation,  if  necessary,  may  be  joined  as 
co-defendant  with  the  directors,  and  the  creditor  may  establish 
his  claim  against  the  corporation  in  the  same  action.2 

§  243.  Statutory  liability  —  Missouri  statutes. —  The 
Supreme  Court  of  Missouri  has  held  that  under  the  statute  of 
that  state  making  directors  of  corporations,  where  they  have 
allowed  the  debts  of  the  corporation  to  exceed  the  amount  of 
capital  stock  paid  in,  jointly  and  severally  liable  to  the  extent  of 
such  excess  for  all  debts  of  the  corporation  then  existing,  and  for 

'Patterson    •».    Stewart,    (1889)    41  v.  Bailey  Manufacturing  Co.,  34  Minn. 

Minn.  84;  s.  c.,  42  N.  W.  Rep.  926.  323;  s.  c.,  25  N.  W .  Rep.  639;  Allen  v. 

8  Ibid.    The  court  commented  upon  Walsh,   25    Minn.    543 ;    Johnson    ». 

the  following  cases  which  are  of  differ-  Fischer,  30  Minn.  173;  s.  c.,  14  N.  W. 

ent  kinds  to  enforce  liability  of  stock-  Rep.  799  ;  Bassett  v.  St.  Albans  Hotel 

holders  and   officers:  Dodge  v.   Min-  Co.,  47  Vt.  313;  Hornor  v.   Kenning, 

nesota  Plastic  Slate  Roofing  Co.,  16  93  U.  S.  228. 
Minn.  368;  Merchants'  National  Bank 


8  344 


LIABILITY  OF  OFFICERS. 


889 


all  that  should  }»•  contracted  so  long  as  they  continued  in  office, 
were  liable  in  an  action  to  recover  a  debt  contracted  under 
such  circumstances,  notwithstanding  one  of  the  firm  owning  the 
debt  was  a  stockholder  in  the  corporation.1  The  deht>  for  which 
directors  of  a  corporation  will  be  held  liable  under  this  Mi.--.ouri 
statute  are  the  debts  voluntarily  incurred  by  the  directors.2  A 
judgment  against  a  corporation  for  damages  for  a  loss  of  a  steam- 
boat, for  instance,  through  the  negligence  of  the  agents  and  .MTV 
ants  of  the  corporation  would  not  be  one  of  the  debts  contem- 
plated by  the  statute.3 

§  244.  Statute  01  New  York  —  liability  for  failure  to  file 
annual  report. —  Under  the  statutes  of  New  York,  making  the 
directors  of  certain  corporations  liable  for  the  debts  of  the 
corporation  in  case  they  fail  to  file  with  the  secretary  of  state  the 


1  Anderson  r.  Klattau,  43  Mo.  42. 
The  court  distinguished  Kritzer  r. 
Woodson,  19  Mo.  827,  in  these  words: 
"  That  was  a  .case  where  a  stock- 
holder in  ti  corporate  company  sued 
the  directors  to  recover  back  an  amount 
which  he  hud  been  compelled  to  pay 
to  the  creditors  of  the  company.  The 
law  made  him  liable  to  the  extent  of 
double  the  amount  of  stock  in  the 
company.  Its  entire  assets  having 
been  exhausted,  lie  was  compelled  to 
pay  the  creditor  of  the  company  the 
amount  which  lie  sought  to  recover  in 
that  suit  upon  the  ground  that  the 
ili  lits  of  the  corporation  had  been 
suffered  to  accumulate  to  an  amount 
in  excess  of  the  capital  stock  actually 
paid  in.  But  the  court  said  this 
statute  was  given  for  the  protection  of 
creditors  and  not  the  individual  mem- 
bers  of  the  company.  It  is  true  that 
for  any  improper  management  of  the 
affairs  of  the  company,  by  which  a 
liability  might  be  incurred  on  the  part 
of  the  directors  to  the  individual  mem- 
bers, an  action  could  be  maintained 
against  them.  Such  liability,  how- 
ever, exists  independent  of  this  statute. 
It  is  clear  that  the  point  decided  in 
that  case  was  that  the  statute  was  in- 


tended for  the  protection  of  such  par- 
ties as  really  held  debts  against  the 
company.  The  stockholder,  by  dis- 
charging an  obligation  which  the  law 
imposed  upon  him,  could  not  make 
himself  the  creditor  of  the  corpora- 
tion. His  claim  was  in  no  sense  a 
debt  due  by  the  company,  and  hence 
it  was  not  covered  by  the  provisions  of 
a  statute  made  for  a  different  purpose 
altogether.  This  [claim  in  suit  here] 
seems  to  have  been  a  debt  contracted 
by  the  company  in  the  prosecution  of 
its  business,  and  the  liability  of  the 
defendants  cannot  be  affected  by  the 
fact  that  one  of  the  plaintiffs  was  a 
stockholder.  Certainly  the  interests  of 
his  copartner  ought  not  to  suffer  on 
account  of  his  relation  to  the  corpora- 
tion. The  objection  differs  in  no 
essential  particular  from  any  other 
incurred  by  the  company;  and  if  it 
was  due  and  owing  to  the  stockholder 
alone,  we  can  see  no  good  reason  for 
depriving  him  of  the  protection  in- 
tended to  be  given  to  all  creditors 
alike." 

'Cable  ».  Gaty,  84  Mo.  573,  atlirm 
ini:  Cal.le  r.  McCune.  ~2(\  Mo.  1571. 

•Cable  r.  Gaty,  84  Mo.  573.  affirm- 
ing Cable  r.  McCnne,  26  Mo.  871. 


390  PERSONAL  LIABILITY  OF  OFFICERS.  [§ 

annual  report  required  as  to  the  amount  of  its  capital  stock  and 
the  proportion  actually  paid  in,  the  amount,  and,  in  general 
terms,  the  nature  of  its  existing  assets  and  debts,  and  the  names 
of  its  then  stockholders,  and  the  dividends,  if  any,  declared  since 
the  last  report,1  the  directors  become  liable  for  all  the  debts  of 
the  corporation  during  the  term  of  directorship  if  they  fail  to 
make  and  file  the  report.  So  long  as  the  default  lasts,  the  other 
essentials  existing,  there  is  no  distinction  between  directors  in 
office  at  the  time  of  default  and  those  subsequently  elected.  An 
incoming  director,  having  the-  power  to  protect  himself  from  lia- 
bility by  filing  a  report,  his  failure  to  do  so  imposes  a  liability  for 
debts  contracted  during  his  term.2  Where  there  is  proof  in  such 
a  case  that  there  was  a  corporation  which  assumed  to  act  and  carry 
on  business,  having  a  general  manager,  directors  and  by-laws,  the 
directors  against  whom  the  action  is  brought  cannot  defend  on 
the  ground  that  there  was  no  legally  organized  corporation.8 
Operating  as  a  penalty,  a  recovery  cannot  be  had  of  the  trustees 
for  failure  to  file  a  report  under  such  statutes,  in  case  the  statute 
be  repealed,  expressly  or  by  implication,  before  the  trial  of  the 
case.4  Creditors  residing  in  other  states  than  New  York  have 
the  same  rights  as  resident  creditors  to  enforce  the  liability  of  the 
trustees  for  failing  to  make  the  required  annual  report  under  this 
statute.5  In  a  case  where  the  number  of  trustees  of  a  manufac- 
turing corporation  organized  under  the  laws  of  New  York  had 
been  practically  reduced  to  nine  from  twelve,  and  the  annual 
report  required  to  be  filed  had  been  signed  by  six  of  the  trustees, 
it  was  claimed  that  the  trustees  had  become  liable  for  the  debts  of 
the  corporation  as  a  penalty  for  not  filing  the  report,  inasmuch  as 
the  report  filed  had  not  been  signed  by  a  majority  of  twelve  trus- 
tees. The  New  York  Court  of  Appeals  held  that  the  law  had 

1  Laws  N.  Y.  1875,  chap.  611,  §  18.  826;  citing  Buffalo  &  Allegany  Rail- 

*  Buck  v.  Barker,  (Buffalo  Super,  road  v.  Gary,  26  N.  Y.  75;  Aspinwall 

Ct.  Spl.  Term,  1887)5  N.  Y.  St.  Repr.  p.  Sacchi,  57  N.  Y.  331-338;  Meriden 

826;  citing  Jones  <c.  Barlow,  63  N.  Y.  Tool  Co.  t.  Morgan,  1  Abb.  N.  C.  125, 

202;  Cameron  v.  Seaman,  69  N.  Y.  396,  note. 

402;  Boughton  v.  Otis,  21  N.  Y.  261;  4  Victory    Webb    Printing  Co.    ». 

Garrison  v.  Howe,  17  N.  Y.  464,  465;  Beecher,  (1881)  26  Hun,  48\  affirmed 

Quarry  Co.  v.  Bliss,  27  N.  Y.  297-300;  in  97  N.  Y.  651;  followed  in  Carr  v. 

Chandler  r.  Hoag,  2  Hun.  613;  affirmed  Risher,  (1888)  50  Hun,  147. 

in  63  N.  Y.  624.  B  Sears  v.  Waters,  (1887)  44  Hun, 

3  Buck  r.  Barker,  (Buffalo  Super.  101. 

Ct.  Spl.  Term,  1887)*  N.  Y.  St.  Repr. 


§244] 


PERSONAL  LIABILITY  OF  OFFICERS. 


891 


complied  with  in  filing  this  report  :  that  the  proceedings  of 
the  hoard,  in  the  matter  <.f  reducing  the  number  of  jncmbers, 
concurred  in  hy  all  having  an  i'itere>t  in  the  corporation,  effected 
a  practical  reduction,  and  con.stitutcd  the  nine  thereafter* 
;i  i/,  J »/•>'  as  well  as  a  de  facto  board.  Further,  that  it  seemed 
that  the  question  of  the  legality  of  the  change  in  the  constituency 
of  the  board  could  only  he  raised  in  a  direct  proceeding  hy  one 
whose  interests  were  affected.  And  the  trustees  as  constituted 
having  complied  with  the  letter  and  >pirit  of  the  law,  in  tiling  the 
report,  it  was  not  competent  in  this  action  again>t  them  to  enforce 
a  liability  for  non-compliance  with  the  statute  for  plaintiff  to  >how 
that  some  of  the  acting  trustees  \vere  not  elected  or  for  MUM- 
SI  »n  were  disqualified  from  acting,  or  to  claim  that,  by  rea>on  of  a 
non-performance  or  an  irregularity  in  the  performance  of  >ome 
prior  duty  enjoined  upon  the  stockholders,  the  board  a-  con- 
stituted had  no  authority  to  perform  the  general  duties  required 
of  them  as  agents  of  the  corporation.1  In  a  ca.-e  before  the  New 
York  Court  of  Appeals  it  appeared  that  an  annual  report  was 
properly  made  out  and  signed  by  the  trustees  of  the  corporation 
in  the  time  required  by  the  statute,  but  by  inadvertence  or  mis- 
take of  the  secretary  was  not  filed  in  time.  Within  a  month 
afterwards  there  was  an  application  made  to  the  Supreme  (1<>nrt 
for  leave  to  file  it  and  an  order  of  the  court  that  it  be  filed  //////<• 
/'/••-  tune.  The  Court  of  Appeals  held  that  this  order  of  the 
court  did  not  of  itself  relieve  the  trustees  sued  from  liability  ; 
that  the  duty  to  file  the  report  was  imposed  by  statute  upon  the 
corporation,  and  over  it  the  court  had  no  jurisdiction.  The  appli- 
cation was  an  act  by  the  trustees  in  supposed  furtherance  of  their 
duty  and  was  an  indication  of  good  faith  in  respect  to  the  proper 
disposition  of  the  report,  being  an  effort  to  do  that  which  the  cor- 
poration had  not  done.2  Under  the  construction  of  this  section 
of  the  statute,  in  Cameron  v.  Seaman,3  where  it  was  held  that  the 
limitation  of  twenty  days  applied  only  to  the  act  of  making,  and 
did  not  apply  to  the  act  of  filing  or  publishing ;  that,  as  to  those 
acts,  the  section  was  directory,  but  as  the  object  of  the  act  wa>  to 
insure  a  speedy  ami  public  disclosure  of  the  contents  of  the 
report,  it  was  said  that  the  law,  in  the  ah.-ence  of  an  express  pro- 

»  Wallace  &  Sons  r.  Walsh.  (1890)       «  But  lor  r.  Smnlh-y,  1 18*6)  101  N.  Y. 
1  •_>.->  N.  Y.  26;  a.  c.,   25  N.  £.    Rep.    71. 


1076. 


»69N.  Y.  896. 


392  PERSONAL  LIABILITY  OF  OFFICERS.  [§  24ri 

vision  on  the  subject,  implies  that  both  filing  and  publication 
should  be  within  a  reasonable  time  after  the  twenty  days,  and  that 
this  requirement  exacted  prompt  performance  and  diligent  action 
on  the  part  of  the  trustees,  the  Court  of  Appeals  held  that  in  this 
case  the  referee  erred  in  refusing  to  find  that  whether  the  filing  of 
the  report  was  within  a  reasonable  time  after  the  expiration  of  the 
twenty  days  would  depend  upon  the  circumstances ;  also,  that  he 
erred  in  finding  that  there  was  neither  prompt  performance  nor 
diligent  action  on  the  part  of  tlje  company  with  respect  to  the 
filing  of  the  report.1  Where  the  certificate  of  incorporation  was 
signed  by  seven  trustees  and  acknowledged  by  nine,  the  provis- 
ion of  the  statute  which  requires  an  annual  report  to  absolve  the 
trustees  from  personal  liability  for  the  debts  of  the  corporation  to 
be  signed  by  a  majority  of  the  trustees  would  not  be  satisfied  by 
an  annual  report  signed  by  two  trustees,  where  it  is  not  shown  by 
an  official  record  that  neither  one  of  the  trustees  had  resigned.2 
A  manufacturing  corporation  which  has  never  commenced  busi- 
ness, and  where,  before  the  time  prescribed  for  making  the  report 
required  under  the  statute  has  elapsed,  the  object  for  which  the 
corporation  was  formed  becomes  impossible  of  accomplishment 
by  it,  and  it  is  neither  able  nor  intends  at  any  time  to  prosecute 

'Butler  r.  Smaller ,  (1886),  101  N.  *  Westerfield  t.  Radde,  (1884)  67 
Y.  71,  rerg.  49  N.  Y.  Super.  Ct.  492.  How.  Pr.  204.  In  Whitney  v.  Cam- 
DANFORTH,  J.,  said:  "To  prepare  a  mann,  (1892)60  N.  Y.  Super.  Ct.  391; 
report  for  filing  and  publication,  to  s.  c.,  18  N.  Y.  Supp.  200;  affirmed 
place  it  in  good  faith  in  the  hands  of  in  Whitney  r.  Cammann,  (1893)  137  N. 
the  secretary  for  deposit  in  the  clerk's  Y.  342;  s.  c.,  33  N.  E.  Rep.  305,  the 
office  and  in  the  office  of  a  newspaper,  court  referred  to  Cameron  r.  Seaman, 
is  at  least  equal  in  significance  to  a  69  N.  Y.  396,  and  Butler  v.  Smalley, 
delivery  of  a  report  to  a  mail  agent  101  N.  Y.  72;  s.  c.,  4  N.  E.  Rep.  104, 
for  transmission  to  those  places.  In  and  held  that  while  these  cases  held 
the  one  case  as  in  the  other  the  com-  that  substantial  instead  of  literal  com- 
pany avails  itself  of  the  usual  methods  pliance  with  the  requirement  as  to  the 
of  performing  its  duty,  and  in  the  ab-  filing  of  the  annual  report,  as  where 
sence  of  anvthing  to  show  the  want  of  the  report  was  filed  within  a  few  days 
good  faith  and  active  diligence  in  re-  after  the  prescribed  time,  yet  the  fail- 
spect  thereto  on  its  part,  a  trustee,  when  ure  to  comply  with  the  statute  for  a 
no  time  is  fixed  by  statute  within  which  year  clearly  brought  the  trustees  in 
an  act  shall  be  performed,  should  not  this  case  within  the  mischief  of  the 
be  subjected  to  a  penalty,  provided  the  statute  and  subjected  them  person- 
thing  required  is  actually  done  at  a  ally  to  the  liability  imposed  by  the 
reasonable  time,  having  regard  to  the  statute, 
nature  and  circumstances  of  the  per- 
formance." 


J'KUSONAL  LIABII.1TV  «'K  '•H-irERB.  393 


it.-  bu.-iness,  is  not  required  to  make  such  a  report,  and  no  liability 
under  tin-  >tatute  attaches  to  the  trn-tee>  f..r  failure  to  make  it.1 
The  >tatute>  uf  Nc\v  York  making  the  trustees  of  manufacturing 
corporations  liable  for  the  debt  of  the  corporation  for  failure  to 
file  an  annual  report,  it  has  been  held  that  the  liability  does  not 
depend  upon  the  fact  tliat  defendant  was  a  trustee  when  the  debt 
\\  a-  incurred,  but  upon  his  having  been  a  trustee  when  the  default 
in  filing  the  report  occurred.  So  where  one  may  have  resigned 
after  the  incurring  of  the  debt,  but  before  the  default  com- 
plained of,  he  would  not  be  held  liable.1  A  report  made  by  the 
trn-tees  of  a  manufacturing  corporation,  as  required  by  the  stat- 
ute, stating  the  amount  of  the  capital,  and  that  all  of  it  had 
"  been  paid  in  in  cash,  patent  rights,  merchandise,  machinery 
aeeotints,  etc.,  necessary  to  the  business  and  for  which  stock  to 
the  amount  of  the  value  thereof  has  been  issued  by  the  company," 
has  IHJCII  held  by  the  Court  of  Appeals  to  be  a  .-ntlicient  compli- 
ance with  the  requirement  of  the  act  ;  further,  that  it  is  not  neces- 
.-ary,  in  the  annual  report  required  to  be  tiled  by  the  trustees 
under  this  statute,  to  specify  therein  how  much  of  the  capital 
stock  was  paid  in  in  cash  and  what  amount  in  property/ 

§  245.  Actions  to  enforce  this  liability.  —  Under  this  statute 
the  action  may  be  brought  against  such  of  the  trustees  as  the 
plaintiff  may  select  ;  and  if  there  are  three  or  more  such  trn 
for  instance,  and  the  action  be  brought  against  two,  the  non- 
joinder of  the  others  would  not  constitute  a  defense.4  In  case  a 
defendant  in  Bnch  an  action  be  a  trustee  whose  election  is  not 
legally  valid,  where,  as  matter  of  fact,  he  was  in  form  elected  a 
trustee  by  those  who  had  the  right  to  elect  one,  if  there  was 
a  vacancy  to  be  filled,  and  thereafter  acted  as  trustee,  and  while 
acting  as  such  there  was  a  failure  to  make  and  tile  the  report 
required  by  the  statute,  the  court  held  him  liable  on  any  such 
default  l»etween  the  time  of  his  election  and  his  resignation  ;  also 

1  Kirklund  c.  Kille,  (1885)  99  N.  Y.  »  Whitaker  r.   Mastcrton,  (1887)  106 

:;;iii  N.  Y.  277,  holding  tin-  a<  -turn  tiirtiin>t 

*  Bruce   r.  Platt,  (1880)  80    N.   Y.  the  trustees  not  maintainable.     Citing 

879.     As  to  this  statute  being  a  penal  Hound  1    r.   Griswold,   80  N.    V.    1> 

st.-it  ute,  see  Merchants'  Bank  r.  Bliss,  3T>  13.~);  Bracket  r.  (Jriswold.    103  N.  V 

N.  Y.  412;  Garrison  r.  Howe,  17  N.  V  -r.'.l 

458;    Adams   r.   Mills,  60  N.   Y.  MO.  4  Halsti-ad  r.  D.xit:.-,  (1S.<4>  51  N     ^ 

M.-IIarg  r.  Eastman,  35  How.  Pr.  Super  Ct.  ir.'.r  >  ,   .  1  How   IV  .  N  - 

205;  8.  c.,  7  Robt.  187.  170;  citing  Strong  r.  Spruul,  4  Daly, 
50 


394  PERSONAL  LIABILITY  OF  OFFICERS.  [§  245 

that  he  was  not  exempted  from  liability  by  reason  of  his  not 
being  a  stockholder.1  In  an  action  under  this  statute  brought 
against  several  trustees  to  enforce  their  liability  for  failure  to 
make  the  annual  report  as  required  for  a  debt  of  the  corporation, 
where  there  is  a  failure  to  serve  one  or  more  of  the  defendants 
the  case  may  proceed  against  those  served,  as  the  action  is  upon 
a  joint  and  several  liability  and  for  a  penalty,  and  not  upon  the 
contract.2  This  statute  is  penal,  and  not  to  be  extended  by  con- 
struction. In  an  action  to  enforce  a  liability  created  by  it, 
nothing  can  be  presumed  against  the  trustees  sought  to  be 
charged,  but  every  fact  necessary  to  establish  their  liability  must 
be  affirmatively  proved.3  The  failure  to  file  a  report  making  the 
trustees  jointly  and  severally  liable  for  all  the  debts  of  the  corpo- 
ration, the  fact  that  the  corporation  may  be  indebted  to  a  trustee 
would  not  be  a  defense  to  the  action.4  In  an  action  against  the 
trustees  of  a  corporation  to  charge  them  with  an  indebtedness  of 
the  corporation,  and  on  the  trial  there  be  proved  the  original 
indebtedness,  and  that  it  had  been  reduced  to  judgment,  and  the 
execution  upon  the  judgment  returned  unsatisfied,  the  trn- 
would  not  be  concluded  in  any  respect  by  the  judgment  against 
the  corporation,  they  being  neither  parties  nor  privies  to  the 
action,  and  should  be  allowed  to  prove  any  defense  arising  subse- 
quent to  the  accruing  of  the  debt.5 

326;    Quigley  v.  Walter,  2     Sweeny,  (N.  Y.   Com.   PI.   Spl.  Term,  1893)  5 

175.  Misc.  Rep.  255;  Smith  r.  Sage,  (N.  Y. 

'Ibid.  Super.  Ct.  Spl.  Term,   1893)  5  Misc. 

2  Geisenheimer    v.    Dodge,  (1884)    1  Rep.  257. 

How.  Pr.  (N.  S.)  264.  4Morey  r.  Ford,  (1884)  32  Hun,  446. 

3  Bruce  T.  Plait,  (1880)  80  N.  Y.  381;  &  Kraft  v.  Coykendall,  (1884)34  Hun, 
followed  in  Tovey  v.  Culver,  (1887)  54  285;  citing  Miller  v.  White,  50  X.  Y. 
N.  Y.  Super.  Ct.  404.     See,  also,  Mil-  137;  Stephens  v.  Fox,   83  N.  Y.  317; 
ler  v.  White,  50  N.  Y.  137:  Whitney  Rorke  v.  Thomas,  56  N.  Y.  565;  Jones 
Arms  Co.  v.  Barlow,  63  N.  Y.  62.    As  v.  Barlow,  62  N.  Y.  202-205.    Dissent- 
to  not    being  necessary  to  obtain  a  ing  opinion  of  DANIELS,  J.,  in  Tyng 
judgment  against  the  corporation  be-  T.  Clarke,  9  Hun,  274;  Esmond  c.  Bui- 
fore  action  against  trustee,  see  Green  r.  lard,  16  Hun,  67;  affirmed  in  79  N.  Y. 
Easton,  (1893)  74  Hun,  329;  s.  c.,  26  404;  Whitney  Arms  Co.  v.  Barlow,  63 
N.  Y.  Supp.  553.     As  to  pleading  in  N.  Y.  62.     As  to  judgment  against 
actions  against  trustees  for  failing  to  corporation  prior  to  suit  to  enforce 
file  annual  report  under  the  New  York  personal  liability  of  directors  not  being 
statute,  see  Wilson  Manufacturing  Co.  necessary,  see  Strauss  ».  Trotter,  (Com. 
Schwind,  (N.  Y.  Sup.  Ct.  Spl.  Term,  PI.  N.  Y.,  1894)  6  Misc.  Rep.  77;  s.  c., 
1893)  5  Misc.  Rep.  205;  Straus   r.  Sage,  26  N.  Y.  Supp.  20. 


1 246] 


PI.K-.NAI.   J.I.UIIUTY   <•! 


|  246.  What  are  and  what  are  not  "  debts "  for  which 
liability  under  this  statute  may  arise.  An  unliquidated 
claim,  arising  out  of  a  breach  (if  contract  of  employment  at  the 
time  of  the  failure  of  a  manufacturing  corporation  to  file  the 
annual  report  required  by  the  New  York  .-tatute,  is  a  debt  within 
the  meaning  of  the  statute  inipoi-in^  a  j)er>oiial  liability  upon  the 
trustees  for  all  "debts"  of  a  corporation  which  fails  to  Hie  an 
annual  report.1  And  in  .-ucli  an  action,  upon  such  a  claim,  the 
recovery  of  the  holder  of  the  claim  will  be  limited  to  the  amount 
of  damages  he  may  have  recovered  from  the  corporation.8  The 
holder  of  bonds  issued  by  a  manufacturing  corporation,  having 
knowledge  that  such  bonds  were  diverted  from  the  purpose  for 
which  they  were  intended  and  authorized,  cannot  enforce  the 
liability  of  trustees  for  the  amount  of  his  bonds  as  a  "debt" 
within  the  meaning  of  this  statute.8  A  judgment  for  co>t.-,  recov- 
ered apiin.-t  the  corporation  in  an  action  for  trespass  brought  by 
it,  is  such  a  "  debt "  within  the  meaning  of  the  statute  as  the 
trustees  of  the  corporation  will  be  liable  for  in  case  they  fail  to 
file  the  required  report.4  It  seems,  however,  that  in  such  a  ca.-e  it 
would  be  open  to  the  trustees  sued  to  show  that  the  recovery  of 


'  Green  v.  Easton,  (1803)  74  Hun,  329; 
8.  C.,  26  N.  Y.  Supp.  553;  citing  New 
Jersey  Ins.  Co.  r.  Meeker,  37  N.  J. 
Law,  300,  301 ;  Frazcr  r.  Tunis,  1  Bin. 
254-262;  Mill  Dam  Foundry  r.  Hovey, 
21  Pick.  417,  454,  455. 

'Green  r.  listen,  (1893) 74 Hun,  329; 
8.  c.,  26  N.  Y.  Supp.  553. 

•  Kirkland  r.  Kille,  (1885)  99  N.  Y. 
890. 

4  Alien  r.  Clark,  (1888)  108  N.  Y.  269, 
revg.  43  Hun,  877.  EAHL,  J.,  said  : 
"This  judgment  clearly  was  one  of 
the  debts  which  the  company  was 
bound  to  include  among  its 'existing 
debts '  in  the  report  which  it  was  re- 
quired to  make,  file  and  publish  within 
twenty  days  after  the  1st  day  of  Janu- 
ary, 1886.  The  section  requires  tin- 
report  to  state  the  amount  of  all  of  its 
existing  debts  of  every  nature,  and  it 
is  the  clear  meaning  of  the  sect  ion  that 
if  such  report  be  not  made  the  trustees 
shall  be  personally  liable  for  all  tlrhts 
which  the  company  was  thus  bound 


to  report.  It  may  be  inferred  that  it 
was  the  purpose  of  the  lawmakers  to 
require  this  report  to  be  made,  pub- 
lished and  filed  for  the  information, 
benefit  and  protection  of  existing 
creditors  of  the  company  not  only,  but 
of  all  persons  who  might  thereafter  en- 
ter into  contract  relations  with  it.  It 
may  also  have  been  the  purpose  of  the 
lawmakers  to  require  the  report  from 
every  manufacturing  corporation  as  a 
check  upon  extravagance  and  misman- 
agement of  its  affairs  by  its  trustees, 
by  constantly  keeping  before  them  the 
reminder  that  at  least  once  a  year  the 
affairs  of  the  company  are  to  be  ex- 
posed to  the  public  view.  It  may  aUo 
be  supposed  that  the  reports  were  n-- 
q uired  so  that  information  might  be 
readily  obtained  by  assessors  for  the 
purpose  of  taxation,  and  by  other  pub- 
lic otlicials  who  might  have  occasion  to 
supervise  tin-  conduct  of  the  corpora- 
tion, or  to  proceed  against  it  for  any 
purpose  whatever;  and,  therefore,  to 


396  PERSONAL  LIABILITY  OF  OFFICEBS.  [§  246 

the  costs  in  the  action  was  either  collusive  or  fraudulent.  The 
debt  created  by  the  judgment  would  be  proven  by  the  production 
of  the  judgment,  which  would  be  at  least  prima  facie  evidence 
of  its  existence.1  There  was  a  contention  in  this  case  before  the 
New  York  Court  of  Appeals  that  the  words  in  the  clause  of  the 
statute,  "  and  for  all  that  shall  be  contracted  for  before  such  report 
shall  be  made,"  limited  the  meaning  of  the  words,  "  debts  of  the 
company  then  existing,"  in  the  clause  preceding  it,  to  such  debts 
of  a  corporation  as  are  voluntarily  contracted.  The  court  held 
adversely  to  this  contention,  and  said :  "  The  word  '  contracted  ' 
here  means  the  same  as  '  incurred,'  and  includes  every  debt  for 
which  the  corporation  becomes  bound.  There  is  no  apparent 
reason  for  any  discrimination  as  to  the  kind  of  debts,  and  we  do 
not  think  any  was  intended."2  Causes  of  action  for  breaches  of 
contract,  and  causes  incidentally  arising  or  resulting  from  such 
breaches  on  the  part  of  the  corporation,  are  not  "  debts  "  within 
the  meaning  of  those  statutes  making  trustees  liable  for  debts  of 
corporations  for  not  filing  the  required  annual  report.3  Where  a 
trustee  of  a  corporation  owes  a  debt  against  it,  and  assigns  it  to 
another  absolutely  for  value,  the  assignee  of  such  debt,  on  a 
default  in  making  and  filing  a  report  under  the  New  York  stat- 
ute, subsequently  occurring,  may  proceed  against  the  trustees  to 
recover  the  debt  on  their  statutory  personal  liability,  notwithstand- 
ing the  assignor  of  the  debt  to  him  may  have  continued  to  be  a 
trustee  up  to  the  time  of  the  default.4  Where  the  existence  of  a 
corporation,  by  the  terms  of  its  certificate,  ends,  and  there  is  not 
at  that  time  a  debt  in  favor  of  another  against  it,  there  can  be  no 
liability  of  directors  for  not  filing  an  annual  report,  as  required, 

make  sure  of  the  accomplishment  of  dependently  of  the  judgment,  by  say> 

these  important  purposes,  the  trustees  ing  :  ' '  The  reason  upon   which  that 

are  made  personally  liable  for  all  the  decision  is  based  can  have  no  applica- 

debts  of  the  company,  in  case  of  the  tion  to  a  case  like  this,  where  there  was 

failure  of  the  company  within  the  time  no  liability  on  the  part  of  the  company 

specified  to  make  the  report."  to  pay  the  costs  antecedently  or  inde- 

1  Allen  v.   Clark,   (1888)   108  N.  Y.  pendently  of  the  judgment." 

269.     The  court  distinguished   Miller  « Allen  v.    Clark,    (1888)  108  N.  Y. 

t>.  White,  50  N.  Y.  137,  where  the  judg-  269,  275. 

ment  was  upon  a  debt  antecedently  ex-  8  Victory    Webb    Printing    Co.     v. 

isting,  in  which  case  it  was  held  that  Beecher,  (1881)  26  Hun,  48;  citing  Ovi- 

the  judgment  was  neither  conclusive  att  v.  Hughes,  41  Barb.  541;  Whitney 

nor  prima  fade  evidence  of  the  debt,  Arms  Co.  T.  Barlow,  68  N.  Y.  34. 

and  that  it  was  the  duty  of  the  plain-  *  Cornell  c.  Roach,  (1886)  101  N.  Y. 

tiff  to  prove  and  establish  his  debt  in-  373. 


§  247]  PERSONAL  LIABILITY  OF  OFFICERS.  397 

fur  what  may,  at  a  later  date,  by  the  terms  of  the  contract  with 
tin-  corporation,  become  a  debt  under  that  contract.1  Under  the 
provision  of  the  statute  of  New  York  that,  for  failure  t<>  tile  the 
annual  report  of  the  capital  and  indebtedness  of  any  corporation. 
as  therein  prescribed,  the  trustees  snail  be  liable  for  all  <1<-1.N  of 
the  corporation  then  existing,  or  contracted  before  such  report 
be  filed,  the  tru-tees  cannot  be  subjected  for  an  alleged  liability 
of  the  corporation  accruing  on  an  accommodation  indorsement. 
which  the  corporation,  under  its  charter,  had  no  authority  to  make 
and  was  not  bound  by.2  Trustees  of  a  corporation,  organized  for 
manufacturing  purposes  under  the  statutes  of  New  York,  cannot 
be  subjected  to  an  alleged  liability  of  the  corporation  accruing  on 
an  accommodation  indorsement  which,  under  its  charter,  it  had  no 
authority  to  make,  and  which,  consequently,  did  not  bind  it.3 
Where  the  annual  report  required  to  be  filed  under  the  NYu- 
York  statute  before  January  twentieth  has  been  filed  before  the 
maturing  of  a  note  which  has  been  indorsed  by  a  corporation  for 
the  accommodation  of  the  maker,  there  will  be  no  liability  of  the 
trustees  growing  out  of  the  accommodation  indorsement  for  the 
failure  to  file  the  report.  This  being  a  conditional  liability,  it  was 
never  incurred,  and  created  no  liability  before  it  matured.4  A 
contract  obligation  to  pay  a  singer  employed  for  a  specified  time 
by  the  corporation  at  a  specified  salary,  is  a  "  debt "  of  the  corpo- 
ration from  the  time  the  contract  goes  into  effect,  within  the  mean- 
ing of  this  statute,  for  which  a  director  may  become  liable.5 

§  247.  A  United  States  Supreme  Court  decision  on  this 
subject. —  There  was  an  attempt  in  an  action  which  came  before 
the  Supreme  Court  of  the  United  States  to  recover  of  the  trustees 
of  a  corporation  the  amount  of  a  judgment  against  the  corpora- 
tion under  the  provisions  of  the  statute  of  the  state  of  New  York, 

1  Gold  r.  Clync,  (1890)  58  Hun,  419;  »  National    Park  Bank   r.  Rcmscn, 

a  c.,  12  N.  Y.  Supp.  581;  affirmed  in  (1890)  43  Fed.  Rep.  220. 

Gold  t>.  Clyne,  (1892)  134  N.  Y.  262;  s.  » Ibid. 

c.,  31  N.  E.  Rep.  980.    For  another  il-  «Witherow    r.    Slay  back,  (1895)  11 

lustration  of  circumstances  as  to  the  Misc.  Rep.  526;  8.  c.,32N.  Y.  Supp. 

debt  under  which  the  trustees  could  ?•!»>. 

not  be  held  liable,  stv  Sherman  r.  Slay-  •  Brandt  t>.    Godwin,  (1889)  8  N.  Y. 

back,  (1890)  58  Hun,  2.V-;  s.  r.,  12  N.  Supp.  807. 
Y.  Supp.  291.    Also,  Chapman  t.  Corn- 
stock,  (1890)  58  Hun,  325;  8.  c.,  UN. 
Y.  Supp.  930. 


398  PERSONAL  LIABILITY  OF  OFFICERS.  [§  247 

whereby  trustees  of  corporations  formed  for  manufacturing, 
mining,  mechanical  or  chemical  purposes  are  made  liable  for 
debts  of  the  corporation  on  failure  to  lile  the  reports  of  capital  and 
of  debts  required  by  that  section  of  the  statute.  The  Supreme 
Court  held  that  the  provision  of  the  statute  under  which  the  lia- 
bility of  the  trustees,  it  was  claimed,  existed  on  account  of  a 
failure  to  file  such  a  report,  was  penal  in  its  character,  and  that 
it  must  be  construed  with  strictness  as  against  those  sought  to  be 
subjected  to  its  liabilities  ;  and,  upon  this  rule  of  construction,  the 
judgment  roll  was  not  competent  evidence  to  establish  a  debt  due 
from  the  corporation  to  the  plaintiff ;  further,  it  was  held  that 
a  claim  in  tort  against  a  corporation  found  under  that  statute,  as 
amended,  was  not  a  debt  of  the  corporation  for  which  the  trus- 
tees might  become  liable  under  the  provisions  of  the  statute 
abov.e  stated.1 

1  Chase  r.  Curtis,  (1885)  113  U.  S.  452;  against  the  defendants,  but  that  every 

s.  c.,  5  Sup.  Ot.  Rep.  554.     Mr.  Jus-  fact  necessary   to  establish  their  lia- 

tice  MATTHEWS,  in  the  opinion,  speak-  bility  must  be  affirmatively  proved." 

ing  for  the  court,   said:    "It  is   the  Citing  Garrison  r.  Howe,  17  N.  Y.  458; 

well-settled    rule    of   decision,  estab-  Miller  v.  White,  50  N.  Y.  137;  Whit- 

lished  by  the  Court  of  Appeals  of  New  ney  Arms  Co.  v.  Barlow,  63  N.  Y.  62. 

York  in  numerous  cases,  that  this  sec-  This  rule  of  construction  in  reference 

tion  of  the  statute,  to  enforce  which  to  this  and  similar  statutory  provisions 

the  present  action  was  brought,  is  penal  has  been  heretofore  adopted  and  ap- 

in  its  character  and  must  be  construed  plied   by  this  court.     Steam  Engine 

with  strictness  as  against  those  sought  Co.  r.  Hubbard,  101  U.  S.  188;  Flash 

to  be  subjected  to  its  liabilities."    Mer-  r.  Conn,   109  U.  S.  371.     In  the  case 

chants'   Bank  v.   Bliss,   35  N.  Y.  412;  last  mentioned,  this  court,  following 

Wiles  T.  Suydam,  64  N.  Y.  173;  East-  the  Court  of  Appeals  of  New  York  in 

erly  r.  Barber,  65  N.  Y.  252;  Knox  r.  the  case  of  Wiles  r.  Suydam,  64  N.  Y. 

Baldwin,  80  N.  Y.  610;  Veeder  r.  Ba-  173,  showed  the  distinction  between  the 

ker,   83  N.  Y.  156;  Pier  v.  George-,  86  liability  of  stockholders  for  the  debts 

N.  Y.   613;  Stokes  r.  Stickney,  96  N.  of  the  corporation,  under  a  section  of 

Y.  323.     In  the  case  last  cited  the  ac-  the  same  act,  making  them  severally 

tion  authorized  by  it  was  held  to  be  individually  liable  for  the  debts  and 

ex,  delicto,  and  that  it  did  not  survive  contracts  of  the  company  to  an  amount 

as  against  the  personal  representative  equal  to  the  amount  of  stock  held  by 

of  a  trustee  sought  to  be  charged.     In  them    respectively,    until    the    whole 

Bruce  v.  Platt,  80  N.  Y.  379,  it  was  amount  of  the  capital  stock  fixed  and 

said:  "It  is  settled  by  repeated  decis-  limited  by  the  company  had  been  paid 

ions  applicable  to  this  case  that  the  in,  and  the  liability  imposed  upon  the 

statute  in  question  (Laws  N.  Y.  1848,  trustees  by  the  section  now  under  dis- 

chap.  40,  §  12)  is  penal  and  not  to  be  cussion.     It  was  held  that  the  former 

extended  by  construction;  that  in  an  was  a  liability  ex  contracts,  enforceable 

action  to  enforce  a  liability  thereby  beyond  the  jurisdiction  of  the  state, 

created,    nothing    can    be    presumed  and  that  the  statute  should  be  con- 


§248] 


PERSONAL  LIABILITY   "I     «  •!•  M<  TKS. 


899 


§248.  Statute  of  New  York  —  liability  for  creation  of 
debts  in  excess  of  capital  stock.  I'lider  the  New  York 
htatute  making  the  trustees  of  manufacturing  corj»orations  who 
a.sM-nt  to  tin-  creation  of  an  indebtedness  exceeding  the  amount 
of  the  capital  >t<>ck  personally  liahle  for  the  excess,1  the  liability 


strued  liberally  in  furtherance  of  the 
remedy;  that  the  latter  was  for  the 
enforcement  of  a  penalty,  and  subject 
t<>  .-JI  rules  applicable  to  actions  upon 
statutes  of  that  description.  The 
distinction  is  illustrated  and  enforced 
in  Hustings  P.  Drew,  76  N.  Y.  9,  and 
Stephens  ;•.  Fox,  83  N.  Y.  318.  The 
present  ijucstion  involved  lien-  was 
drcid«'d  by  the.  Court  of  Appeals  of 
New  York  in  the  cast?  of  Miller  /•. 
White,  :>(}  N.  V.  137.  In  that  CUM-  the 
complaint  set  forth  the  recovery  of  a 
judgment  agaiiut  the  company,  but  mi 
the  original  cause  of  action  against  it 
on  which  the  judgment  was  founded. 
The  defendant  moved  for  a  dismissal 
on  this  ground,  which  was  refused, 
and  judgment  was  rendered  in  favor 
of  the  plaintiff  on  the  production  in 
evidence  of  the  judgment  roll.  This 
was  held  to  be  erroneous  on  the  ground 
that  the  judgment  was  not  competent 
as  evidence  of  any  debt  due  from  the 
corporation,  and  that  no  action  could 
be  maintained  thereon  against  the  trus- 
tees under  this  section  of  the  act. 
Judge  I'K<  KIIAM,  delivering  the 
unanimous  opinion  of  the  court,  said: 
"It  will  be  perceived  that  this  is  a 
highly  penal  act,  extremely  rigorous  in 
its  provisions.  It  is  absolute  that  the 
tru-tcis  shall  be  liable  for  all  the  debts 
of  the  company,  If  the  report  be  not 
made,  no  matter  by  whose  default. 
If  one  of  the  trustees  did  all  in  his 
power  to  have  it  made,  yet  if  the  presi- 
dent, or  a  sufficient  number  of  his  co- 
trust.es  to  constitute  a  majority 
declined  to  sign  it,  or  if  the  president 
and  secretary  declined  to  verify  it  by 
oath,  the  faithful  trustee  seems  to  be 
absolutely  liable  as  well  as  those  who 


refuse  to  do  their  duty."  It  was  ac- 
cordingly held  "that,  as  against  these 
defendants,  the  judgment  did  not 
legally  exist,  as  they  were  neither  par- 
ties nor  privies  to  it.  *  *  *  '  It  is 
not  a  judgment  as  to  those  defendants; 
no  action  could  be  maintained  thereon 
against  them,  *  *  *  nor  is  tho 
judgment  priinn  facie  evidence  of  the 
debt  as  against  the  defendants.'" 
This  doctrine  was  repeated  and  reaf- 
firmed by  the  same  court  in  Whitney 
Anns  Co.  /-.  Harlow.  (\:\  N.  Y.  • 
In  that  caM- the  court  said:  "The  debt 
must  be  proved  by  evidence  competent 
against  the  defendants.  The  facts 
upon  which  the  debt  is  founded  must 
be  proved.  The  naked  admissions  of 
the  corporation  or  judgment  against 
the  corporation  are  not  evidence 
against  the  trustees.  They  are  ret 
inter  aliog  urta, ;  but,  when  facts  are 
proved  which  establish  the  existence 
of  a  debt  against  the  corporation,  the 
liability  of  the  trustees  for  the  debt 
follows  upon  the  proof  of  the  other 
facts  upon  which  the  liability  is  made 
by  statute  to  depend."  The  case  of 
Miller  r>.  White,  50  N.  Y.  137.  has 
never  been  overruled  nor  questioned 
by  the  New  York  Court  of  Appeals. 
On  the  contrary,  it  has  been  repeatedly 
(iiul  expressly  cited  and  approved,  and 
either  followed  or  distinguished  from 
the  case  under  decision  in  the  follow- 
ing cases:  Rorke  r.  Thomas,  56  N  Y . 
559-565;  Hastings  v.  Drew,  76  N.  Y. 
9-15;  Stephens  r.  Fox,  88  N.  Y.  818- 
317;  Knox  r.  Baldwin.  80  N.  Y.  610- 
618;  Bruce  r.  Platt,  80  N.  Y.  879- 

3H1. 

1  Laws  N.   Y.   1848,  chap.  40,  §  28. 


400 


PERSONAL  LIABILITY  OF  OFFICERS. 


is  one  of  contract  and  not  of  penal  liability.1  And  the  trn.-trr- 
assenting  to  the  creation  of  indebtedness  exceeding  the  capital 
stock  will  be  personally  and  individually  liable  for  such  excess  to 
the  creditors  of  the  corporation  to  whom  such  excess  may  be 
owing.2  In  a  case  before  the  Supreme  Court  of  New  York  the 


'Patterson  v.  Robinson,  (1885)  37 
Hun,  341.  LANDON,*  J.,  for  the  court 
said  :  "  The  assenting  trustee,  know- 
ing that  the  indebtedness  of  the  com- 
pany has  reached  at  least  an  amount 
equal  to  the  capital  stock,  concurs 
with  the  company  in  contracting  fur- 
ther indebtedness.  He  knows  that- the 
statute,  in  case  he  assents,  makes  him 
also  liable.  He  gives  his  consent  and 
thereby,  under  the  statute,  pledges 
his  liability.  The  statute  says  to  the 
assenting  trustee,  '  you  may  contract 
as  many  debts  as  you  choose  to  be- 
come liable  for.'  It  was  insisted  that 
the  language  of  section  13  of  the  act 
was  similar  to  that  of  section  23,  and, 
as  the  liability  under  the  former  was, 
by  settled  law,  a  penal  one,  the  same 
must  be  true  under  the  latter."  Refer- 
ring to  section  13,  which  makes  trus- 
tees liable  for  declaring  dividends,  the 
payment  of  which  would  make  the 
corporation  insolvent,  it  was  said  : 
"The  section  seeks  to  deter  the 
trustee  from  despoiling  the  company 
to  the  profit  of  the  stockholder  and  to 
the  ruin  of  the  creditors.  Such  a 
wrong  has  no  connection  with  the  con- 
tracting of  the  debt,  but  imperils  its 
payment  and  the  liability  affixed  upon 
the  offending  trustee  may  well  be 
called  a  penalty.  There  is  no  such 
flagitiousness  in  the  act  of  assenting  to 
an  excess  of  indebtedness  over  the 
amount  of  the  capital  stock.  It  may 
be  wise  and  right;  at  any  rate  the  in- 
tent may  be  honest.  Why  affix  a 
penalty  upon  performance  of  a  good 
act  ?  Such  is  not  the  policy  of  the 
law.  It  may  lead  to  reckless  specula- 
tion, but  speculation  is  no  offense,  and 
the  statute  prudently  tempers  the 


venture  for  gain  by  making  the  assent- 
ing trustee  a  partner  with  the  com- 
pany in  the  risk  of  loss,  or,  more  ac- 
curately, in  liability  to  such  creditor. 
And,  if  this  view  be  correct,  the 
creditor  for  the  excess  cannot  be  de- 
prived of  his  recourse  to  the  assenting 
trustee  by  any  decrease  in  the  aggre- 
gate indebtedness  of  the  company,  or 
otherwise  than  by  his  own  consent,  or 
by  payment  to  him." 

2  Ibid. ;  affirming,  and  reaffirming  on 
a  rehearing,  Patterson  v.  Robinson, 
(1885)  36  Hun,  622.  The  court  dis- 
guished  Hornor  v.  Henning,  93  U.  S 
228;  Merchants' Bank  of  Newburyport 
v.  Stevenson,  10  Gray,  232;  Anderson 
v.  Speers,  21  Hun,  568.  In  Patterson' 
P.  Robinson,  (1885)  36  Hun,  622,  the 
court  reasoned  well  to  this  conclusion, 
and  cited  as  in  harmony  with  their 
views  Wiles  v.  Suydam,  64  N.  Y.  173; 
Corning  r.  McCullogh,  1  N.  Y.  47; 
Story  v.  Furman,  25  N.  Y.  223,  and 
Veeder  v.  Mudgett.  95  N.  Y.  295.  In 
Patterson  «.  Robinson,  (1885)  37  Hun, 
341,  they  said  of  their  argument  in  the 
case  supra :  "  We  saw  that  this  excess 
of  indebtedness  was  due  by  the  con- 
tract of  the  company,  and,  without  re- 
gard to  the  statute,  indeed  wholly  in- 
dependent of  the  statute,  to  the 
creditors  to  whom  the  contract  of  the 
company  made  it  due.  We  feel  that 
no  statute  could  deprive  such  creditor 
of  his  contract  engagement  with  the 
company.  Such  being  the  contract 
relation  between  the  company  and 
such  creditor,  we  thought  that  when 
the  statute  stepped  in  and  added  to 
the  contract  liability  of  the  company 
for  such  excess  of  indebtedness  the 
personal  and  individual  liability  of  the 


§248]  PERSONAL  IJ ABILITY  uK  OFFICERS.  4«>  1 

question  was  whether  or  not  a  director  of  a  corporation  organized 
under  the  statute1  was  liable  for  a  debt  of  the  corporation.  Section 
18  of  that  statute  requires  the  filing  of  an  annual  report  stating 
the  amount  of  capital,  the  proportion  actually  paid  in,  etc.,  and 
provides  that  the  report  shall  be  signed  "  by  the  president  and  a 
majority  of  the  directors,  and  shall  be  verified  by  oath  of  the 
president  or  secretary  of  such  corporation  and  filed  in  the  office 
of  the  secretary  of  state ;  and,  if  such  corporation  shall  fail  so  to 
do,  all  the  directors  thereof  shall  be  jointly  and  severally  liable 
for  all  the  debts  of  the  corporation  then  existing,  and  for  all  that 
shall  be  contracted  before  such  report  shall  be  made."  Section 
21  declares  that  "  if  any  certificate  or  report  made,  or  public, 
notice  given,  by  an  officer  of  any  such  corporation  shall  be  false 
in  any  material  representation,  all  the  officers  who  have  signed 
the  same  shall  be  jointly  and  severally  liable  for  all  the  debts  of 
the  corporation  contracted  while  they  are  officers  thereof."  A 
majority  of  the  court  held  that  a  director  was  an  "  officer  "  within 
the  meaning  of  this  last  section,  and  would  be  liable  under  it 
where  he  had  signed  a  report  which  was  false  in  a  material 
representation.2  A  trustee  not  assenting  to  the  creation  of  an 
indebtedness  in  excess  of  the  capital  stock  of  a  corporation,  his 
subsequent  failure  to  dissent,  when  informed  of  the  fact,  would 
not  be  equivalent  to  the  assent  required  by  this  statute.8  In  a 
case  before  the  Supreme  Court  of  New  York,  where  it  was  not 
shown  that  either  of  two  of  the  trustees  of  the  corporation  dur- 
ing the  time  in  which  there  was  incurred  an  indebtedness  in 
excess  of  the  capital  stock  of  the  corporation,  ever  attended  any 
of  the  meetings  of  the  trustees,  or  were  consulted  with  reference 

tru-ti-es  assenting  thereto.it  added  it   confidence    in    this    construction,  be- 
to  the  liability  of  the  company  where   cause  of  our  opinion  that  section  23, 
that  liability  was  placed,   namely,  to   unlike  some  other  sections  of  the  act, 
the  creditors  to  whom  the  company   did  not  impose  this  personal  liability 
was  liable  for  it.    We  saw  no  language   as  a  penalty  for  wrong  done  or  duty 
in  the  statute  at  variance  with  such  a   omitted,  but  as  the  terms  upon  which 
construction,    certainly    none    which   such  excess   of   indebtedness  might, 
s  •fined  to  imply  that  the  liability  of   with  safety  to  the  creditors,  be  per- 
the  assenting  trustees  for  such  excess   mittcd  to  the  company." 
of    indebtedness    should  be    diverted       'Laws  N.  Y.  1875,  chap.  611. 
from  the  creditors  to  whom  the  com-       *  Torbett  t>.  Eaton,  (1888)  49  Hun, 
panyowed  such  excess,  and  be  devoted   209;  8.  c.,  1  N.  Y.  Supp.  614. 
to,  or  conferred  upon,  or  shared  among       *  Patterson    t>.    Robinson,  (1885)86 
the  creditors  to   whom  the  company    Hun,  622. 
did  not  owe  it.     And  we  had  the  more 
51 


402  PERSONAL  LIABILITY  OF  OFFICERS. 

to  the  management  of  its  business,  or  participated  in  its  affairs, 
except  to  sign  its  annnal  reports,  and  then  only  upon  their  faith 
in  the  assertions  of  a  co-trustee  that  they  were  correct,  the  court 
held  that  no  such  assent  on  their  part  was  shown  as  was  required 
to  make  them  liable  under  the  statute.1  All  the  directors  who 
are  liable  must  be  made  parties  to  an  action  brought  by  a  creditor 
of  a  corporation  to  enforce  the  individual  liability  imposed  by  the 
statute  of  Xew  York  upon  the  directors  of  a  corporation  by 
whom  an  indebtedness  exceeding  the  amount  of  its  capital  stock 
is  created,  such  liability  being  joint  and  not  several.2  In  deter- 
mining the  amount  of  the  liabilities  of  a  corporation,  to  ascertain 
whether  or  not  they  exceed  the  amount  of  the  capital  stock,  a 
judgment  recovered  against  the  corporation  by  one  of  its  directors 
for  money  advanced  by  him  to  it,  which  judgment  may  have 
been  subsequently  assigned  by  him  to  a  third  person,  cannot  be 
treated  as  one  of  such  liabilities.3 

§  249.  Liability  for  incurring  indebtedness  in  excess  ox 
capital  stock  —  Illinois  statute.  In  an  action  against  directors 
of  a  corporation  by  the  holder  of  notes  of  the  corporation  which 
had  been  issued  under  their  directorate,  based  upon  their  liability 
for  incurring  such  indebtedness  in  excess  of  the  limit,  as  con- 
tended, imposed  by  the  following  section  of  the  statute  of  Illinois, 
to  wit :  "  If  the  indebtedness  of  any  stock  corporation  shall 
exceed  the  amount  of  its  capital  stock,  the  directors  and  officers 
of  such  corporation  assenting  thereto  shall  be  personally  and 
individually  liable  for  such  excess  to  the  creditors  of  such  cor- 
poration," upon  the  question  whether  the  facts  stated  in  the  bill 
brought  the  cause  of  action  within  the  bar  of  the  Statute  of 
Limitations,  the  contention  of  the  directors  was  that  their  liability, 
if  any  existed,  was  for  a  statutory  penalty.  The  Supreme  Court 
of  Illinois  held  that  the  liability  was  not  for  a  statutory  penalty, 
and  that  the  Statute  of  Limitations  was  not  a  bar  to  a  recovery 

^bid.     As  to  what    is  a  properly  &  Wright  Co.,  (1891)61  Hun,  619;  s. 

stated  cause  of  action  against  directors  c.,  15  N.  Y.  Supp.  278. 
under  the  statute  of  New  York  (Laws       *  McClave    v.   Thompson,    (1885)  36 

N.  Y.  1875,  chap.  611,  §  22),   which  Hun,  365. 

imposes    a    personal    liability  for  an       3Ibid.;  citing  following:    Robinson 

excess  of  indebtedness,  in  case  the  in-  v.  Thompson,  20   N.  Y.    Wkly.  Dig. 

debtedness  of  the  corporation  shall  at  557;  Easterly  r.  Barber,  65  N.  Y.  255; 

any  time   exceed  the    amount   of  its  Knox  r.  Baldwin,  80  N.  Y.  610. 
capital  stock,  see  Loveland  r.  Doran 


249 1 


I'KKSONAL  LIABILITY  OF  OFFICERS. 


403 


by  the  creditors  of  these  directors.1  The  same  court,  in  a  com- 
paratively rt-cent  case  have  construed  this  statute,  and  said  :  "  The 
liability  is  created  only  where  the  indebtedness  of  the  corporation 
exceeds  the  amount  of  the  capital  stock,  and  is  imposed  only  upon 
the  directors  and  officers  assenting  to  such  excess  of  indebtedness. 
Thin  plainly  means  assenting  to  its  creation.  Manifestly,  a  recog- 
nition of  the  indebtedness  by  the  directors  after  it  has  been  so 
contracted  as  to  become  binding  upon  the  corporation,  should  not 


'Woolverton  r>.  Taylor,  (1890)  183 
Dl.  197.  Arguendo,  it  was  said:  "In 
the  absence  of  statutory  prohibition  it 
la  not  unlawful  for  the  officers  of  a 
corporation  to  contract  debts  in  excess 
of  its  capital  stock.  Unless  restricted 
by  statute,  corporations,  as  individ- 
uals, may  contract  debts  to  the  full 
extent  of  their  credit,  without  refer- 
ence to  the  amount  of  their  capital 
stock.  Neither  is  it,  under  all  circum- 
stances, bad  management  in  a  corpo- 
ration to  contract  debts  in  excess  of  the 
amount  of  its  capital  stock.  Its  assets 
may  be  of  such  value  as  to  give  it 
credit,  and  warrant  the  incurring  of 
liabilities  far  beyond  that  amount. 
While  statutes  in  some  states,  by  dif- 
ferent forms' of  language,  limit  the 
right  of  such  officers  to  contract  in- 
debtedness beyond  prescribed  limits, 
in  others  no  restriction  whatever  has 
been  enacted,  and  in  many  of  those  in 
which  a  limit  is  prescribed  the  indebt- 
edness which  may  be  contracted  is  not 
limited  by  the  amount  of  capital  stock, 
but  may  equal  twice  or  three  times 
that  amount.  If,  therefore,  such  en- 
actments are  to  be  understood  as  indi- 
cating that  it  is  deemed  unwise  to  allow 
corporations  to  incur  liabilities  beyond 
a  prescribed  limit,  it  must  be  admitted 
that  the  sentiment  is  by  no  means  har- 
monious as  to  where  the  limit  should  !><• 
placed.  These  statutes  do  not,  there- 
fore, indicate,  as  contended  by  counsel 
for  appellees,  that  legislatures  have 
considered  it  bad  management  in  the 
affairs  of  a  corporation  to  contract 


debts  beyond  the  amount  of  its  capital 
stock.  [The  quoted  section]  of  our 
statute  does  not  prohibit  the  contract- 
ing of  indebtedness  in  excess  of  capital 
stock;  neither  does  it  in  terms  inflict  a 
penalty  for  so  doing.  Therefore,  a 
prohibition  cannot  be  implied,  and  to 
say,  as  counsel  insist  should  be  done, 
that  the  assenting  is  made  unlawful  by 
the  infliction  of  a  penalty,  is  to  assume 
the  very  question  controverted.  While 
it  is  trie  that  statutes  of  other  states 
making  officers  of  corporations  indi- 
vidually liable  for  contracting  debts 
beyond  a  prescribed  limit  have  been 
held  to  be  penal,  the  language  of  those 
statutes  will  be  found  materially  dif- 
ferent from  ours,  and  so  far  as  we  have 
been  able  to  ascertain  expressly  pro- 
hibit the  incurring  of  liabilities  beyond 
certain  limits  fixed.  In  Hornor  et  al. 
v.  Henning  etal.,  93  U.  8.  238,  the  Su- 
preme Court  of  the  United  States,  in 
passing  upon  an  act  of  congress  regu- 
lating corporations  in  the  District  of 
Columbia,  the  language  of  which  is 
almost  identical  with  that  of  our  stat- 
ute, it  was  held  that  the  act  was  not 
penal,  for  reasons  which  we  think  un- 
answerable. We  followed  that  decis- 
ion in  Low  r.  Buchanan,  94  111.  76,  in 
holding  that  the  liability  created  by 
[our  statute]  could  only  be  enforced  in 
chancery,  and  this  is,  in  effect,  decid- 
ing that  the  action  is  not  for  the  recov- 
ery of  a  penalty.  '  It  is  a  universal 
rule  in  equity  never  to  enforce  either  a 
penalty  or  a  forfeiture. '  2  Story's  Eq. 
Jur.  £  1319;  Queenan  r.  Palmer,  117 


404 


PERSONAL  LIABILITY  OF  OFFICERS. 


have  the  effect  of  charging  them  with  this  statutory  liability. 
After  the  indebtedness  has  been  created  by  such  agents  and  in 
such  manner  as  to  constitute  it  a  valid  obligation  of  the  corpora- 
tion, it  becomes  the  duty  of  the  directors  to  recognize  its  validity, 
and,  so  far  as  in  their  power,  provide  for  its  payment.  *  *  * 
Such  assent  of  [directors]  could  only  be  given  by  some  affirmative 
voluntary  act  on  their  part,  or  at  least  some  active  participation 
or  co-operation  in  the  particular  transaction  out  of  which  that 
indebtedness  arose."1  In  a  case  where  it  was  sought  to  enforce 


111.  619.  In  Morawetz  on  Corporations 
(Vol.  2,  §  908)  it  is  said:  '  It  is  not 
always  quite  clear  what  the  courts 
mean  to  express  by  saying  that  stat- 
utes of  this  character  are  penal,  and 
that  they  impose  upon  the  directors  a 
penal  liability.  The  liability  of  direct- 
ors under  such  a  statute  is  undoubtedly 
not  the  result  of  a  contract  between 
the  directors  and  the  creditors  of  the 
corporation;  but  that  is  evidently  not 
what  the  courts  mean  to  express.  The 
liability  of  directors  to  creditors  for  a 
tort,  or  a  misapplication  of  corporate 
funds,  or  a  breach  of  trust,  does  not 
arise  out  of  contract;  yet  the  courts 
would  certainly  not  call  this  a  penal 
liability,  or  refuse  to  enforce  it  because 
it  urose  under  the  laws  of  a  foreign 
state.  Nor  is  the  liability  of  the  direct- 
ors under  these  statutes  penal,  in  the 
sense  in  which  the  word  penal  is  used 
in  common  law.  It  is  not  a  penalty  or 
fine  imposed  by  the  state  for  the  in- 
fraction of  public  law.  The  liability 
of  the  directors  is,  both  in  form  and 
substance,  a  private  obligation,  simi- 
lar in  many  respects  to  that  of  sure- 
ties. It  is  imposed  by  the  legislature 
partly  for  the  purpose  of  inducing  the 
directors  to  do  their  prescribed  duties, 
and  partly  for  the  purpose  of  securing 
the  company's  creditors  from  losses 
caused  by  those  who  have  control  over 
the  company's  funds.  The  statutes 
imposing  this  liability  establish  a  new 
rule  of  private  right,  a  rule  which,  al- 
though unknown  to  the  common  law, 


may  be  founded  on  sound  principles  of 
justice  and  expediency.'  In  Neal  t>. 
Briggs,  12  Ga.  104,  it  is  directly  held 
that  a  provision  in  the  charter  of  a 
corporation  prohibiting  the  contracting 
of  debts  in  excess  of  three  times  the 
amount  of  the  capital  stock  paid  in  is 
not  penal  within  the  statute  of  that 
state  limiting  the  bringing  of  penal 
actions  to  a  period  of  six  months." 

1  Lewis  v.  Montgomery,  (1893)  145 
111.  30;  s.  c.,  33  N.  E.  Rep.  880.  The 
court,  in  its  opinion,  recites  the  facts 
as  to  meetings  of  the  board,  the  incur- 
ring of  certain  debts,  etc.,  summing 
up  with  a  statement  that  they  found 
no  evidence  except  that  furnished  by 
the  record  of  the  proceedings  of  the 
board,  which  tended  "to  charge  the 
directors,  with  the  exception  of  [one 
who  managed  the  business],  with  any 
direct  or  personal  agency  in  the  incur- 
ring or  contracting  of  the  corporate  in- 
debtedness. Except  so  far  as  they  acted 
officially  at  the  meetings  of  the  board 
they  are  not  shown  to  have  personally 
taken  any  part  in  the  corporate  busi- 
ness. It  is  not  shown  that  they  per- 
sonally entered  into  any  contracts, 
made  any  purchases,  transacted  any 
business  or  in  any  way  interfered  with 
the  corporate  dealings.  The  evidence 
is  clear  that  [this  managing  director], 
during  all  the  time  the  corporation  was. 
doing  business,  was  in  fact  its  general 
financial  manager,  and  had  complete 
and  unquestioned  control  of  its  busi- 
ness affairs.  Purchases  and  sales  were 


§249] 


PERSONAL  LIABILITY  OF  OFFICEBS. 


tin  .statutory  liability  of  directors  and  officers  of  a  manufacturing 
corporation  for  the  excess  of  indebtedness  incurred  beyond  the 
capital  stock  of  the  corporation,  it  was  hrld  by  the  Supreme 
Court  of  Illinois  that  advances  by  a  factor  to  a  manufacturing 
corporation  of  a  part  of  the  invoice  price  of  goods,  under  a  con- 
tract that  the  former  is  to  reimburse  himself  from  the  proceeds 
of  the  goods  when  sold,  did  not  create  any  substantial  liability  or 

made  and  indebtedness  incurred  by 
him  :it  his  discretion.  The  directors, 
having  full  confidence  in  him,  and 
recognizing  the  preponderating  influ- 
ence to  which  the  ownership  of  three- 
fourths  of  the  stock  of  the  corporation 
seemed  to  entitle  him,  allowed  him  to 
manage  the  business  substantially  as 
he  pleased,  and  failed  to  keep  them- 
selves informed  as  to  the  financial  situ- 
ation. That  in  all  this  they  were 
grossly  recreant  to  their  legal  duties  as 
directors  and  officers  of  the  corpora- 
tion goes  without  saying.  But  whether 
they  thereby  incurred  the  statutory 
liability  for  the  debts  of  the  corpora- 
tion in  excess  of  the  amount  of  the 
capital  stock  presents  quite  another 
question.  The  provisions  of  the  stat- 
ute are  as  follows:  'If  the  indebted- 
ness of  any  stock  corporation  shall 
exceed  the  amount  of  its  capital  stock 
the  directors  and  officers  of  such  cor- 
poration assenting  thereto  shall  be  per- 
sonally and  individually  liable  for  such 
excess  to  the  creditors  of  such  corpo- 
ration.' It  should  be  observed  that  the 
statutory  liability  is  not  predicated 
upon  the  negligence  of  the  directors  or 
officers  in  the  disehargeof  their  official 
duties,  but  upon  the  fact  of  their  hav- 
ing 'assented*  to  the  indebtedness 
which  constitutes  the  excess  over  the 
amount  of  the  capital  stock.  The  con- 
tention of  the  complainants  seems  to 
be  that  as  the  board  of  directors  is  the 
governing  body  of  the  corporation, 
their  constituting  [one  of  their  num- 
ber] its  genenil  financial  agent,  either 
by  appointment  or  by  sufferance,  made 
him  their  agent  so  as  to  warrant  an 


application  to  them  of  the  maxim 
respondent  superior,  and  to  make  his 
acts  and  assent  the  acts  and  assent  of 
the  directors.  This  position  is  clearly 
untenable.  The  directors,  though  the 
governing  body  of  the  corporation,  are 
only  its  officers  and  agents,  and  any 
subordinate  agent  appointed  by  them 
or  acting  by  virtue  of  their  sufferance 
or  recognition,  does  not  thereby  be- 
come their  agent  but  the  agent  of  the 
corporation.  His  acts  are  the  acts  of 
the  corporation  so  as  to  make  it  liable 
for  debts  or  obligations  incurred  by 
him  on  its  behalf,  but  they  are  not  the 
acts  of  the  directors  unless  commanded 
or  authorized  by  them.  The  fact  that 
the  directors  might  have  interfered  to 
prevent  [this  manager]  from  running 
the  corporation  in  debt  beyond  the 
amount  of  its  capital  stock,  or  that 
they  failed  in  other  respects  to  perform 
their  appropriate  functions,  may  be 
charged  against  them  as  negligence, 
but  it  fails  to  establish  their  assent  to 
the  indebtedness  thus  contracted.  In 
Woolverton  v.  Taylor,  133  III.  197,  the 
statute  sought  to  be  invoked  here  was 
under  consideration,  and  we  then-  held 
that  while  the  liability  imposed  is  not 
penal  but  contractual,  it  is  like  that  of 
a  surety,  and,  therefore,  stricti  juris. 
This  being  the  case,  the  statute  should 
receive  a  construction  in  consonance 
with  the  nature  of  the  obligation  im- 
posed. The  words  employed  should 
be  interpreted  according  to  their  plain 
and  obvious  meaning,  and  should  not 
tic  extended  by  construction  M>  as  to 
embrace  cases  not  clearly  within  the 
terms  of  the  statute.  The  liability  is 


•106  PERSONAL  LIABILITY  OF  OFFICERS.  [§  250 

indebtedness  against  the  corporation  while  the  goods  are  in  the 
hands  of  the  factor  and  before  their  order,  within  the  meaning  of 
the  statute  of  Illinois  relating  to  such  liability  of  directors  and 
officers  of  corporations ;  also,  that  the  fixing  of  the  salary  of  the 
superintendent  of  the  corporation  and  that  of  the  secretary,  in 
the  absence  of  other  proof,  was  not  sufficient  to  show  that  any 
corporate  debt  was  thereby  incurred,  as  it  would  be  presumed  that 
such  salaries  were  paid  as  they  accrued.  Further,  it  was  held  that 
to  show  the  incurring  of  an  indebtedness  of  a  corporation  in  excess 
of  its  capital  stock,  it  was  not  sufficient  to  show  that  various 
expenditures  were  ordered  or  authorized  by  the  board  of  directors, 
when,  so  far  as  it  appeared,  such  expenditures  may  have  been 
met  at  the  tune  by  cash  payments.  It  must  be  shown  that  -such 
expenditures  resulted  in  indebtedness,  or  formed  part  of  the 
indebtedness  in  excess  of  the  capital  stock.1 

§  250.  United  States  Supreme  Court  decision  on  a  similar 
statute  —  the  proper  action  in  such  a  case. —  An  action  at 
law  was  brought  by  a  creditor  of  a  savings  bank  in  the  District 
of  Columbia  against  the  trustees  of  the  bank  upon  a  liability  as 
alleged  incurred  by  a  violation  of  the  following  section  of  the  act 
of  congress  under  which  it  was  organized,  to  wit :  "  If  the 
indebtedness  of  any  company  organized  under  this  act  shall  at 
any  time  exceed  the  amount  of  its  capital  stock,  the  trustees  of 
such  company  assenting  thereto  shall  be  personally  and  individu- 
ally liable  for  such  excess  to  the  creditors  of  the  company."  The 
Supreme  Court  of  the  United  States  affirmed  the  sustaining  of  a 
demurrer  by  the  lower  court  to  this  action,  holding  that  an  action 
at  law  could  not  be  sustained  by  one  creditor  among  many  for 
the  liability  thus  created,  or  for  any  part  of  it,  but  that  the 
remedy  is  in  equity.2 

created  only  where  the  indebtedness  of  the  indebtedness  has  been  created  by 

the  corporation  exceeds  the  amount  of  such  agents,  and  in  such  manner  as  to 

the  capital  stock,  and  is  imposed  only  constitute  it  a  valid  obligation  of  the 

upon  the  directors  and  officers  assent-  corporation,  it  becomes  the  duty  of  the 

ing  to  such  excess  of  indebtedness,  directors  to  recognize  its  validity,  and, 

This  plainly  means  assenting  to  its  ere-  so  far  as  is  in  their  power,  provide  for 

ation.     Manifestly,  a  recognition  of  the  its  payment." 

indebtedness  by  the  directors  after  it  l  Lewis  r.  Montgomery,   (1893)  145 

has  been  so  contracted  as  to  become  111.  30. 

binding  upon  the  corporation,  should  *  Horuor  v.  Henning,  (1876)  93  U.  S. 

not  have  the  effect  of  charging  them  228.     Mr.    Justice  MII.LEK,  speaking 

•with    this   statutory  liability.     After  for  the  court,  said:  "  We  are  of  opinion 


'."•!]  PERSONAL  LIABILITY  OF  OFFICl  1"7 

§  251.  New  York  statute  —  liability  for  false  statements 
in  certificates,  etc.,  filed. —  It  ig  entirely  immaterial  whether 
the  creditor  of  the  corporation  relies  upon  the  ecrtiticate  tiled  by 
the  officers  or  not.  As  long  as  the  trustee  knows  the  certificate 
to  be  false,  and  the  deltt  is  thereafter  contracted  while  he  is  an 
officer  of  the  company,  it  come>  within  the  provisions  of  the  stat- 
ute making  the  trustees  liable  on  account  of  the  ful.se  statement 
in  the  certificate.1  The  plaintiff  in  such  actions  mu.-t  estaMi>h  that 
the  certificate  filed  was  in  point  of  fact  false,  and  that  the  trus- 
tees signed  it  with  knowledge  of  its  falsity.2  Renewal  notes 
given  after  the  tiling  by  the  officers  of  a  corporation  of  a  false 
certificate  that  all  of  its  capital  stock  had  been  paid  in  for  a  debt 
contracted  by  the  corporation  before  the  filing  of  the  certificate 
is  a  "debt"  within  the  meaning  of  the  statute  making  dir 
and  officers  liable  for  the  debts  of  the  corporation.3  A  director 
cannot  defend  an  action  to  make  him  liable  for  .signing  an  annual 
report  false  in  any  material  particular  upon  the  ground  that  he 
was  also  a  creditor  of  the  corporation.4  The  constitutionality  of 

that  the  fair  and  reasonable  construe-  number  and  names  of  the  creditors, 
tion  of  the  act  is  that  the  trustees  who  the  amount  of  their  several  debts,  to 
assent  to  au  increase  of  the  indebted-  determine  the  sum  to  be  recovered  of 
ness  of  the  corporation  beyond  its  the  trustees  and  apportioned  among 
capital  stock  are  to  be  held  guilty  of  a  the  creditors  in  a  manner  which  the 
violation  of  their  trust;  that  congress  trial  by  jury  and  the  rigid  rules  of 
intended  that  so  far  as  this  excess  of  common-law  proceedings  render  im- 
indebtedness  over  capital  stock  was  possible.  This  course  avoids  the  in- 
necessary,  they  should  make  good  the  justice  of  many  suits  against  defend- 
debts  of  the  creditors  who  hud  been  ants  for  the  same  liability,  and  the 
the  sufferers  by  their  breach  of  trust;  greater  injustice  of  permitting  one 
that  this  liability  constitutes  a  fund  creditor  to  absorb  all  or  a  very  un- 
f or  the  benefit  of  all  the  creditors  who  equal  portion  of  the  sum  for  which 
are  entitled  to  share  in  it,  in  propor-  the  trustees  are  liable,  and  it  adjusts 
tion  to  the  amount  of  their  debts,  so  the  rights  of  all  concerned  on  the 
far  as  it  may  be  necessary  to  pay  their  equitable  principles  which  lie  at  the 
•  debts.  The  remedy  for  this  violation  foundation  of  the  statute." 
of  duty  as  trustees  is  in  its  nature  •  Ferguson  r.  Gill,  (1892)  64  Hun, 
appropriate  to  a  court  of  chancery.  284;  s.  c.,  19  X.  Y.  Supp.  149. 
The  powers  and  instrumentalities  of  *Ibid. 
that  court  enable  it  to  ascertain  the  3  Ibid. 

excess  of  the  indebtedness  over  the  *  Richards  r.   Cnii-krr.   iN.    V.  City 

capital    stock,    tho    amount   of   this  Court,  Spl.  T.   1887)  19  Abb.  N.  C. 

which  each  trustee  may  have  assented  78.     Judge  KAPALI.O  in  Pier  r.   Han 

to,  and  the  extent  to  which  the  funds  more,  86  N.  Y.   101,  says  of  the  pur- 

of  the  corporation  may  be  resorted  to  pose  of   this  statute:  "The  purpose 

for  the  payment  of  the  debts;  also  the  for  which  tin-  annual  reports  are  re- 


408 


PERSONAL  LIABILITY  OF  OFFICERS. 


[§251 


the  New  York  statute  has  been  sustained  by  the  Court  of 
Appeals.1  In  actions  against  directors  under  this  statute  it  is  not 
necessary  to  show  knowledge  on  the  part  of  the  officer  at  the  time 
of  signing ;  proof  that  the  writing  is  untrue  "  in  any  material 
representation "  would  be  sufficient.2  The  rule  governing  the 
action  of  a  jury  in  such  a  case  is  that  they  are  not  required  to 
give  the  defendants  the  benefit  of  any  reasonable  doubt  in  the 


quired  to  be  published  is  that  the  pub- 
lic may  be  correctly  informed  of  the 
financial  condition  and  resources  of 
their  companies  in  order  that  they  may 
judge  of  the  credit  to  which  they  are 
entitled."  In  Walton  v.  Godwin,  58 
Hun,  91,  Mr.  Justice  DANIELS  used 
this  language:  "The  report  has  evi- 
dently been  required  as  information  to 
the  public  concerning  the  financial 
condition  and  responsibility  of  the 
corporation.  This  information  is  in- 
tended as  a  security  to  persons  dealing 
with  the  company.  And  whatever 
would  materially  affect  their  judg- 
ment in  their  dealings  should  be  re- 
garded as  a  material  representation  in 
the  report  itself.  But  if  a  report 
proves  to  be  untruthful  in  representa- 
tions which  would  have  no  effect 
whatever  upon  the  judgment  or  con- 
duct of  persons  dealing  with  the  cor- 
poration, such  representations  could 
not  be  consistently  held  to  be  material. 
And  it  must  be  by  this  criterion  that 
the  question  of  the  liability  of  the  per- 
sons signing  the  report  should  be  de- 
termined, for  if  it  contains  untruthful 
statements  and  those  statements  ap- 
pear to  be  so  entirely  unimportant 
that  they  would  not  affect,  in  the  least 
degree,  the  credit  of  the  company  or 
the  conduct  of  persons  dealing  with  it, 
then  they  cannot  legally  be  held  to  be 
material  misrepresentations. "  After 
quoting  the  above  in  Torbett  v.  God- 
win, (1891)  62  Hun,  407,  411;  s.  c.,  17 
N.  Y.  Supp.  46;  27  Abb.  N.  C.  444, 
BARRETT,  J.,  as  to  the  construction  to 
be  given  to  the  section  imposing  lia- 


bility upon  officers  for  certificates,  etc., 
"  false  in  any  material  representation," 
has  said:  "  The  construction  *  *  * 
should,  if  possible,  be  in  harmony 
with  its  object  and  purpose  as  thus 
defined.  That  will  be  accomplished 
by  confining  the  liability  to  cases 
where  credit  may  possibly  have  been 
given  to  the  corporation  upon  the  faith 
of  the  report.  In  other-words,  to  debts 
contracted  after  it  is  filed.  This  gives 
force  also  to  the  word  '  representa- 
tions '  as  used  in  the  section.  That 
section  does  not  read  false  in  any 
material  '  statement '  or  material '  fact,' 
but  false«in  any  material  '  representa- 
tion.' Representation  implies  an  ob- 
ject addressed.  Representations  to 
whom,  then  ?  Plainly  to  any  one  who 
contemplates  trusting  the  company 
thereafter.  And  this  view  is  rein- 
forced by  the  fact  that  the  false  rep- 
resentation which  creates  liability  is 
not  limited  by  the  section  to  a  certifi- 
cate or  report,  but  may  be  embodied  in 
any  toublic  notice  given  by  the  officers 
of  the»company.  Shall  it  be  said  then 
that  for  any  negligent  or  inadvertent 
publication  the  officers  of  the  com- 
pany are  to  be  mulcted,  not  only  for 
the  possible  consequences  of  such 
publication,  but  for  debts  contracted 
before  it  was  thought  of?"  The  re- 
versal of  the  judgment  against  the 
directors  on  this  case  negatives  this 
query. 

1  Huntington  r.  Attrill,  (1890)  118 
N.  Y.  365;  8.  c.,  23  N.  E.  Rep.  544. 

9  Ibid. 


PERSONAL  LIABILITY  <>l    "II  K  KR8.  409 

sense  applicable  to  criminals.  They  may  be  governed  in  reach- 
ing a  satisfactory  result  by  the  fair  preponderance  of  evidence.1 
Tlu;  fidsc  rrpivsiMitiition  alleged  in  this  case  was  tliat  the  direct- 
.ore  Iiad  represented  in  their  report  that  the  whole  capital  stock, 
$700,000,  had  been  paid  in.  The  whole  stock  was  issued  to  one 
individual,  one  of  the  defendants  here,  for  a  tract  of  land  upon 
the  seashore.  It  became  necessary,  therefore,  in  the  progress  of 
the  case  for  the  jury  to  consider  what  was  the  "  fair  value  "  of 
this  property  when  considered  in  connection  with  the .  provision 
of  the  statute  which  prohibits  the  issuing  of  stock  of  a  corpora- 
tion organized  under  it  except  for  "  property  actually  received 
for  the  use  and  legitimate  purpose  of  said  corporation  at  its  fair 
value."  "  Fair  value  "  in  this  connection  the  Court  of  Appeals 
of  New  York  held  to  be  that  which  the  property  had  at  the  time 
of  sale ;  that  it  was  not  dependent  upon  the  subsequent  success 
or  failure  of  the  investment,  further  than  that  result  may  have  been 
legitimately  within  evidential  contemplation  at  the  time  of  the  sale 
in  view  of  the  uses  for  which  it  may  have  had  available  advantages 
within  itself.2  As  bearing  upon  the  real  value  of  this  property 
for  which  the  stock  was  issued  to  so  large  an  amount  it  was  held 
not  to  have  been  error  to  allow  the  plaintiff  to  prove  on  the  ques- 
tion of  value  that  the  land  purchased,  with  extensive  improve- 
ments thereon,  was  afterwards  sold  at  judicial  sale  for  $175,000.3 
In  an  action  of  another  creditor  against  these  same  defendants 
upon  their  liability  under  the  statute  for  having  made  a  false 
statement  in  their  certificate  which  they  had  filed,  the  Court  of 
Appeals  sustained  the  action  of  the  trial  judge  in  refusing  to 
accept  a  verdict  of  the  jury  for  an  amount  less  than  the  whole 
amount  of  his  debt  and  directing  a  verdict  for  the  latter  amount 
on  the  ground  that  having  found  that  the  plaintiff  was  entitled  to 
a  recovery,  that  being  a  matter  of  fact  for  the  jury,  the  measure 
of  damages  was  the  amount  of  the  debt  and  this  he  was  entitled 
to  recover.4  Where  the  liability  of  a  trustee  or  director  under 
the  statute  for  making  a  false  certificate  has  reference  to  an  over- 
valuation of  property  taken  by  the  corporation  from  its  stock- 
holders, the  statute  would  not  l>e  violated  in  respect  to  the  issuing 
of  stock  in  payment  for  property  unless  such  persons  in  bad  faith 

1  Ibid.  «  Hatch  r.  Attrill,  (1890)  118  N.  Y. 

*  Ibid.  888;  8.  c.,  28  N.  E.  Rep.  549. 

»  Ibid. 

52 


410  PERSONAL  LIABILITY  OF  OFFICERS.  [§  '!'•>'! 

put  a  fictitious  value  upon  their  property  for  the  purpose  of  evad- 
ing the  statute  and  defrauding  others.  If  done,  and  the  trustee 
knew  of  it,  lie  would  be  liable.1  The  rule  that  to  sustain  an 
action  for  fraud  founded  upon  representations  made  by  one 
charged  with  fraud,  it  must  be  made  to  appear  that  he  believed, 
or  had  reason  to  believe,  at  the  time  he  made  them,  that  the  rcj> 
resentations  were  false,  or  that,  without  knowledge,  he  assumed 
or  intended  to  convey  the  impression  that  he  had  actual  knowl- 
edge of  their  truth,  and  that  the  injured  party  relied  upon  them 
to  his  injury,  is  applicable  to  the  case  of  representations  made 
by  a  director  of  a  corporation,  in  the  form  of  published  state- 
ments and  reports,  as  to  its  financial  condition.  Knowledge  of 
all  the  affairs  of  the  corporation  cannot  be  imputed  to  him  for 
the  purpose  of  charging  him  with  fraud.2  In  a  case  brought  by 
one  who  alleged  that  he  had  been  led  to  loan  a  large  sum  of 
money  to  a  corporation  by  the  false  and  fraudulent  representa- 
tions of  its  trustees  as  to  its  capital  stock  having  been  paid  in, 
etc.,  in  a  report,  there  was  a  judgment  against  all  the  trustees. 
On  the  appeal  it  was  held  by  the  court  that  the  facts  that  the 
name  of  one  of  these  defendants  was  published  as  a  trustee  of 
the  corporation  and  that  a  certificate  of  stock  was  issued  to  him 
were  not  sufficient  to  authorize  a  verdict  against  him  for  the  fraud 
perpetrated  by  other  trustees  and  agents  of  the  corporation.3 
The  mere  fact  of  being  a  director  and  stockholder  is  not  sufficient 
per  se  to  hold  one  so  situated  liable  for  the  frauds  and  misrepre- 
sentations of  the  active  managers  of  a  corporation.  They  are 
the  agents  of  the  corporation,  not  of  the  directors,  as  individuals, 
and  have  no  power  to  bind  the  latter  by  their  statements.  Some 
knowledge  and  participation  in  the  act  claimed  to  be  fraudulent 
must  be  brought  home  to  the  person  charged.  It  is  only  where 
a  director  lends  his  name  and  influence  to  promote  a  fraud  upon 
the  community,  or  is  guilty  of  some  violation  of  law  or  other 
mismanagement  that  he  is  personally  liable.4 

§  252.  Illustrations. —  A  statement  in  such  a  report  that  cer- 
tain persons  are  stockholders  in  the  corporation,  and  that  the 

1  Van  Vleet  v.  Jones,  (1894)  75  Hun,       »  Arthur  v.  Griswold,  (1874)  55  N. 
340;  s.  c.,  26  N.  Y.  Supp.  1086.  Y.  400. 

4  Wakeman  v.  Dalley,  (1872)  51  N.       4  Ibid. 
Y.  27;  s.  c.,  10  Am.  Rep.  551,  affirm- 
ing 44  Barb.  498. 


§  252J  PERSONAL  LI  A  HI  LITY  OF  OFFICERS.  411 

amount  of  their  stock  has  been  already  paid,  when  in  fact  such 
persons  are  not  stockholders  at  all,  would  be  "false  in  a  matt-rial 
representation."1  That  defendant  signed  .-m-h  rejxjrt  in  good 
faith  under  the  advice  of  counsel,  and  that  he  believed  the  state- 
ment made  in  it  to  be  true  would  be  no  defense  against  his  statu- 
tory liability  under  this  statute.'  It  appeatv<l  in  a  New  York 
case  that  one  who  was  named  in  the  annual  renort  madt>  by  the 
corporation  under  the  requirements  of  the  statute  as  one  of  the 
stockholders  was  not  and  never  had  been  the  owner  of  stock  in 
the  corporation  ;  that  a  certificate  for  ten  shares  of  stock,  amount- 
ing to  the  sum  of  $1,000.  had  been  sent  to  him,  which  he  had 
refused  to  accept  and  had  returned,  and  that  this  amount,  as  well 
as  an  additional  sum  of  $1,000,  for  which  there  was  no  founda- 
tion whatever,  was  included  in  the  amount  of  the  capital  stock  of 
the  corporation  stated  in  the  report  to  have  l>een  paid  in.  The 
other  stock  paid  in  was  stated  at  $148,600.  The  Supreme  Court 
in  General  Term  held  that,  in  view  of  the  fact  that  the  jury  might 
have  found  that  $146,600  of  the  capital  stock  of  the  corporation 
had  been  paid  in,  this  error  to  the  extent  only  of  $2.000  did  not 
make  the-  report  "  false  in  any  material  representation." !  In  a 
case  before  the  New  York  Court  of  Appeals,  brought  by  a 
creditor  against  a  trustee  of  a  corporation  to  enforce  the  liability 
of  the  latter  under  the  New  York  statutes  for  making  a  state- 
ment in  the  annual  report  that  the  capital  stock  of  $2,000,000 
had  been  paid  up  in  full,  on  the  ground  that  the  statement  was 
false  to  the  knowledge  of  the  signers,  it  appeared  that  the  stock 
of  the  corporation  was  issued  to  one,  in  payment  for  certain  iron 
mining  property,  then  undeveloped,  which  property  he  had  pur- 
chased of  a  corporation  of  which  the  trustee  sued  was  a  stock- 
holder, and  the  latter  received  from  him  $10,000  of  the  stock  of 
the  new  corporation  to  enable  him  to  act  as  trustee.  The  vendor 
of  the  property  sold  to  the  corporation  surrendered  to  the  new 
corporation  1,000  shares  of  the  stock,  which  was  pledged,  with 

'Brandt  r.  Godwin,  (City  Court  N.  upon  the  transactions  or  dealin 

Y..  Spl.  Term,  1889)  8  N.  Y.  Supp.  creditors  with  the  <x>rporation      An. I 

807.  for  that  reason  these  statements  could 

*  Ibid.  not  be  assumed  1i>  be.  as  they  appear 

1  Walton  r.  Godwin,  (1890)  58  Hun,  to  have  Iteen  in  t lie  charge  of  the  court, 

87;   fl.  c.,  12  N.  Y.  Supp.  486.     DAN-  materially   false  .statements  rendering 

IBL8,   J.,  said:    "This  slight  discrep-  tin-   olVirers    who    signed    the    report 

ancv    or    difference  in    HO    lanre    an  liable  for  its  debts." 
amount  would  have  no  effect  whatever 


4  1  2  PERSONAL  LIABILITY  OF  OFFICERS.  [§  252 

$70,000  of  the  bonds  of  the  corporation,  to  secure  a  loan  of 
$35,000,  and  gave  500  shares  of  the  stock  as  a  commission  to  the 
officer  who  negotiated  the  loan.  The  property  which  was  sold 
by  this  vendor  to  the  new  corporation  for  $1,000,000  of  the  stock 
of  the  new  corporation  and  $200,000  of  its  bonds,  and  the  con- 
sideration for  which  was  expressed  in  his  deed  to  the  new  corpo- 
tion  as  $600,000,  proved  to  be  worth  not  over  $60,000.  The 
trustee  sued  had  knowledge,  it  was  shown,  of  all  these  facts.  The 
Court  of  Appeals  held  that  the  facts  justified  a  finding  that  this 
trustee  signed  the  report  in  bad  faith,  knowing  it  to  be  false.1  In 
an  action  against  trustees  of  a  manufacturing  corporation  to 
enforce  the  liability  imposed  by  the  statutes  of  New  York 3  for 
making  a  false  report,  where  the  falsity  alleged  was  solely  in  the 
statement  that  the  capital  stock  had  been  paid  in  full,  without 
stating  that  all  or  a  portion  of  it  was  paid  for  in  property  as 
required  by  a  later  statute,3  the  New  York  Court  of  Appeals 
declared  this  rule  to  be  applicable,  to  wit :  To  charge  the  officer 
with  the  severe  penalty  imposed  for  signing  a  false  report,  know- 
ing it  to  be  false,  some  fact  or  circumstance  must  be  shown  indi- 
cating that  it  was  made  in  bad  faith,  willfully,  or  for  some  fraudu- 
lent purpose,  and  not  ignorantly  or  inadvertently,  and  this  is  a 
question  of  fact  which  must  be  passed  upon  before  the  liability 
can  be  adjudged.4  FINCH,  J.,  further  said  :  "  But  the  necessity 
of  such  proof  of  a  willful  and  fraudulent  purpose  we  confined  to 
a  case  where  the  sole  falsity  of  the  report  originated  in  our  con- 
struction of  its  import,  as  meaning  a  payment  in  cash,  although 
not  so  stated  in  express  terms,  and  where,  as  a  consequence,  it 
was  possible  for  the  officer  to  have  signed  what  we  construe  to  be 
a  falsehood,  but  what,  as  he  understood  it,  might  have  been  a 
truth.  In  such  case  it  is  just  to  require  that  some  evidence  of 
bad  faith,  something  indicating  a  consciousness  of  falsehood 
instead  of  belief  of  truth  should  be  given.  In  other  words,  the 
penalty  follows  an  actual  and  not  a  constructive  falsehood ;  one 
known  and  understood  to  be  such  and  possibly  believed  to  be 
otherwise." 5  The  trustees  of  a  manufacturing  corporation 

1  Blake  v.  Griswold,  (1886)  103  N.  Y.  'Bonnell  *.  Griswold,  (1882)  89  N. 

439.     The  court  distinguished    Lake  Y.  122;  rule  declared  in  Pier  v.  Han 

Superior  Iron  Co.  ».  Drexel,  (1892)  90  more,  80  N.  Y.  128. 

N.  Y.  87.  6  Ibid.,  in  which  it  was  held  that 

*  N.  Y.  Laws  1848,  chap.  40,  §  15.  where  the   stock  of   the  corporation 

3  N.  Y.  Laws  1853,  chap.  333.  was  actually  paid  in  in  cash,  the  mere 


§  252]  PEK80NAL  LIABILITY  OF  OFFICERS.  \  I  '•', 

would  not  incur  the  liability  imposed  upon  them  by  the  stat- 
utes of  New  York l  for  signing  an  annual  report  "  false  in 
any  material  representation,"  simply  by  omitting  from  the 
aggregate  indebtedness  of  the  corporation  certain  liabilities 
of  the  corporation,  although  they  may  have  known  of  it  at  the 
tin  it;  the  report  was  made.9  The  liability  of  a  director  of  a  cor- 
poration grilled  under  the  New  York  statute8  by  reason  of 
making  a  false  report  abates  on  the  death  of  the  original  creditor 
of  the  corporation,  and  cannot  be  revived  in  favor  of  or  prose- 
cuted by  his  personal  representatives.4  The  Maryland  Court  of 
Appeals,  two  justices,  however,  dissenting,  has  held  that  the  lia 
bility  imposed  upon  directors  or  officers  by  the  New  York  statute 
on  account  of  false  statements  in  reports,  etc.,  required  of  them 
as  to  any  material  representation  was  a  penalty  and  not  enforceable 
in  the  state  of  Maryland ;  and  that  if  a  judgment  had  been 
obtained  in  New  York  under  the  statute,  no  action  could  be 
maintained  on  the  judgment  in  the  state  of  Maryland.9  The 
officers  of  a  corpofetion  organized  in  pursuance  of  a  plan  of  a 
syndicate  for  whom  property  had  been  purchased  for  $150,000, 
with  a  view  to  sell  the  same  to  this  corporation,  certified  that 
stock  of  the  value  of  $1,500,000  had  been  issued  to  the  amount  of 
the  value  of  the-  property  purchased  of  the  syndicate  for  the  pur- 
pose of  the  corporation.  These  officers  were  held  liable  to  per- 
sons who  had  advanced  money  to  the  corporation  under  th«> 
statute  of  New  York,  which  provides  that  "  if  any  certificate  or 
report  made,  or  public  notice  given,  by  the  officers  of  any  such 
company,  in  pursuance  of  the  provisions  of  this  act,  shall  be  false 
in  any  material  representation,  all  the  officers  who  shall  have 
signed  the  same,  knowing  it  to  be  false,  shall  be  jointly  and 
severally  liable  for  all  the  debts  of  the  company  contracted  while 
they  are  stockholders  or  officers  thereof."  The  statement  in  the 

fact  that  the  corporation  boupht  out  'Laws  N.  Y.  1875,  chap.  611. 

assets  of  an  old  company  at  their  fair  *  Boyle  v.  Thurber,  (1888)  50  Hun, 

value  did  not  call  for  or  authorize  a  250;  following  Brackett  c.  Griswold, 

statement  in  the  report  that  the  stock  103  N.  Y.  425. 

had  been  paid  for  in  property.     See,  *Attrill   v.   Iluntington,     (1889)    70 

also,  Wickens  «.  Foster,  (1885)  22  N.  Md.  191;  8.  c.,  16  Atl.  Ifc-p.  651;  citing, 

Y.  Wkly.  Dig.  426.  in  support  of  the  holding.  Flash  r. 

1  N.  Y.  Laws  1848,  chap.  40,  §  15.  Conn,   109  U.  8.   876;    Wisconsin   r. 

•Butler  t.  Smalley.  (1885)101  N.  Y.  Pelican  Insurance  Co.,  127  U.  8.  290. 
71. 


414  PERSONAL  LIABILITY  OF  OFFICEES.  [§§  253,  254 

certificate  as  to  the  stock  was  held  to  be  a  false  one  within  the 
letter  and  the  spirit  of  the  statute.1 

§  253.  Statutory  liability  —  Rhode  Island  statutes.—  The 
statutes  of  Rhode  Island  providing  that  if  certain  certificates 
are  not  filed,  certain  officers  of  corporations  shall  be  liable  for 
"  all  debts  of  the  company  contracted,"  has  been  construed  by  the 
Supreme  Court  of  that  state,  and  they  have  held  that  the  words 
"  debts  contracted  "  did  not  include  torts  of  the  corporation,  nor 
judgments  against  the  corporation  founded  on  such  torts.2  So,  all 
the  other  statutes  which  provide  that,  if  the  debts  of  a  corpora- 
tion exceed  its  paid-in  capital,  the  directors  under  whom  the  excess 
occurs  shall  be  liable  jointly  and  severally  to  the  extent  of  the 
excess,  "  for  all  the  debts  of  the  company  then  existing,  and  for 
all  that  shall  be  contracted  as  long  as  they  shall  respectively  con- 
tinue in  office,"  and  until  the  excess  shall  disappear,  have  also 
been  construed,  and  the  directors  held  not  to  be  liable  for  torts  of 
the  corporation  committed  pending  the  exce|p,  nor  for  judgments 
against  the  corporation  founded  on  such  torts.3 

§  254.  Statutory  liability  —  various  states. —  The  statutes 
of  Indiana  provided,  as  to  such  corporations  as  the  one  involved 

1  Chittenden  v.  Thannhauser,  (1891)  the  second  it  was  held  that  the  phrase 

47  Fed.  Rep.  410.  '  debts  contracted,'  being  broadly  con- 

* Pub.  St.  R.  1. 1882,  chap.  155,  §§  2,  strued,  covered  a  liability  incurred  by 

3,  4.  the  infringement  of  a  patent,  or,  in 

•''Pub.  St.  R.  I.  1S82,  chap.  155,  §  15;  other  words,  a  liability  for  tort.  Judge 

Leighton  v.  Campbell,  (1890)  17  R.  I.  STOKY,  in  giving  this  construction,  re- 

51;  s.  c.,  20  Atl.  Rep.  14.  The  court  lied  somewhat  on  the  authority  of  Mill 

said:  "The  plaintiff  cites  in  support  DamFoundery«.  Hovey,  but  still  more 

of  this  contention  Mill  Dam  Foundery  on  his  view  that  the  provision  impos- 

T.  Hovey,  21  Pick.  417, 455,  and  Carver  ing  the  liability  was  to  be  regarded  as 

T.  Braintree  Manufacturing  Company,  remedial,  and  was,  therefore,  to  be 

2  Story,  432.  These  cases  relate  to  liberally  construed,  in  fact  virtually 

the  liabilities  of  corporations  under  a  conceding  that,  in  any  other  view,  the 

Massachusetts  statute  subjecting  them  construction  would  be  too  broad.  In 

to  individual  liability  for  the  'debts  Child  v.  Boston  &  Fairhaven  Iron 

and  contracts 'of  the  corporation,  or  Works,  137  Mass.  516.  the  court  say, 

for  the  '  debts  contracted '  by  it,  in  criticism  of  Carver  T.  Braintree 

and  not  to  the  liability  of  officers  of  Manufacturing  Company:  'There  are 

corporations  under  other  provisions,  no  cases  decided  by  the  courts  of  the 

In  the  first  case  it  was  held  that  the  commonwealth  in  which  a  stockholder 

phrase  covered  a  claim  for  unliqui-  has  been  held  liable  for  a  tort  of  the 

dated  damages  arising  ex  contractu.  In  corporation,  and  other  decisions  of  Mr. 


.;  L'.~»4]  PERSONAL  LIABILITY  OK  OFFICERS.  H  ", 

in  ;i  case  before  the  Supreme  Court  of  that  state,  as  follows: 
••  Tiu>  capital  stock,  as  fixed  by  such  company,  shall  be  paid  into 
the  treasury  thereof  within  eighteen  months  from  the  incorpora- 
tion of  tin-  same."  ''If  any  company  organized  and  established 
iiinler  the  authority  of  this  act,  and  of  the  act  to  which  this  is 
supplementary,  shall  violate  any  of  the  provi.-ions  thereof,  and 
shall  thereby  become  insolvent,  the  director-  ordering  or  assent- 
ing to  such  violation  shall  jointly  and  severally  be  liable,  in  an 
action  founded  on  said  acts,  for  all  debts  contracted  after  such 
violation  as  aforesaid."  It  was  ruled  in  the  case  that  if  the 
directors,  or  any  number  of  them,  refused  to  enforce,  on  behalf 
of  the  company,  the  duty  of  the  company  to  collect  the  stock, 
such  refusal  was  an  assent  on  their  part  to  a  violation  of  the  com- 
pany's duty,  and  it  was  immaterial  whether  the  plaintiff  sued  all 
or  a  majority  of  the  directors.1  A  protest,  not  in  writing,  by  a 
director  of  a  gravel  road  company,  before  the  l>oard  against  the 
contracting  of  debts  in  excess  of  its  solvent  stock,  will  absolve 

Justice  STORY  stand  unsupported  by  been  r<*luced  to  judgment,  and  thus 
any  direct  authority,  either  before  or  become  a  debt  of  the  corporation,  it 
since.'  There  are  cases  of  other  states  was  said:  "The  New  York  cases,  under 
in  which  it  has  been  held  that  the  statutory  provisions  similar  to  ours, 
words  '  debts  contracted '  do  not  sub-  hold  that,  in  that  state,  the  trustees  of 
ject  the  corporators  to  liability  for  the  corporations  are  liable,  if  at  all,  only 
torts  of  the  corporation.  Heacock  r.  on  the  original  claim,  and  that  a  judg- 
Sherman,  14  Wend.  58;  Bonn  r.  Brown,  ment  against  the  corponition  thereon 
33  Mich.  257;  Cable  r.  McCune,  26  has  no  effect  as  against  them.  Miller 
Mo.  871.  In  the  case  at  bar,  however,  r.  White.  50  N.  Y.  137;  Whitney 
the  question  relates  not  to  the  cor-  Arras  Co.  r.  Barlow,  63  N.  Y.  62;  Es- 
porators,  but  to  officers,  under  pro-  mond  r.  Bullard,  16  Hun,  65.  It  has 
visions  relating  to  them  exclusively  as  been  held  in  other  states  that  the  re- 
such,  imposing  duties  on  them,  and  duction  of  a  claim  for  damages  against 
making  them  liable  in  case  they  reject  a  corporation  arising  ex  delicto  to  a 
or  refuse  to  perform  them.  These  pro-  judgment  does  not  change  its  char- 
visions,  as  contradistinguished  from  acter  as  against  the  delinquent  officers, 
the  provisions  in  regard  to  corpora-  so  as  to  charge  them  thereon  as  for  a 
ti.  >!is.  are  deemed  to  be  penal,  and  for  debt  contracted  by  the  corporation, 
that  reason  to  be  strictly  construed.  Cable  r.  Qaty,  34  Mo.  573;  Bohn  r. 
Chase  P.  Curtis,  113  U.  8.  452.  We  do  Brown,  33  Mich.  257;  so,  also,  by  the 
not  think  that  any  court  would  hold  Supreme  Court  of  the  United  States, 
that  the  words  '  debts  contracted,'  if  Chase  r.  Curtis,  113  U.  8.  452;  "  citing, 
strictly  construed,  would  cover  un-  also,  Whitaker  t>.  Masterton,  106  N. 
liquidated  claims  for  damages  arising  Y.  277,  280,  upon  some  points. 
ex  delicto.  Child  r.  Boston  &  Fair  « Clow  r.  Brown.  (1892)  134  Ind.  287; 
haven  Iron  Works,  [187  Mass.  516]."  B.  <•„  88  N.  E.  Rep.  1126. 
As  to  the  contention  that  the  claim  had 


416  PERSONAL  LIABILITY  OF  OFFICERS.  [§  254 

i 

him  from  liability  on  account  of  such  contracting  of  debt.1  In 
an  action  to  enforce  such  a  liability  of  directors,  it  must  be 
averred  and  proved  that  the  directors  against  whom  the  action  is 
brought  contracted  the  debt,  and  that  the  debt,  when  contracted, 
exceeded  the  solvent  stock  of  the  company.8  The  failure  of  a 
majority  of  the  directors  of  a  corporation  to  file  the  reports,  as 
required  by  the  law  of  Michigan,  will  be  presumed  intentional, 
and  will  render  each  director  liable  for  the  debts  of  the  corpora- 
tion under  the  statute  which  renders  the  directors  of  corporations 
liable  if  they  "  intentionally  neglect  or  refuse  to  comply  "  with  its 
provisions.8  The  Montana  Supreme  Court  has  held  that  the  stat- 
ute of  that  state  imposing  an  individual  liability  upon  the  trustees 
of  a  corporation  for  not  filing  the  annual  report  of  the  corpora- 
tion's condition  required  by  the  statute  could  not  be  construed  so 
as  to  excuse  the  trustees  from  liability  for  debts  contracted  prior 
to  a  default  in  the  matter  of  filing  the  report.  Therefore,  they 
held  that  the  facts  stated  in  defense  to  an  action  to  enforce  such 
statutory  liability  that  before  the  time  for  filing  such  annual 
report  the  corporation  was  insolvent  and  had  entirely  abandoned 
its  business ;  that  all  the  property  of  the  corporation  belonged  to 
one  of  its  trustees,  having  been  delivered  to  him  in  satisfaction 
of  an  indebtedness,  and  that  for  a  period  of  two  months  no  officer 
or  trustee  had  exercised  any  corporate  act  or  function,  and  that 
there  was  no  intention  to  resume  the  business  of  the  corporation, 
did  not  dissolve  the  corporation  and  constituted  no  defense  to  the 
action.4  Officers  of  a  corporation  certifying  that  the  capital 

1  Schofleld  v.  Henderson,  (1879)  67  future  period;  something  which  might 

Ind.  258.  be  the  subject  of  a  suit  as  a  debt,  and 

*  Aimen  v.  Hardin,  (1877)  60  Ind.  119.  not  something  to  which  the  party  may 

3  Van  Etten  •».  Eaton,  19  Mich.  187.  be  entitled  as  damages  in  consequence 

As  to  the  construction  of  the  statute  of  a  failure  to  perform  a  duty  or  keep 

referred  to,  see  Breitung  v.  Lindauer,  an  engagement.     A  right  to  a  divi- 

37  Mich.  217.     As  to  what  are  ''debts "  dend  from  the  profits  of  a  corporation 

within  the  meaning  of  this  statute,  the  is  no  debt  until  the  dividend  is  de- 

Supreme  Court  of  Michigan  has  said,  clared.     Until  that  time,  the  dividend 

in  Lockhart  v.  Van  Alstyne,  31  Mich,  is  as  something  that  may  possibly  come 

76,   78:    "Liabilities    of    a    company  into  existence,  but  the  obligation  on 

which  may  give  cause  of  action  against  the  part  of  the  corporation  to  declare 

it  and  result  in  judgments  are  not  it  cannot  be  treated  as  the  dividend 

within  the  statute  unless  they  consti-  itself." 

tute   present  debts.     A  debt  is  that  4  Gans ».  Switzer,  (1890)  9  Mont.  408; 

which  one  person  is  bound  to  pay  s.  c.,  24  Pac.  Rep.  18. 
another,  either  presently  or  at  some 


§  254]  PERSONAL   LIABILITY  OF  OFFICERS.  417 


of  the  company  i>  paid  in,  when  in  fact  it  i-  paid  in  proj>- 
erty  of  an  uncertain  value,  will  \tc  liable  under  the  New  .1 
statute  making  them  liable  for  the  dent.-  of  the  corporation  in 
case  they  fal.-ely  certify  that  the  capital  ,-tock  has  Keen  paid  in.1 
The  statute  i.f  Yennent  making  the  directors  <.f  a  private  corpora- 
tion liable  for  all  "  debt*  contracted  "  before  the  publication  of  it- 
article-  of  a.-.-ociation,  has  been,  held  not  to  embrace  all  contracts 
entered  into  by  the  corporation  before  >uch  publication,  but  only 
"  debts  "  SO  contracted  ;  it  would  not  embrace  damages  for  the 
non-performance  of  a  special  contract.-  The  assenting  by  a 
director  of  a  corporation  to  the  execution  of  new  notes  for  former 
notes  held  by  the  corporation,  where  the  original  indebtcdne— 
was  not  increased  thereby,  it  being  only  the  substitution  of  one 
set  of  notes  for  the  other,  it  has  been  held  did  not  fall  within  the 
statute  of  Vermont  which  prohibited  the  contracting  of  debts  to 
an  amount  greater  than  three-fourths  of  the  capital  stock  paid  in, 
and  making  any  director  assenting  thereto  liable  for  the  excefifl  TO 
the  creditors  of  the  corporation.8  A  statute  of  Vermont  (R.  L. 
Vt.  §  3279)  provides  that  in  case  debts  are  contracted  by  a  cor- 
poration for  voluntary  association  before  compliance  with  the 
provisions  of  the  preceding  section  (3278).  the  president  and 
directors  shall  be  personally  liable  for  such  debts.  The  Supreme 
Court  of  that  state  said  :  "  It  is  clear  that  the  conditions  prece- 
dent to  the  creation  of  a  liability  under  that  section  are,  first,  the 
existence  of  a  corporation,  recognized  as  such  by  the  laws  of  this 
state  ;  second,  the  contracting  of  a  debt  by  such  corporation,  and, 
third,  a  failure  to  comply  with  the  provisions  of  section  '-'>^~^ 
before  the  contraction  of  such  debt."  They  held  that  where 
articles  of  association,  under  chapter  153,  Revised  Laws  of  Ver- 
mont, are  signed  upon  the  understanding  that  they  shall  not  take 
effect  until  the  happening  of  a  certain  contingency,  they  do  not 
become  effective,  and  no  corporation  exists  until  that  contingency 
happens;  in  such  case  a  director,  who  is  guilty  of  no  act  or  omis- 
sion by  which  the  party  extending  the  credit  is  misled,  would  not 
be  liable;  but  where  the  defendant  represented  to  the  plaintiff 
that  such  corporation  had  been  legally  organi/ed,  and  that  he  was 
a  director,  he  was  held  to  be  e-toppcd  from  making  this  defense 

1  Waters  c.   Quimby,  3  Dutch.  (N.       *  Oady  r.  Sanford,  53  Vt.  632. 
J.)  198;  affirmed  in  4  Dutch.  538.  *  National  Bank  r.  Paige,  53  Vt.  452. 

53 


418  PERSONAL  LIABILITY  OF  OFFICEBS.  [§  2.V. 

and  to  be  liable  under  the  statute.1  "Debts  contracted"  for 
which  negligent  officers  of  corporations,  under  Connecticut  stat- 
utes, may  be  held  liable,  must  be  debts  of  the  corporation  in  favor 
of  some  one  who  gave  it  credit.2  The  Code  of  Virginia  makes 
those  of  the  directors  of  a  corporation,  who  declare  a  dividend  of 
net  profits,  when  the  corporation  is  insolvent,  who  concur  in  the 
act  in  their  individual  capacity,  jointly  and  severally  liable  to  the 
creditors  of  the  corporation  for  the  amount  of  the  capital  stock 
so  divided.  In  an  action  to  enforce  the  personal  liability  under 
this  statute,  the  question  of  the  insolvency  of  the  corporation 
when  the  dividend  may  have  been  declared  is  a  question  of  fact, 
and  the  insolvency  of  the  corporation  must  be  established  by 
proof  to  justify  a  recovery  from  the  directors  individually.3 
The  United  States  Supreme  Court  has  held  that  the  remedy  in 
the  courts  of  the  United  States  to  enforce  the  personal  liability 
of  directors  for  permitting  the  corporation  to  contract  debts  in 
excess  of  the  capital  stock,  under  the  statutes  of  a  state,  is  by  bill 
in  equity.4 

§  255.  Liability  of  directors  or  officers  under  an  English 
statute. —  An  English  statute  provided  that  if  it  appears,  in  the 

J  Corey  v.  Morrill,  (1889)  61  Vt.  598;  amount  of  the  capital  stock  actually 

s.  c. ,  17  Atl.  Rep.  840.  paid  in;  facts  which  the  directors,  upon 

2  Armstrong  v.  Cowles,  44  Conn.  48;  whom  the  liability  is  imposed,  have  a 

Gen.  St.  Conn.  314,  §  3.  right  to  have  determined,  once  for  all, 

3Slaymaker's  Admr.  r.  Jaffray  &  in  a  proceeding  which  shall  conclude 
Co.,  (1886)  82  Va.  346.  all  who  have  an  adverse  interest,  and 
•  4  Stone  v.  Chisolm,  (1885)  113  U.  S.  a  right  to  participate  in  the  benefit  to 
302;  s.  c.,  5  Sup.  Ct.  Rep.  497,  a  case  result  from  enforcing  the  liability, 
brought  under  the  statute  of  South  Otherwise,  the  facts  which  constitute 
Carolina.  It  was  said  by  the  court:  the  basis  of  liability  might  be  deter- 
"  The  conditions  of  the  personal  Ha-  mined  differently  by  juries  in  several 
bility  of  the  directors  of  the  corpora-  actions,  by  which  some  creditors  might 
tion,  expressed  in  the  statute,  are  that  obtain  satisfaction  and  others  be  de- 
there  shall  be  debts  of  the  corporation  feated.  The  evident  intention  of  the 
in  excess  of  the  capital  stock  actually  provision  is  that  the  liability  shall  be 
paid  in,  to  which  the  directors  sought  for  the  common  benefit  of  all  entitled 
to  be  charged  shall  have  assented,  and  to  enforce  it  according  to  their  interest 
this  liability  is  for  the  entire  excess  or  apportionment,  which,  in  case  there 
both  to  the  creditors  and  to  the  corpo-  cannot  be  a  satisfaction  for  all,  can 
ration.  To  ascertain  the  existence  of  only  be  made  in  a  single  proceeding  to 
the  liability  in  a  given  case  requires  an  which  all  interested  can  be  made  par- 
account  to  be  taken  of  the  amount  of  ties."  Adhering  to  and  reaffirming 
the  corporate  indebtedness,  and  of  the  Hornor  r.  Henning,  93  U.  S.  228. 


~>5]  PERSONAL  UAlilLITT  OF  OFFICERS.  419 


of  winding  up  any  company,  "  tliat  any  past  director, 
manager,  official  or  other  liquidator,  or  any  officer  of  such  com- 
pany, has  nii-:i|)|)li«-i!  or  retained  in  his  own  hands,  or  become  lia- 
ble or  accountable  for  any  moneys  of  the  company,  or  been  guilty 
of  any  mM'«  -usance  or  breach  of  trust  in  rel.it  ion  to  tin-  company, 
the  court  may  *  *  *  examine  into  the  conduct  of  such  director, 
manager  or  other  officer,  and  compel  him  to  repay  any  moneys  so 
misapplied  or  retained,  or  for  which  he  has  become  liable  or  acc<  >u  nt- 
alilr,  together  with  interest,  after  such  rate  as  the  court  thinks  just, 
or  to  contribute  such  Bums  of  money  to  the  assets  of  the  company 
by  way  of  compensation  in  respect  of  such  misapplication, 
retainer,  misfeasance  or  breach  of  trust  as  the  court  thinks  just." 
This  statute  has  been  construed  by  the  Court  of  Appeal  with 
this  result  :  The  remedy  afforded  by  this  statute  is  only  for  the 
recovery  of  damages  for  losses  incurred.  The  misfeasance  to 
which  it  is  directed  is  not  restricted  to  acts  of  commission,  but 
extends  to  all  breaches  of  trust  in  relation  to  a  company,  through 
which  loss  is  incurred.  Misfeasance  is  not  to  be  imputed  to  a 
director  unless  he  has  dishonestly  acted  or  abstained  from  acting 
in  conflict  with  his  plain  duty,  and  the  burden  of  proof  lies  on 
the  party  making  the  charge,  but  in  considering  the  question  of 
the  directors  liability,  thero  must  be  imputed  to  him  a  special 
knowledge  of  the  business  which  he  has  undertaken.  The  Court 
of  Appeal  held  that  directors  were  liable  for  losses  occasioned 
through  acts  done  by  them  as  directors  in  matters  which  are 
ultra  vires  the  company,  and  that  their  liability  was  not  depend- 
ent upon  any  question  of  honesty  of  intention.1  In  a  very  recent 
case  involving  the  liability  of  directors  of  a  company  under  this 
statute  or  a  later  one  replacing  it,  the  directors  were  held  liable 
to  repay  an  amount  of  money  which  they  had  invested,  of  the 
company's,  in  shares  of  a  building  securities  company,  which 
investment  was  ultra  vires  on  the  part  of  the  company  they  rep- 
resented. It  appeared,  also,  in  this  case  that  two  of  the  directors 
were  not  present  at  the  meeting  when  the  in  vestment  was  ordered, 
but  they  were  present  at  the  next  meeting  at  which  the  minutes 
of  the  previous  meeting  were  read  and  confirmed.  One  of  them 
was  in  the  chair  and  signed  the  minutes.  lie  was,  also,  in  the 
chair  at  the  next  general  meeting  of  the  company,  and  then 

1  In  re  The  Liverpool  Household  Stores  Association  (Limited),  (1890)  59  L. 
J.  R.  (N.  S.)  Ch.  Div.  616. 


420  PERSONAL  LIABILITY  OF  OFFICERS.  [§  255 

referred  to  this  investment,  and,  speaking  in  behalf  of  the 
directors,  said  :  "  We  carefully  considered  the  matter  and  deemed 
it  advisable  to  exercise  our  right  of  subscription,  and  have  no 
reason  to  regret  our  decision."  The  Court  of  Appeal  held  that 
although  the  presence  of  these  two  directors  at  the  meeting  at 
which  the  minutes  of  the  previous  meeting  were  confirmed  was 
not  sufficient,  in  itself,  to  make  either  of  them  liable  for  the  ultra 
vires  investment,  yet  the  one  presiding  had,  by  his  action  as  chair- 
man at  that  meeting,  and  by  his  statement  at  the  general  meeting 
of  the  company,  shown  that  he  took  an  active  part  in  the  invest- 
ment and  would  be  held  responsible  for  it.1  It  was  held  that  as 
to  one  ultra  vires  investment  these  directors,  being  considered  in 
these  matters  of  liability  P  by  the  courts,  in  the  light  of  trustees, 
were  entitled  to  the  benefit  of  the  English  Statute  of  Limitations 
with  reference  to  trustees.2  A  director  in  this  English  case  held 
shares  of  a  company  not  fully  paid  up,  and  his  directors'  fees 
were  unpaid.  On  a  day  when  the  company's  balance  at  its 
bankers  was  two  pounds,  eleven  pence,  he  gave  to  the  company 
a  cheque  for  seventy  pounds,  the  amount  remaining  unpaid  on 
his  shares,  and  received  at  the  same  time  from  the  company  a 
cheque  for  a  like  amount,  on  account  of  his  fees,  signed  by  him- 
self and  another  director.  Within  three  months  there  were  pro- 
ceedings for  winding  up  the  company.  The  Court  of  Appeal 
held  that  the  payment  to  the  director  was  a  preference  which,  by 
the  terms  of  the  statute,  should  be  deemed  to  be  fraudulent,  and 
that  all  the  directors  who  concurred  in  making  the  payments 
were  guilty  of  a  misfeasance,  and  that  they  should  be  ordered, 
jointly  and  severally,  to  repay  the  amounts.3  In  another  case  of 
a  winding  up  of  an  English  company,  it  appeared  that  two  per- 
sons who  were  working  a  quarry  in  partnership,  one  of  them 
owning  an  adjoining  quarry  and  having  an  option  of  a  lease  of  a 
third,  wishing  to  form  a  company  for  working  them,  called  in. 
two  other  persons  for  the  purpose,  and  the  four  entered  into  an 
agreement  with  a  trustee  for  the  intended  company  to  sell  to  the 
company  the  quarries,  to  be  paid  partly  in  cash  and  partly  in 
paid-up  shares,  the  two  who  were  called  in  to  receive  120  shares 
each.  The  company  was  formed.  One  of  the  latter  two  persons 

1  In  re  Lands  Allotment  Co. .  Law       3  In  re  Washington  Diamond  Mining 
Rep.  (1894),  1  Ch.  616.  Co.,  Law  Rep.  (1893),  3  Ch.  95. 

*  Ibid. 


ri.KSo.VAI.   UAIUI.ITY  OF  OFFICERS.  421 

was  one  of  the  first  directors.  The  agreement  between  the  four 
and  the  tru.-tee  of  the  company  was  confirmed  and  these  two 
received  their  paid-up  shares.  It  developed,  upon  the  winding 
up  of  the  company,  that  these  parties  called  in  had  no  interest  in 
tlu:  property  sold  to  the  company,  except  their  interest  as  lessees 
of  the  third  quarry,  which  lease  was  of  even  date  with  the  agree- 
ment to  sell  to  this  company,  and  the  director  of  the  company 
admitted  that  he  had  no  interest  in  this  latter,  until  that  day,  and 
had  nothing  to  do  with  fixing  the  price.  The  articles  of  the 
company  provided  that  the  agreement  for  sale  should  not  be 
impeached  <m  the  ground  of  the  directors,  or  any  of  them,  being 
vendors  or  promoters  of  the  company,  nor  should  they  be  account- 
able for  benefits  secured  to  them.  The  trial  justice  held  that  this 
director  was  liable  to  contribute  to  the  assets  of  the  company  a 
sum  equal  to  the  nominal  amount  of  the  shares  issued  to  him  and 
to  the  other  party,  on  the  ground  of  his  misfeasance  as  a  director 
in  accepting  the  shares  allotted  to  himself,  and  in  allowing  the 
shares  of  the  other  party  to  be  issued  to  him.  The  Court  of 
Appeal  held,  affirming  the  decision  of  the  trial  justice,  that, 
although  if  these  parties  had  been  bonafide  owners  of  shares  in 
the  leased  quarry,  and  had  agreed  to  sell  their  interests  for  shares 
in  the  company,  the  transaction  could  not  have  been  impeached, 
the  insertion  of  their  names  as  vendors,  when  they  had  no  real 
interest  in  the  property  sold,  was  a  device  for  enabling  them  to 
get  fully  paid-up  shares  for  their  services  in  the  promotion  of  the 
company,  and  that  the  issuing  of  those  shares  was  a  misfeasance 
on  the  part  of  the  directors,  and  that,  as  it  was  not  known  to  the 
company  that  these  parties  were  not  really  vendors,  the  clause  in 
the  articles  was  no  protection  to  the  director.1  In  another  Eng- 
lish case  it  appeared  that  the  directors  of  a  company  having  power 
to  lend  money  and  to  promote  other  companies,  passed  a  resolu- 
tion that  a  cheque  for  £250  should  be  drawn  in  favor  of  a  third 
party,  for  a  loan  to  him  of  that  amount,  on  certain  security.  The 
cheque  was  drawn  and  handed  to  the  solicitor  of  the  company, 
who  gave  it  to  the  payee  without  receiving  the  security.  The 
directors  passed  a  second  resolution  that  a  cheque  for  £1,000 
should  be  drawn  in  favor  of  the  same  party  for  a  loan  to  him  of 
that  amount  on  security  of  (inter  alid)y  a  contract,  the  date  of 
which  and  the  names  of  the  parties  to  which,  were  left  in  blank 

1  In  re  Westmoreland  Green  &  Blue  Slate  Co.,  Law  Rep.  (1898),  2  Ch.  612. 


422  PERSONAL  LIABILITY  OF  OFFICERS.  [§  255 

in  the  resolution.  This  cheque  was,  also,  drawn  and  handed  to 
the  solicitor  of  the  company,  who  gave  it  to  the  payee  without 
obtaining  the  security.  The  directors  knew  the  nature  of  the 
contract,  and  that  it  related  to  a  company  which  the  payee  of  the 
cheque  was  bringing  out,  and  the  existence  of  which  the  directors 
believed  to  be  for  the  benefit  of  their  own  company,  and  they 
advanced  the  £1,000  to  assist  him  in  bringing  out  the  new  com- 
pany. The  company  afterwards  sued  this  party  for  the  amount 
of  the  loans,  recovered  judgment  against  him,  but  never  realized 
anything  on  the  judgment.  In  the  winding  up  proceedings  of 
the  company,  it  becoming  insolvent,  the  liquidator,  under  the 
English  statutes,  sought  to  charge  the  directors  with  the  sums 
loaned.  VAUGHAN  WILLIAMS,  Justice,  held  that  the  directors, 
having  exercised  judgment  and  discretion,  were  not  liable  for 
misfeasance  or  breach  of  trust  in  relation  to  the  company.1  One 
who  was  requested  by  the  promoter  of  a  projected  company  to 
become  a  director,  agreed  to  do  so  upon  the  terms  that,  if  he 
should  at  any  time  desire  to  part  with  the  shares  which  he  was  to 
take  in  order  to  qualify  him  as  director,  the  promoter  should  pur- 
chase them  from  him  at  the  price  he  should  pay  for  them.  The 
company  was  subsequently  formed  and  he  became  a  director, 
took  the  qualification  shares,  and  paid  for  them  at  par  out  of  his 
own  money,  and  from  time  to  time  acted  as  director,  but  he 
never  disclosed  to  his  co-directors  or  to  the  company,  the  exist- 
ence of  his  agreement  with  the  promoter.  He  afterwards 
resigned  his  office  as  director,  and  subsequently  to  his  resignation, 
the  promoter,  at  his  request,  paid  to  him  the  sum  which  he  paid 
for  the  shares,  and  accepted  a  transfer  of  them.  At  this  time 
the  shares  were  valueless  in  the  market.  The  English  Court  of 

'In  re  New  Mashonaland  Explora-  such  directors  are  guilty  of  misfeasance 
tion  Co.,  Law  Rep.  (1892),  3  Ch.  577.  To  use  [counsel's]  words,  if  the  direct- 
Referring  to  the  statute,  section  10  ors  did  not  bona  fide  exercise  their  dis- 
(Winding  Up)  Act,  1890,  the  justice  cretion  and  judgment  as  agents  of  the 
said:  "It  has  been  said  that  you  can-  company,  that  is  misfeasance  within 
not  bring  directors  within  the  section,  the  meaning  of  the  section.  I  shall 
unless  they  have  been  guilty  of  a  mis-  adopt  that  construction  with  the  ex- 
feasance  in  the  nature  of  a  breach  of  ception  of  the  words  bona  fide,  and 
trust;  but,  be  that  as  it  may,  it  is  plain  hold  that,  in  order  to  make  the  directors 
that  if  directors  are  guilty  of  such  neg-  liable,  you  must  be  able  to  deny  that 
ligence  that  it  cannot  be  said  that  in  do-  they  did  really  exercise  their  judg- 
ing what  they  did  they  attempted  to  ment  and  discretion  in  this  way." 
perform  their  duty  as  directors,  then 


§255] 


PERSONAL  UAI1IUTY  <>F  OFFICERS. 


L88 


Appeal,  in  a  proceeding  under  the  Winding  I  p  Act,  to  charge 
him  as  director,  hold  that,  having  regjltfd to hi> petition M director 
of,  and,  therefore,  agent  for,  the  company,  whatever  benefits  or 
profits  accrued  to  him  under  the  indemnity  constituted  by  hi.s 
•  agreement  with  the  promoter  belonged  to  the  eompain , 
and  that  tin-  retention  by  him  of  the  proceed-  of  the  indemnity 
occasioned  a  loss  to  the  company  for  which  he  was  accountable, 
with  interest.1 


•In  re  North  Australian  Territory 
Co.,  Archer's  Case,  Law  Hep.  (1892), 
1  Ch.  3*2.  LINULKY,  Lord  Justice, 
in  his  opinion  quotes  from  MKI.- 
LISH,  Lonl  Justice,  in  Ilay's  Case, 
Law  Rep.,  10  Ch.  593,  601,  these 
words:  "There  is  no  doubt  about  the 
rule  of  this  court,  thtit  an  ugent  can- 
not, without  the  knowledge  and  con- 
sent of  his  principal,  be  allowed  to 
make  any  profit  out  of  the  matter  of 
his  agency,  beyond  his  proper  remu- 
neration as  agent.  It  is  perfectly -set-, 
tied  law  that  that  rule  applies,  with 
peculiar  stringency,  to  the  directors  of 
joint-stock  companies,  who  are  the 
agents  of  the  company  for  effecting 
the  sales  or  the  purchases  made  by  the 
company."  FRY,  L.  J.,  in  his  opinion, 
said:  "In  Hay's  Case  [Law  Rep..  10 
Ch.  593],  the  company  agm'd  to  pay 
a  sum  of  money  to  the  vendors  of  the 
property.  On  one  day  they  were  pay- 
ing a  sum  of  £58,000,  in  part  payment 
of  that  purchase  money;  cheques 
were  drawn  in  favor  of  the  agent  of 
the  vendors,  and  one  of  these  cheques 
was  indorsed  over  to  Sir  John  Hay, 
and  cashed  by  him.  The  company, 
therefore,  were  making  a  puyim-nt 
which  they  were  bound  to  make,  and 
they  lost  nothing,  in  one  sense,  by  Sir 
John  Hay  receiving  that  money.  Tin- 
only  loss  they  sustained  was  by  Sir 
John  Hay  not  accounting  for  it  when 
he  got  it.  It  appears  to  m<-  there  \\.-i*. 
therefore,  exactly  the  same  loss  in 
that  case  as  there  is  in  tin-  pr.  -.  M 
case.  Again,  in  Pi-arson's  Case  |."iCh. 
Div.  886],  the  same  observation  can 
be  made.  The  company  there  issued 


to  its  promoter*,  under  an  agreement, 
fully  paid-up  shares.  Some  of  these 
shares  were  given  by  one  of  the  pro- 
moters to  Sir  Kdwin  Pearson,  oae  of 
the  directors,  on  his  qualification. 
The  company,  therefore,  got  all  they 
stipulated  for,  all  the  share*  that  they 
issued  and  which  were  in  Sir  Kdwin 
IVarson's  hands,  having  been,  by 
agreement,  issued  as  fully  paid  up, 
and  yet,  because  he  ought  not  to  have 
taken  those  fully  paid-up  share*,  but 
ought  to  have  paid  the  amount  which 
was  not  payable  by  reason  of  the  bar- 
gain between  the  company  and  the 
promoters,  he  was  held  liable  to  make 
good,  and  treat  the  shares  as  if  they 
had  not  been  paid  up  at  all.  It  might 
be  said  in  both  these  cases  (in  Hay's 
case  the  payment  was  by  the  vendors, 
and  in  Pearson's  case  the  payment 
was  by  a  promoter),  that  the  company 
lost  nothing  by  the  money  in  the  one 
case,  and  the  shares  in  tne  other, 
reaching  the  hands  of  the  director, 
but  the  court  said  in  each  case  tliat, 
because  the  director  was  accountable, 
the  company  were  losers  to  that  ex- 
tent. *  *  *  On  principle,  I  think 
the  two  cases  to  which  I  have  referred 
are  not  distinguishable  from  the  pre* 
ent."  As  to  the  liability,  under  this 
English  statute,  of  a  trustee  or  man- 
ager of  a  savings  bank,  to  pay  an 
adequate  sum  towards  the  assets  of 
the  l>ank  by  way  of  compensation  for 
any  !os*  occasioned  to  the  bank  by  his 
neglect  or  omission,  see  In  re  Cardiff 
Havings  Bank,  Davi.s  Case,  (1890)  45 
Ch.  Div.  587. 


CHAPTER  VII.  i 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


256.  Issue  of  negotiable  securities. 

257.  Borrowing    money    by  school 

districts. 

258.  Incurring  liability  in  excess  of 

funds  in  the  treasury  and 
amount  of  tax  allowed  for 
one  year. 

259.  Incurring  a  debt  without  pro- 

vision by  taxation  for  inter- 
est and  sinking  fund. 

260.  Employment  of    an   agent  to 

negotiate  bonds. 

261.  Investment  of  sinking  funds. 


262.  Contract  with  corporation  at- 

torney for  legal  services. 

263.  Discount  of  its  warrants  by  a 

corporation. 

264.  Illustrations     of     ultra     vires 

contracts. 

265.  Estoppel  of  a  public  corpora- 

tion to  deny  its  liability  on 
an  ultra  vires  contract. 

266.  Estoppel  of  a  contractor  with 

a  public  corporation  to  en- 
force an  ultra  vires  contract. 

267.  Injunction  of  public  officials  — 

rules. 


§  256.  Issue  of  negotiable  securities. — The  officers  or  offi- 
cial agents  of  counties,  as  well  as  other  municipal  corporations, 
without  express  legislation,  have  no  power  to  issue  commercial 
paper  and  thereby  impose  upon  the  corporation  the  duties  and 
liabilities  incident  to  such  paper.1  In  a  case  before  the  federal 
court  a  city  had  entered  into  a  contract  with  a  firm  by  which  the 
latter  agreed  to  vest  title  in  the  city  to  certain  strips  of  land,  to  do 
certain  other  things  with  reference  to  widening  a  street,  and  to 
secure  certain  sewer  privileges  and  the  relocation  of  certain  tracks 
of  railroads,  and  the  city  agreed  to  pay  them  for  such  real  estate 
and  their  services.  In  payment  of  the  same  the  city  issued  to  this 
firm  certain  "  certificates  of  indebtedness  "  and  delivered  them  to 
the  bank  to  which  the  firm  had  contracted  to  sell  them.  It  was 
held  in  the  United  States  Circuit  Court  that,  in  the  absence  of 
any  special  statutory  authority,  a  city  had  no  right  to  issue  such 
certificates  in  negotiable  form,  even  in  payment  for  property 
which  it  had  authority  to  buy.2 

1  People  ex  rel.  ».  Johnson,  100  111.  city  were  discussed  by  the  courts,  and 
537;  People  ex  rel.  r.  Kingsbury,  100  the  powers  thereunder  given  were  de- 
Ill.  509;  People  ex  rel.  v.  La  Salle  clared  in  the  opinion.  THAYER,  J., 
County,  100  111.  495.  said:  "  [The  city]  had  [the]  right  [to 

sBangor  Savings  Bank  r.  City  of  contract  with  this  firm  for  the  acqui- 

Stillwater,  (1891),  46  Fed.  Rep.  899.  sitionof  land  and  privileges],  we  think, 

The  provisions  of  the  charter  of  the  under  power  conferred  upon  the 


1 257 


ULTRA  VIRES PUBLIC  CORPORA 


;;  257.  Borrowing  money  by  school  districts.  —  As  a  gen- 
eral rule  a  corporation,  either  public  or  pri\  -ate,  lias  an  implied 
pi.urr  tn  IxiiTnw  money  for  object*  t-xpiv»ly  authorized  by  the 
t-tatutr  liy  which  it  was  rivaled  and  endowed  with  corporate 
powers  and  privileges,  but  if  such  power  i-  expressly  or  by 


city  council  *  *  *  'to  open,  es- 
talilish.  vacate  and  widen  street*,  to 
construct,  maintain  and  extend  sew- 
ers, and  to  condemn  and  purchase  the 
lands  necessary  to  be  used  for  street 
and  sewer  purposes.'  *  *  *  These 
powers  were  sufficient  to  authorize  the 
city  council  to  contrail  with  [the  firm] 
to  purchase  the  lands  in  question,  and 
to  render  the  sen  ices  which  they  un- 
dertook to  render  for  and  in  behalf  of 
the  city.  But  it  is  a  different  ques- 
tion whether  the  city  nad  authority  to 
pay  for  such  services  in  the  manner 
proposed;  that  is  to  say,  by  the  issue 
of  certificates  of  indebtedness,  pay- 
able to  order  and  running  one,  two 
and  three  years.  Plaintiff's  attorneys 
strenuously  insist,  and  in  that  we 
atrrce  with  them,  that  the  so-called 
'certificates  of  indebtedness'  are  in 
reality  negotiable  bonds  or  notes, 
whidi,  under  the  law-merchant,  may 
be  transferred  by  indorsement  from 
hand  to  hand,  so  as  to  cut  off  equities 
of  defense.  In  a  recent  case,  which 
contains  an  elaborate  review  of  previ- 
ous decisions  on  the  same  subject,  the 
doctrine  was  restated  that  municipal 
corporations  have  no  power  to  utter 
commercial  paper,  unless  it  i^  e\ 
pressly  conferred  upon  them  by  law 
or  is  clearly  implied  from  some  other 
power  expressly  given.  It  was 
further  held  that  no  implication  arises 
that  a  municipality  may  make  e.>m 
mercial  paper  and  put  the  same  on  the 
market  from  the  fact  that  it  is  e\ 
pressly  author! /rd  to  Ixtrrow  money. 
4  To  borrow  money.'  say  the  court, 
'and  to  give  a  bond  or  obligation 
therefor  which  may  circulate  in  tin- 
market  as  a  negotiable  security,  freed 
54 


from  any  equities  which  may  beset 
up  by  the-  maker  of  it,  are,  in  tin  -ir 
nature  and  in  their  legal  effect,  essen- 
tially different  transactions.  Merrill 
r.  Town  of  Monticello,  i:js  I".  S.  678; 
8.  c.,  11  Sup  (  t  Hep.  Ml,  448.  Sec, 
also,  Claiborne  Co.  c.  Brooks,  111  I  s 
400,  486;  8.  c.,  4  Sup.  Ct.  Rep.  489; 
1',  li.e  Jury  r.  Britton,  15  Wall.  566; 
Young  r.  Clarendon  Township,  132 
U.  8.  840;  8.  c.(  10  Sup.  Ct.  Rep.  107. 
In  the  present  instance  it  appears  that 
the  so-called  'certificate'  or  'bond' 
remains  in  the  hands  of  the  original 
payee,  the  Bangor  Savings  Bank;  it 
has  not  been  negotiated,  and  it  con- 
tains on  its  face  a  recital  that  it  was 
issued  in  consideration  of  the  per- 
formance by  [this  firm]  of  a  certain 
contract  *  *  *  dated  December 
21,  188?,'  which  is  notice  to  the  holder 
of  the  provisions  of  that  contract. 
No  question  of  estoppel  or  touching 
the  superior  rights  of  u  transferee  for 
value  can  arise  in  this  case.  The 
point  to  be  determined  is  simply 
whether  the  city  of  Still  water  had  any 
authority,  under  its  charter,  to  issue 
negotiable  bonds  to  [this  firm]  for  the 
land  to  be  procured  and  the  service* 
to  be  rendered,  and  this  question  we 
think  must  be  answered  in  the  nega- 
tive. By  |:b  certain]  section  *  *  * 
of  its  charter  'the  committee  on 
finances  of  the  city  council,  *  *  * 
upon  order  of  the  council,  may,  from 
time  to  time,  borrow  for  and  in  behalf 
of  said  city  such  sums  of  money  as 
may  be  necessary  for  temporary  pur- 
poses, and  to  anticipate  tin-  current 
revenue  only.'  It  is  obvious,  we 
think,  that  the  issue  of  bonds  to  [this 
firm],  under  the  circumstances  acd  for 


426 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


[§257 


implication  denied  by  such  statute,  then  no  such  power  exists. 
The  trustee  of  a  school  township,  for  instance,  in  Indiana, 
under  the  provisions  of  the  school  law  which,  by  implication, 
deny  the  existence  of  such  a  power,  cannot  negotiate  a  loan 
for  money  and  execute  a  note  for  its  payment.1  But  where 


the  purpose  explained,  cannot  be  sup- 
ported under  this  clause.  Short,  tem- 
porary loans,  in  anticipation  of,  and  to 
be  paid  out  of  the  current  revenue  for 
the  year,  is  all  that  this  section  con- 
templates. Again,  by  [other]  sections 
*  *  *  the  city  was  authorized  to 
issue  and  sell  bonds  and  put  the  avails 
thereof  in  the  city  treasury  to  create 
what  is  termed  a  '  permanent  improve- 
ment fund.'  Whether  the  city  had 
already  issued  all  the  bonds  authorized 
to  create  the  permanent  improvement 
fund  does  not  appear,  but  that  is  im- 
material, as,  in  our  view,  it  could  not 
issue  the  so-called  'certificates'  un- 
der the  sections  of  the  charter  last 
referred  to,  its  duty  having  been  in 
our  judgment  to  pay  [the  firm]  in 
money  out  of  the  '  permanent  im- 
provement fund,'  as  the  charter  seems 
to  contemplate,  instead  of  issuing  to 
them  negotiable  bonds.  The  only 
other  authority  to  be  found  in  the  city 
charter  to  issue  negotiable  paper  is 
contained  in  [a  section  authorizing] 
an  issue  of  bonds  to  meet  other  ma- 
turing bonds  of  the  city  when  there 
was  a  deficiency  in  the  '  sinking 
fund; '  but  it  also  contains  the  follow- 
ing important  prohibition  in  the  con- 
cluding paragraph  of  the  section, 
to  wit:  '  But  neither  said  city  council 
nor  any  officer  or  officers  of  said  city 
shall  otherwise,  without  special  author- 
ity of  law,  have  authority  to  issue  any 
bonds  or  create  any  debt  or  liability 
against  said  city  in  excess  of  the 
amount  of  revenue  actually  levied  and 
applicable  to  the  payment  of  such 
liability.' " 

'•  Wallis  v.  Johnson   School  Town- 
ship, (1881)  75  Ind.   368.     The  court 


said:  "Section  7  [of  the  school  law] 
provides,  inter  alia,  that  the  trustee 
shall  receive  and  pay  out  the  special 
school  revenue  and  also  the  revenue 
for  tuition  appropriated  to  his  town- 
ship, and  shall  pay  out  the  same  for 
the  purposes  for  which  such  revenues 
were  collected  and  apportioned.  Sec- 
tion 10  in  express  words  places  the 
trustee  in  charge  of  all  the  educa- 
tional affairs  of  the  township  and  em- 
powers him  to  employ  teachers  and 
to  build  and  furnish  school?  houses. 
These  provisions  do  undoubtedly  con- 
fer broad  and  comprehensive  powers 
upon  township  trustees,  and  were 
there  no  restrictive  provisions  we 
should  be  compelled  to  hold  that, 
with  this  broad  grant  of  express  pow- 
ers, there  was  coupled  the  incidental 
one  of  borrowing  money.  We  think, 
however,  that  there  are  restrictive 
provisions  which,  fairly  construed, 
must  be  held  to  deny  the  authority  to 
negotiate  bonds.  In  section  6  it  is 
provided  that  the  county  auditor,  in 
fixing  the  penalty  of  the  bond  of 
trustees,  '  shall  see  to  their  sufficiency 
to  secure  the  school  revenues  which 
may  come  into  their  hands.'  There  is 
here  a  clear  implication  that  the  only 
money  which  a  trustee  can  officially 
receive  is  that  yielded  by  the  school 
revenues.  Money  obtained  by  bor- 
rowing cannot  be  said  to  be  school 
revenue.  If  an  action  were  brought 
upon  the  trustee's  bond,  and  the  only 
breach  shown  should  be  the  misap- 
propriation of  money  obtained  by 
borrowing  it,  it  is  clear  that  the  action 
would  fail,  for  the  reason  that  the 
penalty  of  the  bond  extends  only  to 
money  received  from  the  school  reve- 


§257]  ULTRA  VIRES Pl.'UUC  CORPORATIONS.  ll'T 

money  is  thus  borrowed  for  a  school  township  district  by  its  tru- 
md  actually  and  rightfully  expended  for  the  benefit  of  the 
school  corporation  it  will  be  liable  for  the  amount.1  In  a  later 
case  the  Indiana  Supreme  Court  adhered  to  the  ruling  that  tin; 
trustee  of  a  school  corporation  has  no  authority  to  borrow  money 
and  execute  promissory  notes  therefor  in  the  name  of  the 
corporation.* 

§  258.  Incurring  liability  in  excess  of  funds  in  the  treasury 
and  amount  of  tax  allowed  for  one  year. —  The  Minnesota 

nues.  The  sources  from  which  school  actually  received  the  property  pur- 
revenues  ure  derived  are  created  and  chased,  that  subrogation  can  take 
defined  by  law,  and  it  is  from  these  place.  It  is  well  known  that  suhroga- 
sources  only  that  the  trustee  has  a  lion  arises,  not  by  contract,  but  by 
right  to  secure  money  for  school  force  of  equitable  principles,  and  only 
purposes."  in  cases  where  good  conscience  re- 

1  Wallis  r.  Johnson  School    Town-  quires  that  it  should  take  place  in 

ship,  (1881)  75  Ind.   368.     See,   also,  order  to  prevent  injustice."     Upon  the 

Bicknell  r.  Widner  School  Township,  subject  of  estoppel,  it  was  said:  "  It 

73  Ind.   501.     Where  the  money  bor-  is  a  fundamental  principle  that  a  gov- 

rowed  was  actually  used  in  paying  for  ernmental  corporation  is  not  estopped 

a  school  house,  the  township  was  held  by  the  act  of  an  officer  in  cases  where 

liable  as  "  for  money  had  and  received,  the  act  is  beyond  the  scope  of  his  au- 

which  was  applied  to  the  lawful  use  thority.     Public  corporations  stand  oil 

of  the  township."  an  essentially  different  ground  from. 

•Union  School  Township   r.   First  private  ones,  and  other  rules  which 

National  Bank  of  Crawfordsvillc,(1885)  apply  to  the  one  class  do  not  apply  to 

102  Ind.  464;  citing    in    addition  to  the  other  in  cases  where  the  doctrine 

the  two  cases  last  cited,  First  National  of  ultra  vires  is  invoked.     Driftwood 

Bank  r.  Union  School  Township,  75  Valley  Turnpike  Co.  r.  Board,  etc.,  72 

Ind.    361;    Pine    Civil    Township    r.  Ind.  226;  Cummins  r.  City  of  Seymour, 

Huber    Manufacturing  Co.,   83  Ind.  79  Ind.  491,  497;  B.  c..  41  Am.  Rep. 

121;  Kecvo  School  Township  ».  Dod-  618.     But  the  power  of  a  school  cor- 

son.  98  Ind.  497.     Upon  this  point  it  poration  is  much   more  limited   than 

is  said  by  the  court  in  Union  School  ordinary  public  corporations,  for  there 

Township  c.  First  National  Bank  of  is  no  general  power  to  incur  debts  or 

Crawfordsville,    (1885)    102   Ind.  464,  execute    evidences    of    indebtedness, 

475:  "  It  is  true  that  we   have   held  and,  certainly,  no  such  power  e\i>ts 

that    where    the  money   received  on  where  the  school  trustee  is  provided 

notes  executed    in    the   name  of  the  with  money  from  the  school  revenues. 

school    corporation    goes  to   pay  for  The   school    corporation  is,  in  truth. 

property   received  by   it,  the  person  one  of  unusually  limited  powers,  for 

advancing  the  money  will   be  subro-  the  only  source  from   which   it   can 

gated  to  the  claim  of  the  person  \\lio  derive  money    is  the  school    fund  or 

actually  furnished  the  property,   hut  school  revenues,    and,  strictly   speak 

we  have  steadily  held  that  it  is  only  in  ing,  its  only   power  is  to  receive  add 

cases   where  the    school    corporation  disburse  the  funds  allotted  to  it." 


428  ULTBA' VIRES PUBLIC  CORPORATIONS.  [§258 

statutes  as  to  counties  and  their  financial  management  have  been 
construed  by  the  Supreme  Court  of  that  state,  and  they  have 
held  that  the  board  of  county  commissioners  has  no  power  to 
incur  liability  for  the  county,  which,  with  the  ordinary  current 
yearly  expenses  arid  other  liabilities  payable  within  a  year,  will 
exceed  both  the  amount  of  funds  in  the  county  treasury  and  the 
maximum  amount  which  can  be  assessed  as  one  year's  taxes  for 
county  purposes  according  to  the  tax  lists  on  tile  when  the  con- 
tract is  made  under  which  the  liability  will  be  incurred.  Nor 
can  the  board,  in  addition  to  anticipating  the  above  resources,  in 
incurring  liability  also  anticipate  uncollected  taxes.  It  has  no 
power  to  anticipate  in  a  year  more  than  a  year's  uncollected  taxes 
assessed  at  the  maximum  rate.  They  held  further  that,  under 
the  general  laws  of  that  state,  a  board  of  county  commissioners 
has  no  power  to  issue  bonds  for  the  erection  of  a  court  house.1 
The  same  court  in  a  recent  case  held  that  a  contract  made  by  the 
city  council  of  a  leading  city  of  that  state  for  lighting  its  streets 
for  a  term  of  five  years  was,  under  its  charter,  void,  unless  the 
funds  on  hand  and  the  taxes  actually  levied  when  the  contract 
was  made  were  sufficient  to  cover  all  the  liability  incurred  by  the 
contract  and  payable  during1  the  five  years,  and  also  to  cover  the 
current  expenses  and  other  existing  liabilities  of  the  fiscal  year 
for  which  such  taxes  were  levied  ;  further,  the  conditions  required 
to  make  the  contract  valid  were  so  exceptional  that  its  validity 
would  not  be  presumed.2  The  United  States  Circuit  Court  for 

1  Rogers  «.  Board  of  Comrs.  of  liability  matures.  To  this  it  may  be 
Le  Sueur  County,  (Minn.  1894)  59  N.  answered  that  a  liability  is  incurred 
W.  Rep.  488.  See,  also,  Johnston  v.  when  the  contract  is  made.  The  point 
County  of  Becker,  27  Minn.  64;  s.  c.,  here  involved  is  disposed  of  in  the 
6  N.  W.  Rep.  411.  cases  of  Johnston  v.  County  of  Becker, 

2Kiichli  v.  City  of  Minneapolis,  27  Minn.  64;  s.  c.,  6  N.  W.  Rep.  411, 
(Minn.  1894)  59  N.  W.  Rep.  1088.  and  Rogers  v.  Board  of  Comrs., 
The  court,  after  reciting  the  various  (Minn.  1894)  59  N.  W.  Rep.  488,  where 
sections  of  the  charter  regulating  the  the  court  held  that  a  liability  was 
financial  conduct  of  the  city's  affairs,  incurred  when  the  contract  was  made, 
said:  "It  is  urged  that  making  a  con-  though  not  to  be  performed,  or  the 
tract  this  year,  to  be  performed  in  performance  paid  for,  until  after  the 
part  this  year,  in  part  next  year,  and  taxes  of  subsequent  years  would  be 
in  part  the  year  after,  and  paid  for  available  to  pay  it.  There  the  county 
only  as  performed,  is  not  incurring  commissioners  were  limited  in  incur- 
liability  at  the  time  the  contract  is  ring  liability  to  the  maximum  amount 
made,  as  the  tax  will  be  levied  before  which  could  be  levied  in  one  year 
the  debt  is  created  ;  that  is,  before  the  according  to  the  tax  lists  then  on  file. 


§  2.V.I]  ULTRA  VIKES  —  I't'tfUC  CORPORATIONS. 

the  western  district  of  Missouri  has  held  that  the  charter  pn>- 
vi.-ion  forbidding  tin-  council  of  a  city  to  appropiiate  any  money 
in  excess  of  the  revenue  for  the  fiscal  year  actually  collected  or 
to  bind  the  city  by  any  contract  or  act  in  any  liability  until  a 
definite  sum  j-liall  first  be  appropriated  for  the  liquidation  of  all 
liability  flowing  thcivtYom,  did  not  apply  so  as  to  prevent  the 
council  accepting  a  devise  of  lands  for  a  public  park,  subject  t«> 
an  annuity  to  the  widow  of  the  devi-or  during  her  life,  which 
annuity  was  paid  by  annual  appropriation  from  the  general  fund, 
as  the  council  was  vested  by  other  provisions  of  the  charter  with 
ample  powers  to  acquire  land  for  this  purpose,  either  by  <i 
or  by  actual  purchase,  to  be  paid  for  out  of  the  general  funds  in 
annual  installments.1 

§  259.  Incurring  a  debt  without  provision  by  taxation  for 
interest  and  sinking  fund. —  A  city  in  Texas  contracted  for  the 
building  of  a  bridge,  agreeing  to  pay  a  certain  sum  therefor,  one- 
half  on  delivery  of  the  material  and  the  remainder  on  comple- 
tion and  acceptance  of  the  bridge.  This  contract  was  held  in  the 
United  States  Circuit  Court  to  create  a  debt  within  the  constitu- 
tional provision  that  no  city  shall  create  any  debt  unless  at  the 
same  time  provision  be  made  by  taxation  for  payment  of  intciv.-r 
and  creation  of  a  sinking  fund.  The  contract  was,  therefore,  in 
case  no  such  provision  was  made  for  interest  and  sinking  fund, 
held  invalid,  notwithstanding  payment  of  the  contract  price  was 
secured  by  the  proceeds,  paid  into  the  city  treasury,  of  bonds 
issued  for  that  purpose  in  accordance  with  the  provisions  of  the 
charter  of  the  city  requiring  creation  of  a  fund  for  payment  of 
interest  and  as  a  sinking  fund  by  special  tax ;  also,  it  was  held 
that  a  debt  created  by  such  contract  could  not  be  regarded  as  a 
current  expense  of  the  city  payable  out  of  current  revenues. 
And  there  could  be  no  recovery  upon  a  contract  void  as  in  con- 
travention of  the  constitutional  provisions  of  the  value  of  the 
bridge  as  upon  an  implied  contract.8 

Here  the  limitation  is  more  stringent.  '  Berlin  Iron  Bridge  Co.  r.  City  of 

It  limits  the  city  council,  in  incurring  San  Antonio,  (1894)  62  Fed.  Rep.  882. 

liability,   to  the  amount  of  the   tax  Sec  C'ity  of  Corpus  Christ!  t.  Woess- ' 

•actually    levied'  at    the    time    the  ner,  68  Tex.  462;  Riddle  r.   City   «.f 

liability  Is  incurred."  Terrell,  82  Tex.  S3T>;  *.   <..   IS  S.  W. 

1  Budd  v.  Budd,  (1894)  59  Fed.  Rep.  Hep.  691;  City  of  Ti-rn-11  r.  Dcssaint, 

785.  71  Tex.  778;  a.  c.,  9  8.  W.  Rep.  598; 


430 


ULTRA  VIBES PUBLIC  CORPORATIONS. 


[§260 


§  26o.  Employment  of  an  agent  to  negotiate  bonds. —  In 

a  late  California  case  the  action  was  against  a  county  by  one  upon 
a  contract  with  the  county  board  to  secure  bids  for  county  bonds. 
The  Supreme  Court  held  the  •employment  of  this  person  by  the 
county  board  for  this  purpose  to  be  a  void  act,  and  that  his  acts 
in  pursuance  of  such  employment,  however  beneficial  they  may 
have  been  to  the  county,  created  no  liability  against  it.1 


Bell  v.  Live  Stock  Co.,  (Tex.)  11  8.  W. 
Rep.  344;  City  of  Bryan  v.  Page,  51 
Tex.  532. 

1  Smith  v.  County  of  Los  Angeles, 
(1893)  99  Cal.  628;  s.  c.,  34  Pac.  Rep. 
439.  Upon  the  power  of  the  county 
board  to  make  this  contract,  the  court 
in  discussing  the  point  states  the  follow- 
ing provision  of  the  "  County  Govern- 
ment Act"  of  that  state:  Section  25 
of  the  act  provides  that ' '  the  board  of 
supervisors  in  their  respective  counties 
have  jurisdiction  and  power,  under 
such  limitations  and  restrictions  as  are 
prescribed  by  law,"  to  create  a  bonded 
indebtedness  and  to  issue  bonds  of  the 
county,  as  provided  by  section  37  of 
said  act,  and  subdivision  14  of  section  25 
provides  that ' '  whenever  bonds  issued 
under  this  chapter  shall  be  duly  exe- 
cuted *  *  *  they  shall  be  de- 
livered to  the  county  treasurer,  and 
his  receipt  taken  therefor,  and  he  shall 
stand  charged  on  his  official  bond 
with  all  bonds  delivered  to  him  and 
the  proceeds  thereof,  and  he  shall  sell 
the  same  or  exchange  them  under  the 
direction  of  the  board  of  supervisors. 

*  *    *    He  shall  also  keep  a  record 
of  bonds  sold  or  exchanged  by  him, 

*  *    *    and  shall  also  report,  under 
oath  to  the  board,  at  each  regular  ses- 
sion, a  statement  of  all  bonds  sold  or 
exchanged  by  him  since  the  preceding 
report,  and  the  date  of  such  sale  or 
exchange    *    *    *    and  the   amount 
of  accrued  interest  received  by  him 
on  such  sale  or  exchange,     *    *    * 
but  such  bonds  shall  not  be  sold  or  ex- 
changed for  any  indebtedness  of  the 
county,  except  by  the  approval  of  the 


board  of  supervisors  of  said  county. 
No  sale  shall  be  made  of  any  such 
bonds  except  to  the  highest  bidder, 
after  advertising  bids  for  the  purchase 
of  the  same"  in  the  manner  pre- 
scribed. And  subdivision  35  of  the 
same  section  empowers  the  board  "to 
do  and  perform  all  other  acts  and 
things  required  by  law  not  in  this  act 
enumerated,  or  which  may  be  neces- 
sary to  the  full  discharge  of  the  duties 
of  the  legislative  authority  of  the 
county  government."  Section  6  of 
the  same  act  provides  that  "  all  con- 
tracts, authorizations,  allowances,  pay- 
ments and  liabilities  to  pay,  made  or 
attempted  to  be  made  in  violation  of 
this  act,  shall  be  absolutely  void,  and 
shall  never  be  the  foundation  or  basis 
of  a  claim  against  the  treasury  of  such 
county.  *  *  *"  And  section  36 
thereof  provides  that  "the  board  must 
not  for  any  purpose  contract  debts  or 
liabilities  except  in  pursuance  of  law." 
The  court  then  said:  "  It  is  clear  that 
these  provisions  of  the  statute  confer 
no  express  power  upon  the  board  of 
supervisors  to '  make  such  a  con- 
tract as  the  one  sought  to  be  recovered 
on  in  this  action;  and  unless  it  can  be 
implied  from  subdivision  35  referred 
to  then  it  follows  that  no  such  power 
exists,  and  the  contract  sued  on  is, 
therefore,  void,  because  not  made  in 
pursuance  of  law.  As  the  [County 
Government  Act]  distinctly  enumer- 
ates the  acts  which  the  board  is  re- 
quired to  perform  with  reference  to 
the  issuance  and  disposal  of  county 
bonds;  and,  as  the  employment  of  a 
procurer  of  bids  for  bonds  delivered 


.     L't'-l  ULTIJA    VIUKS    -  PUJUC  CORPORATIONS.  431 

3  261.  Investment  of  sinking  funds. —  The  Supreme  Court 

<>f  Illinois  refused  ;i  v.-rir  of  n«in>1<n,i'ix  to  compel  the  treasurer  of 
a  county  to  inve.-t  funds  of  the  county,  held  us  it  sinking  fund,  to 
pay  legally  i—iied  boifds  of  the  county,  in  certain  other  securities 
<»f  the  county,  as  directed  l»y  a  resolution  of  the  board  of  county 
commisMoners.  In  the  opinion  they  state  that  the  contention  of 
the  petitioner  wa-,  that  there  \vas  an  implied  power  in  the  Ixmrd  to 
order  such  investment,  embraced  in  the  provision  conferring  upon 
county  hoard.-  power  "to  manage  the  county  funds  and  county 
husiness,  except  a>  otherwise  >pecially  provided."  Of  this  con- 
tention, the  court  said  :  "  This  cannot  be  understood  to  give  to 
county  hoards  the  absolute  and  unlimited  power  of  management 
of  county  funds,  where  there  is  the  absence  of  any  specific  pro- 
vifioii  of  law  to  the  contmry.  It  hardly  means  more,  we  think, 
than  a  power  to  manage  the  county  funds  and  county  business 
according  to  law.  See  Hot  h  rock  r.  C'arr,  55  I  ml.  334.  We  cer- 
tainly cannot  allow  to  it  any  such  sco]>e  as  giving  a  general  power 
to  county  lx>ards  to  invest  surplus  funds  in  the  county  treasury 
in  Mich  manner  as  they  shall  see  lit.  So  far  from  there  being 
any  provision  of  law  which,  in  express  words,  or  by  necessary 
implication,  authorizes  the  action  taken  by  the  county  board  in 
this  case,  section  3i>,  '  that  whenever  a  tax  is  levied  for  the 
payment  of  a  specific  debt,  the  amount  of  such  tax  collected 
shall  be  kept  as  a  separate  fund  in  the  county  treasury,  and 
expended  only  in  the  liquidation  of  such  indebtedness,'  would 
seem  to  prohibit  the  doing  of  what  has  been  here  attempted. 
We  would  not  be  understood,  however,  as  applying  this  provis- 
ion with  such  strictness  as  to  deny  all  power  of  investment  what- 

l<>  tin-  treasurer  for  sale  or  exchange  other  words,  the  bid  for  the  bonds  is 
under  the  luw  was  not  in  any  way  solicited  and  obtained  upon  the  ad- 
necessary  to  the  full  discharge  of  the  vertisement  by  the  treasurer  for  such 
legislative  authority  of  the  county  bid,  and  the  law  recognizes  no  other 
ir<>\  eminent,  no  such  implied  authority  mode  of  procurement.  The  treasurer 
to  make  such  a  contract  was  conferred  alone  procures  the  bid,  the  mode  and 
upon  the  board  as  contended  for.  The  manner  of  such  procurement  being 
board  of  supervisors  cannot  sell  or  specifically  pointed  out  by  statute, 
negotiate  the  sale  of  its  county  bonds.  The  making  of  the  < miinict  in  <|m-s 
That  power  is  expressly  conferred  by  tion  by  the  hoard  of  supervisors  was 
statute  on  the  county  treasurer,  and/ is  an  unwarranted,  if  not  a  pragmatical, 
to  be  exercised  by  him  under  the  direc-  interference  with  the  power  and  duties 
tion  of  the  board,  and  the  sale  or  ex-  of  the  county  treasurer  as  expressly 
change  of  bonds  by  him  is  made  sub-  conferred  and  defined  by  law." 
ject  to  the  approval  of  the  board;  in 


432  ULTRA  VIRES PUBLIC  CORPORATIONS.  [§-''! 

ever  of  the  moneys  of  a  sinking  fund,  and  compel  them  to  remain 
in  specie  in  the  county  treasury,  and  lie  idle  and  unproductive 
until  required  to  be  applied  to  the  purpose  for  which  they  were 
raised.  In  Union  Pacific  Railroad  Co.  v.  The*  United  States,  99  U. 
S.  700,  the  court  remark  :  '  The  duty  of  the  manager  of  every 
sinking  fund  is  to  seek  some  safe  investment  for  the  moneys  as 
they  accumulate  in  his  hands,  so  that  when  required  they  may  be 
promptly  available.'  "  The  Illinois  court  then  continued  :  "  An 
investment,  for  instance,  in  the  public  funds  of  the  United  States 
is,  all  know,  so  readily  convertible  into  money,  that  it  would  be, 
essentially,  the  equivalent  of  money.  Such  an  investment,  we 
are  not  prepared  to  say,  would  be  incompatible  with  the  require- 
ment that  the  money  represented  by  such  investment  should  be 
kept  as  a  separate  fund  in  the  county  treasury,  and  expended 
only  in  liquidation  of  the  indebtedness  it  was  raised  to  pay.  But 
the  same  cannot  be  affirmed  of  county  securities,  as  to  their  being 
the  representative  of  money.  Constant  experience  shows  that  the 
promises  to  pay  of  a  county  are  quite  different  from  being  the 
equivalent  of  money  in  hand.'' l  A  Texas  city,  having  determined 
by  its  council,  to  invest  certain  sinking  funds,  in  the  hands  of  its 
treasurer,  in  bonds  of  the  city  of  another  series,  gave  certain 
warrants  for  the  amount  to  the  parties  through  which  it  proposed 
to  make  the  investment  against  those  sinking  funds.  The  treas- 
urer declined  to  honor  them.  The  city  then  brought  its  writ  to 
compel  him,  by  mandamus  to  pay,  as  directed,  these  warrants. 
He  resisted  upon  various  contentions.  Among  others,  was  this 
contention :  That,  if  the  city  could  invest  these  funds  otherwise 
than  in  paying  off  and  canceling  the  bonds  themselves,  it  could 
not  invest  them  in  the  purchase  of  its  own  outstanding  bonds  of 
another  series,  because  a  purchase  by  a  debtor  of  a  debt  against 
himself  ipso  facto  works  a  cancellation  thereof.  Over  this  con- 
tention the  Court  of  Appeals  of  that  state  held  that  the  power  to 
invest  in  its  own  bonds  of  another  series  existed  in  the  city.2 

1  Cook  County  ».  McCrea,  (1879)  93  by  the  debtor  in  the  same  capacity  in 
111.  236,  239,  240.  which  he  owes  the  debt,  but  even  in 

9  Elser  v.  City  of  Fort  Worth,  (Tex.  such  cases,  it  is  very  easy  to  keep  the 
Civ.  App.  1894)  27  S.  W.  Rep.  739.  security  alive  by  having  the  creditor 
Arguendo,  the  court  said:  "It  must  be  make  a  transfer  to  a  third  party.  1 
conceded  that  [the  statement  of  the  Jones'  Mortg.  943-946.  Also,  see 
contention]  is  a  correct  statement  of  Jones'  Corp.  Bonds  &  Mortg.  325, 
the  law  in  its  application  to  ordinary  where  it  is  said:  '  A  company  may  pur- 
cases  in  which  the  purchase  is  made  chase  its  own  bonds  as  an  investment, 


2C2] 


ULTRA  VIRES — ITBI.ir  CORPORATIONS. 


§  262.  Contract  with  corporation  attorney  for  legal 
services. — The  question  of  whether  the  commi»ioner-  of  a 
county  in  Pennsylvania  were  authorized  to  make  a  contract  with 
the  enmity  solicitor  to  take  proceedings  to  ohtain  credit  for  the 
county  iu  its  accounts  with  the  commonwealth  for  all  unpaid 
l  on  personal  property,  for  which  he  was  to  have  as  comix  n 
sation  twenty-five  per  centum  upon  the  amount  or  amounts  which 
might  be  credited,  received  the  full  consideration  of  the  Supreme 
Court  of  that  state,  and  they  held  that  such  contract  was  ultra 
vires.1  The  Supreme  Court  of  Kansas  has  held  a  contract 

and  reissue  them.  If  the  facts  show 
that  there  was  no  intention  of  paying 
the  bonds,  but  they  were  regarded 
and  reputed  by  the  company  as  still 
outstanding,  they  are  valid  in  the 
hands  of  a  subsequent  purchaser,  and 
are  secured  by  the  lien  of  the  mort- 
gage.' But,  be  this  as  it  may,  it  will 
hardly  be  contended  that  if  the  pur- 
chase be  made  in  a  different  capacity 
than  that  in  which  the  debt  is  owed 
(for  instance,  if  A.,  as  trustee,  should, 
with  the  trust  fund,  purchase  a  debt 
which  he  owes  as  an  individual),  the 
rule  would  apply,  and"  we  are  of  opin- 
ion that  as  to  those  funds  set  apart 
for  special  purposes,  both  by  the  law 
and  by  the  ordinances  passed  by  the 
city  council,  as  in  this  case,  the  city 
must  be  regarded  as  a  trustee  pur- 
chasing with  the  trust  fund  a  debt 
which  it  owes  as  an  individual,  and 
that  the  debt  so  purchased  is  not  can- 
celed, but  is  kept  alive  for  all  pur- 
poses, and  becomes  the  property  of 
the  ctttui  que  trust — the  special  fund 
—  just  as  the  house  and  lot  taken 
from  a  defaulting  collector  was  said 
by  our  Supreme  Court,  in  the  case  of 
City  of  Sherman  r.  Williams,  84  Tex. 
421;  s.  c.,  198.  W.  Rep.  606,  to  be- 
come the  property  of  such  a  fund. 
We  think  this  view  receives  striking 
illustrations  in  numerous  provisions 
of  our  Constitution  and  laws,  author- 
izing the  investment  of  special  funds, 
such  as  the  university  and  public  schoo. 


funds,  held  by  the  state;  in  its  o\\  n 
bonds,  and  by  the  different  counties 
in  thdr  own  obligations.  We  believe 
that  it  has  never  been  contended  that 
a  purchase  of  this  kind  caneels  the. 
bonds  thus  acquired.  We  do  not  re- 
gard the  opinions  in  the  cases  of  Rink 
r.  Grace,  102  N.  Y.  :JJ:  N.  K. 

Rep.  162,  and  Wilds  r.  Ifciilroa •'. 
102  N.  Y.  410;  8.  c.,  7  N.  K.  Hep. 
290,  as  conflicting  herewith.  Those 
decisions  were  controlled  entirely  by 
the  statutes  and  ordinances  therein 
construed,  which  were  quite  dissimi- 
lar to  the  provisions  contained  in  the 
charter  of  this  city." 

1  County  of  Lancaster  v.  Fulton, 
(1889)  128  Pa.  St.  48.  The  court, 
speaking  through  STKKRETT,  J.,said: 
"In  substance,  the  defense  interposed 
by  the  county  was,  that  at  the  time  the 
resolution  [referring  to  the  contract  ] 
was  adopted  plaintiff  below  '  wa.s  tin- 
duly  elected  and  qualified  solicitor '  of 
the  county,  serving  under  the  act  of 
February  18,  1870,  at  a  salary  of  five 
hundred  dollars,  fixed  by  that  act;  and, 
for  that  reason,  neither  he  nor  the 
county  commissioners  hud  any  power 
or  authority  to  enter  into  the  contract, 
under  which  the  services  were  ren- 
dered and  on  which  the  claim  is 
founded.  It  is  conceded  that  when 
the  contract  wax  made  and  for  a  con- 
siderable time  thereafter  plaintiff  be- 
low was  the  duly  elected  ami  quali- 
fied solicitor  of  the  county.  The 


434 


ULTKA  VIRES PUBLIC  CORPORATIONS. 


[§2C3 


by  the  board  of  county  commissioners  for  the  county  with  attor- 
neys at  law,  for  their  services  as  such,  which  services  the  law 
requires  the  county  attorney  to  perform,  ultra  vires  and  void.1 

§  263.  Discount  of  its   warrants    by  a  corporation. —  A 
county  in  Nortn  Dakota  created  from  portions  of  two  other 


4th  section  of  the  act  under  which  he 
was  elected  declares:  '  The  salary  of 
the  officer  elected  as  hereinbefore  pro- 
vided shall  be  five  hundred  dollars  per 
annum,  payable  quarterly;  and  the 
officer  so  elected  shall  be  the  legal 
adviser  of  the  board  of  commissioners 
of  Lancaster  county,  and  shall  repre- 
sent the  said  board  in  all  proceedings 
in  law  or  equity  wherein  the  said 
county  is  a  party  or  has  any  interest.' 
He  was  undoubtedly  a  public  officer 
within  the  meaning  of  the  Constitu- 
tion, article  III,  §  13,  and  article  XIV, 
£§  1  and  5,  the  first  of  which  declares: 
'  No  law  shall  extend  the  term  of  any 
public  officer  or  increase  or  diminish 
his  salary  or  emoluments  after  his 
election  or  appointment.'  The  services 
for  which  the  contract  in  question 
undertakes  to  provide  are  clearly 
within  the  sphere  of  the  duties  of  the 
'  solicitor  of  Lancaster  county '  as 
defined  by  the  act  of  February  18, 
1870.  He  'shall  be  the  legal  adviser 
of  the  board  of  commissioners  of 
Lancaster  county  and  shall  represent 
the  said  board  in  all  proceedings  in 
law  or  equity  wherein  said  county  is 
a  party  or  has  any  interest.'  What 
authority  then  had  either  the  plaintiff 
below  or  the  county  commissioners  to 
enter  into  a  contract  to  compensate  the 
former  for  services  within  the  sphere 
of  his  duties  as  solicitor  of  the  county? 
We  are  of  opinion  that  they  had  none; 
that  the  act  of  the  commissioners  in 
undertaking  to  bind  the  county  to  pay 
the  compensation  provided  for  in  the 
contract  was  ultra  vires.  Doubtless 
the  very  object  of  the  act  in  creating 


the  office  of  county  solicitor,  provid- 
ing for  his  election  and  fixing  his 
salary,  etc.,  was  to  take  the  power  out 
of  the  hands  of  the  county  commis- 
sioners and  place  it  beyond  their 
reach.  But,  be  that  as  it  may,  we 
think  the  contract  was  ultra  tires  and 
void.  *  *  * "  Further  on,  referring 
to  the  trial  judge's  charge,  it  is  said: 
"In  saying,  as  he  correctly  did,  that 
if  the  services  of  plaintiff  below  '  had 
been  rendered  while  he  was  county 
solicitor,  then  there  could  be  no 
recovery,'  the  learned  judge  rightly 
assumed  that  the  contract  in  question 
was  unauthorized  and  illegal.  All 
such  contracts,  whether  intended  to  be 
so  or  not,  are  in  effect  evasive  and 
subversive  of  law,  contrary  to  public 
policy,  and,  therefore,  void.  They 
are  no  more  capable  of  ratification 
than  was  the  contract  in  Hunter  T. 
Nolf,  71  Pa.  St.  282.  Speaking  of  the 
illegal  contract  under  consideration  in 
that  case,  Mr.  Justice  SHARSWOOD  said: 
'  It  is  undisputed  law  that  such  a  con- 
tract is  illegal  as  against  public  policy 
and  cannot  be  enforced.  Even  if 
there  had  been  an  express  contract  on 
entirely  different  terms  than  those 
agreed  upon  before,  it  ought  to  be 
viewed  with  a  considerable  degree  of 
suspicion  as  an  attempt  to  evade  a 
sound  and  salutary  rule  of  public 
policy.'  A  case  more  nearly  parallel 
with  this  in  some  of  its  features  is 
Chester  County  v.  Barber,  97  Pa.  St. 
455.  Barber,  one  of  the  plaintiffs 
below,  was  attorney  for  the  county  of 
Chester,  but  it  did  not  appear  whether 
he  was*serving  under  atuinnual  salary 


1  Waters  v.  Trovillo,  (1891)  47  Kans.  197. 


§  203] 


ULTRA   VIKKS —  IM'BLIC  CORPORATIONS. 


counties,  though  its  board  of  commissioners,  made  a  contract  with 
one  to  make  a  transcript  of  the  records  of  th«.  •••unties  so 

far  as  they  affected  the  territory  embraced  in  the  new  county  at  an 
agreed  price  for  which  he  was  to  be  paid  in  a  county  warrant  for 
such  a  sum  as,  at  the  prevailing  discount  of  such  warrants,  would 
raise  the  amount  which  was  to  be  paid  him.  The  validity  of 
these  warrants  issued  by  the  county  was  contested  in  the  courts. 
The  Supreme  Court  held  the  warrant  to  be  wholly  illegal  and 
void  from  its  inception,  for  the  reason  that  the  county  commis- 
sioners, in  the  absence  of  legislative  authority,  either  general  or 
special,  to  do  so,  were  without  power  to  enter  into  such  an 
arrangement.1  One  of  the  warrants  sued  on  in  this  case  repre- 


fixcd  1>7  act  of  assembly  or  under  a 
special  agreement  with  the  commis- 
sioners. The  county  commissioners, 
however,  made  a  contract  with  him 
and  two  other  attorneys  to  pay  them 
fifty  per  centum  of  the  amount  they 
recovered  from  the  state  for  taxes 
improvidently  paid  into  the  state 
treasury.  Speaking  for  the  court,  the 
present  chief  justice  said:  'The com- 
missioners hud  no  power  to  bind  the 
county  by  such  a  contract.  *  *  * 
It  was  against  public  policy,  and, 
therefore,  null  and  void.  *  *  * 
These  commissioners  were  acting  in  a 
fiduciary  character.  They  were  but 
trustees  of  the  money  when  received 
for  the  use  of  the  county.  When, 
therefore,  they  contracted  to  give  one- 
half  of  it  to  the  plaintiffs  for  their 
services  they  exceeded  their  power. 
They  were  giving  what  did  not  belong 
to  them.  As  well  might  a  trustee 
contract  to  give  away  one-half  of  the 
trust  estate  as  compensation  tocounsel 
for  services  in  connection  therewith. 
And,  if  he  may  give  away  one-half, 
why  not  three- fourths,  or  even  H 
greater  proportion?  Can  it  be  doubted 
that  a  court  of  equity  would  strike 
down  such  a  contract  as  improvident 
and  a  legal  fraud?  *  *  *  Whether 
the  plaintiff  Barber  can  recover  any- 
thing will  depend  upon  the  terms  of 


his  previous  engagement  as  solicitor  to 
the  commissioners.'  If  it  had  ap- 
peared in  that  case  that  Barber  was 
acting  under  a  salary,  fixed  by  act  of 
assembly  (as  was  Mr.  Fulton  in  this 
case),  and  that  his  defined  duty  was 
to  act  as  a  legal  adviser  of  the  com- 
missioners and  represent  them  in  all 
proceedings  at  law  or  in  equity 
wherein  the  county  had  any  interest, 
it  is  not  likely  that  any  doubt  as  to  his 
legal  status  would  have  been  sug- 
gested. According  to  the  reasoning 
of  the  opinion  the  contract  as  to  him 
would  have  been  declared  illegal,  con- 
trary to  public  policy,  and  absolutely 
void.  We  are,  therefore,  of  opinion 
that  the  learned  judge  erred  in  hold- 
ing that  plaintiff  below  might  recover 
if  the  commissioners  recognized  his 
services  after  the  expiration  of  his 
term  of  office  as  county  solicitor; 
that  such  recognition  would  be  a  rati- 
fication of  the  oiiginal  illegal  agree- 
ment, etc." 

'Erskine  r.  Steele  County,  (N.  D. 
1894)  60  N.  W.  Rep.  1050.  The  holders 
of  the  warrant  cited  specially  in  sup- 
port of  their  position  the  case  of 
Kilvington  t>.  City  of  Superior,  83  Wis. 
c.,  58  N.  W.  Rep.  487.  The 
Supreme  Court  of  North  Dakota 
referred  to  that  case  in  these  words  : 
"  In  [that  case]  tho  court  held  that 


430 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


[§263 


sented  entirely  the  discount  of  the  warrant  which  was  issued  to 
the  contractor  for  transcribing  the  certain  records  of  the  two  coun- 
ties from  which  this  county  was  created.  This  warrant  the 
Supreme  Court  of  North  Dakota  held  also  to  be  wholly  illegal 
and  void  for  the  reason  that  the  county  commissioners  were  with- 
out power  to  enter  into  an  agreement  for  such  discount.1 


the  general  power  conferred  upon 
village  trustees  to  'appoint  a  board 
of  health  to  prevent  the  deposit  of 
unwholesome  substances,  and  prevent 
or  abate  nuisances,  is  sufficient  to 
authorize  a  contract  for  the  erection 
of  a  crematory  for  the  consumption  of 
any  matter  calculated  to  affect  the 
health  or  comfort  of  the  community.' 
The  reason  of  this  holding  is  plain. 
While  the  authority  to  erect  a  crema- 
tory was  not  expressly  conferred  by 
the  legislature  upon  the  trustees,  such 
authority  was  implied  if  necessary  in 
carrying  out  the  power  to  abate 
nuisances,  etc.,  which  power  was 
given  in  clear  terms.  But  we  see  no 
analogy  in  the  case  cited  to  the  case 
at  bar.  The  right  to  enter  into  such 
a  contract,  as  that  concluded  with  the 
[one  who  did  the  transcribing]  was  not 
expressly  conferred  upon  the  com- 
missioners, nor  was  such  authority 
necessary  or  at  all  appropriate  to  the 
execution  of  any  power  vested  in  the 
commissioners  by  any  law  of  the 
territory  then  existing.  In  the  absence 
of  legislative  authority  authorizing  it 
any  such  contract  was,  in  our  opinion, 
clearly  ultra  vires  in  character.  We, 
therefore,  hold  that  the  warrant  was 
wholly  void  from  its  inception.  It 
was  issued  without  authority  of  law 
and  upon  no  legal  consideration. 
Rasmusson  v.  County  of  Clay,  41  Minn. 
283;  s.  c.,  43  N.  W.  Rep.  3;  Pugh 
v.  Good,  19  Or.  85;  s.  c.,  23  Pac.  Rep. 
827." 

'Erskine  v.  Steele  County,  (N.  D. 
1894)  60  N.  W.  Rep.  1050.  Upon  this 
branch  of  the  case,  the  court  said  : 
"Essentially  the  same  question  has 


been  frequently  presented  to  courts 
in  other  jurisdictions,  and  the  au- 
thorities, so  far  as  we  have  examined 
them,  are  unanimous  in  condemning 
such  discount  transactions.  Judge 
DILLON,  in  his  learned  treatise  upon 
Municipal  Corporations  (Vol.  1  [4th 
ed.],  §  503),  says :  '  Without  express 
authority  from  the  legislature,  a 
municipality  cannot  discount  its  war- 
rants for  more  than  the  sum  actually 
due  the  claimant,  and  as  to  the  excess 
they  are  void,  and  the  holder  will  be 
treated  only  as  the  equitable  assignee 
of  the  valid,  legal  claim  of  the  payee.' 
In  Foster  v.  Coleman,  10  Cal.  278,  a 
claim  for  services  to  the  amount  of 
$1,650  was  allowed  by  the  board  of 
supervisors.  County  warrants  of  the 
county  were  then  at  a  discount,  and 
worth  only  forty  cents  on  the  dollar. 
The  board  ordered  a  warrant  to 
issue  for  a  sum  which,  at  this  prevail- 
ing discount,  would  sell  for  $1.650, 
the  amount  due  the  claimant.  Upon 
such  order  the  warrant  issued.  A 
taxpayer  of  the  county  brought  suit 
and  the  county  treasurer  was  enjoined 
from  paying  the  warrant.  The 
Supreme  Court,  in  the  course  of  its 
opinion,  referring  to  the  order  of  the 
board  directing  the  warrant  to  issue, 
said  :  '  The  effect  of  the  order  was  to 
create  a  debt  or  liability  on  the  part 
of  the  county,  and  this  the  super- 
visors were  not  empowered  to  do  for 
any  purpose  except  as  provided  by 
law.  Their  action  was  entirely  with- 
out authority,  and  altogether  inde- 
fensible.' The  settlement  and  allow- 
ance of  an  illegal  claim  against  the 
county  when  made  by  a  county 


ULTRA  VIRES PUBLIC  CORPORATIONS.  437 

§  264.  Illustrations  of  ultra  vires  acts.—  Furni.-hing  aid  to 
a  gravel  road  OT  turnpike  company  in  building  or  repairing  its 
road  at  the  expense  of  a  county,  or  entering  into  contracts  with 
them  for  the  future  repairs  of  a  bridge  or  the  approaches  of  a 
bridge,  being  beyond  the  powers  of  a  county,  a  lioard  of  com- 
missioners of  a  county  have  no  authority  to  make  contracts  for 
such  purposes.1  Without  enabling  authority  a  municipal  corpo- 
ration cannot  purchase  lands  and  lots  at  a  tax  sale.  Such  a  power 
is  not  included  in  a  general  authority  to  buy  and  hold  real  estate 
for  the  convenience  of  the  corporation.1  Hut  where  a  municipal 

board,  has  no  more  conclusive  effect  road  company  to  aid  in  the  construc- 
than  such  an  adjustment  would  huve  tioo  of  its  road.  The  court,  among 
if  made  by  private  persons.  See  other  things,  said:  'The  counties  are 
Commissioners  r.  Keller,  6  Kans.  511.  corporations  created  for  the  purpose 
In  a  recent  case  clearly  in  point,  the  of  convenient  local  municipal  govern- 
Supreme  Court  of  the  state  of  Wash-  ment,  and  possess  only  such  powers  as 
ingtoii,  in  referring  to  the  act  of  a  are  conferred  upon  them  by  law. 
municipality  in  discounting  its  own  They  act  by  a  board  of  commissioners 
•warrants,  uses  the  following  language  :  whose  authority  is  defined  by  statute. 
'  Such  a  proceeding  is  manifestly  be-  One  of  the  powers  conferred  is  to  col- 
yond  the  scope  of  legitimate  cor-  lect  taxes  levied  upon  the  people  and 
porate  power,  and  u  practice  of  that  property  within  the  county.  In  the 
character  might  lead  to  various  disposition  of  the  money  thus  col- 
results.  City  warrants  are  evidence  lected  into  the  general  treasury  the 
of  indebtedness,  or  promises  to  pay,  board  has  not  unlimited  discretionary 
and  are  payable  with  interest  pre-  choice  as  to  the  objects  upon  which  it 
scribed  by  law  ;  and  the  corporation  shall  be  expended.  It  can  only  be  ap- 
cannot  cast  upon  the  taxpayers  any  plied  to  certain  specified  objects,  and 
further  burden  in  respect  thereto,  the  building  of  railroads  is  not  one  of 
nml  the  courts  have  uniformly,  as  far  these  objects,  or  necessary  to  carry 
as  we  are  advised,  disapproved  of  any  into  effect  any  of  the  purposes  for 
effort  to  do  so.'  Arnott  v.  City  of  which  such  corporations  were  created." 
Spokane,  6  Wash.  St.  442;  s.  c.,  83Pac.  In  Burnett  r.  Abbott,  51  Ind.  254.  the 
Rep.  1063.  See,  also,  Clark  r.  DCS-  county  board  made  a  contract  con- 
Moines,  19  Iowa,  199;  Bauer  r.  Frank-  ditionally  to  pay  certain  expenses  of 
lin  County,  51  Mo.  205;  Shirk  r.  Pu-  boring  wells  for  oil  and  digging  for 
laski  County,  4  Dill.  209:  s.  c.,  Fed.  minerals.  The  contract  was  held  void 
Cas.  No.  12,794."  See  Pugh  o.  City  for  want  of  authority  to  enter  into  it. 
of  Little  Hock.  35  Ark.  75.  Nor  can  the  board  appropriate  the 
1  Driftwood  Valley  Turnpike  Co.  t.  funds  of  the  county  to  the  payment 
Board  of  Comrs.  of  Bartholomew  of  the  debts  of  a  county  agricultural 
County,  (1880)  72  Ind.  226.  The  court  joint-stock  company  or  to  the  build 
said:  "In  the  case  of  Haruey  e.  ing  of  school  houses.  Warren  County 
Indianapolis,  etc.,  R.  R.  Co.,  82  Ind.  Agricultural  Joint-Stock  Co.  r.  Itarr. 
244.  it  was  held  that  a  county  had  no  55  Ind.  80;  Rothrock  r.  t'arr.  .Vi  Ind. 
power,  without  .affirmative  legislation,  884." 

to   make  an  appropriation    from    its       *  City  of    Champaign    r.    Harmon, 

treasury  by  way  of  donation  to  a  mil-  (1881)  98  111.  491.     It  was  said  by  the 


438 


ULTRA  VIRES  —  PUBLIC  CORPORATIONS. 


corporation  is  vested  with  general  authority  to  purchase  real 
estate  for  any  purpose,  a  vendor  of  land  to  a  municipal  corpora- 
tion will  not  be  allowed  to  avoid  his  contract  by  insisting  that  his 
deed  is  void,  because  the  corporation  may  have  exceeded  its 
powers  in  making  such  purchase.1  In  a  case  before  the  Supreme 
Court  of  Alabama,  an  action  to  enforce  a  penal  bond  given  by  a 


court:  "Municipal  corporations  are 
creatures  of  the  statutes,  and  can  only 
exercise  such  powers  as  are  expressly 
conferred,  or  such  as  arise,  by  impli- 
cation, from  general  powers  granted. 
In  this  case  the  plaintiff  corporation  is 
empowered  by  its  charter  to  buy  and 
hold  real  property,  but  that  must  be 
understood  to  be  purchases  made  in 
the  ordinary  way,  and  only  for  corpo- 
rate purposes,  and  a  grant  to  purchase 
real  property  for  particular  purposes 
would  seem  to  be  a  limitation  on  the 
powers  of  such  corporations,  and 
would  exclude,  by  necessary  implica- 
tion, all  purchases  for  mere  specula- 
tion or  profit.  Power  to  purchase  real 
estate  for  speculative  purposes  is  not 
among  the  usual  powers  bestowed 
on  municipal  corporations,  nor  does 
such  power  arise,  by  implication,  from 
any  of  the  ordinary  powers  conferred 
on  such  corporations.  Authority  to 
buy  and  hold  real  estate  is  only  given 
to  them  to  that  extent  that  may  be 
necessary  to  carry  into  effect  corporate 
powers  granted.  Under  a  general 
grant  of  power  to  buy  and  hold  real 
property,  it  is  understood  municipal 
corporations  may  buy  and  hold  such 
property,  within  the  corporate  limits, 
as  may  be  necessary  for  corporate  pur- 
poses, and  may  even  buy  and  hold 
real  estate  beyond  the  corporate  limits, 
for  the  location  of  cemeteries,  pest 
houses  and  other  purposes  connected 
with  the  sanitary  condition  of  the 
municipality." 

1  City  of  Champaign  r.  Harmon, 
(1881)  98  111.  491.  In  Halstead  v. 
Mayor,  etc.,  of  New  York,  (1850)  3  N. 
Y.  430,  the  Court  of  Appeals  of 


New  York  held  that  it  was  beyond 
the  power  of  the  corporation  to  as- 
sume the  defense  of  suits  brought 
against  the  county  supervisors  indi- 
vidually for  the  penalty  incurred  by 
them  for  neglecting  the  duty  of  audit- 
ing the  salaries  of  certain  judges  ap- 
pointed under  a  statute  which  they  as- 
sumed to  be  unconstitutional,  and  was 
afterwards  held  to  be  unconstitutional, 
or  to  pay  the  judgments  and  costs  re- 
covered against  those  supervisors,  upon 
the  principle  that  such  corporations  are 
creatures  of  limited  powers,  especially 
upon  the  subject  of  the  appropriation 
of  the  funds  of  the  people,  as  settled 
in  Pledges  t>.  City  of  Buffalo,  2  Den. 

110.  Ultra  vires  contracts  of  munici- 
palities:   Bourdeaux    r.    Coquard,   47 

111.  App  254;  Sang  r.  City  of  Duluth, 
(Minn.)  59  N.   W.  Rep.  878;  City  of 
Aberdeen  t.  Honey,  8  Wash.  251;  s. 
c.,  35  Pac.  Rep.  1097;  Penley  v.  City 
of  Auburn,  85  Me.  278;  8.  c.,  27  Atl. 
Rep.  158;  East  St.  Louis  Gas  Light  & 
Coke  Co.  v.  City  of  East  St.  Louis,  47 
111.   App.  411;  Hay  ward  v.   Board  of 
Trustees  of  Town  of  Red  Cliff,  (Colo.) 
36  Pac.  Rep.  795;  Town  of  Newport 
v.  Batesville  &  B.  Ry.  Co.,  58  Ark. 
270;  s.  c.,  24  S.  W.  Rep.  427;  Lamar 
Water  &  Electric  Light  Co.  v.  City  of 
Lamar,   (Mo.)  26  S.    W.    Rep.    1025; 
Griswold  v.  City  of  East  St.  Louis,  47 
111.    App.   480;  Hamilton  t>.    City    of 
Shelby  ville,  6  Ind.  App.  538;  City  of 
Nashville  v.  Sutherland,  92  Tenn.  335; 
State  v.    City  of  Bayonne,  55  N.  J. 
Law,    268;  Hintrager  v.    Richter,   85 
Iowa,  222;  Bateman  v.  City  of  Coving- 
ton,  90  Ky.  390. 


§   L>05]  IM.TRA  VIKES PUBLIC  CORPORATIONS.  439 

private  corporation  to  u  municipal  corporation  for  the  faithful 
application  by  the  private  corporation  of  bonds  of  the  municipal 
corporation  loaned  by  it,  without  authority  under  its  charter,  to 
aid  in  the  eoiiftniction  of  the  works  of  the  private  corporation, 
the  bond  was  held  to.  be  invalid  and  not  enforceable  by  suit  ; 
further,  that  its  validity  was  not  affected  by  the  subsequent  sale 
or  transfer  of  the  municipal  bonds  by  the  private  corporation, 
and  that  the  private  corporation  contracting  with  the  municipal 
corporation  for  the  construction  of  works  which  the  latter  had  no 
authority  to  construct  and  had  received  the  benefit  of  the  con- 
tract, was  not  estopped  when  sued  by  the  municipality  from  set- 
ting up  its  want  of  authority  to  make  the  contract.1 

§  265.  Estoppel  of  a  public  corporation  to  deny  its  liabil- 
ity on  an  ultra  vires  contract. —  A  manufacturing  corporation 
which  furnished  school  furniture  to  a  school  district  of  Kansas 
brought  its  action  against  the  district  to  recover  the  value  of  the 
goods  sold  and  delivered  to  it.  It  appeared  in  the  pleadings  and 
record  before  the  Supreme  Court,  that  the  court  below  took  the 
view  that  the  written  order  set  up  in  the  petition,  and,  also,  the 
written  contract  made  by  the  board  of  directors  with  the  agent 
of  the  plaintiff  for  the  furniture,  were  void  because  unauthor- 
ized. The  Supreme  Court,  having  referred  to  the  findings  of 
the  court  below  that  the  furniture  had  been  in  use  by  the  school 
district  for  a  period  of  nearly  live  and  a  half  years,  said  :  "  It  may 
be  conceded,  for  the  purpose  of  this  case,  that  both  these  written 
instruments  were  void,  and  that  no  action  could  be  maintained 
on  either  or  both  of  the*m,  yet  the  defendant  district,  having 
received  and  retained  the  property,  which  the  court  finds  to 
have  been  fairly  worth  the  price  stated  in  the  written  contract,  is 

1  City  Council  of  Montgomery    t.  need  argument  to  overturn  it.     See  on 

Wetumpka  Plank  Road  Co.,  (1857)  81  this  point  Pennsylvania,   Delaware  A: 

Ala.  76.     The  court  said:  If  the  [doc-  Mar}' land    Steam   Nav.    Co.    r.    I)nn- 

trine  contra  the  text]  be  established,  dridge,  8  Gill  &  J.  24*.   :51«J.  :«0,  and 

these    corporations,    no    matter    how  authorities   cited;    Albert   r.    Savings 

limited  their  powers,  may  make  them-  Hank  of   Baltimore.    1   M<l.    Ch.  Dec. 

selves  omnipotent.     They   have  only  407^113;  Smith   r.    Ala.    Life    Ins.   & 

to    induce   persons  to  contract   with  Trust  Cn..  4  Ala.  .V>S;  Hodges  r.  City 

them  beyond  the  scope  of  their  powers  of  Buffalo.  v>  Menio.  110;  Life  «&   Fire 

and  their  very  usurpations  have  the  Ins.  Co.  r.  Mechanic     Fire  Ins.  Co.,  7 

effect  of  conferring  powers  on  them  Wend.  31:  New   York   Firemen     Ins. 

which  the  legislature  have  withheld.  Co.  r.  Ely,  5  Conn.  560. 
A  proposition  so  erroneous  can  scarcely 


44:0  ULTRA  VIRES  —  PUBLIC  CORPORATIONS.  [§  265 

bound,  in  common  honesty,  to  pay  for  it.  During  all  the  time 
this  furniture  has  been  in  the  possession  of  the  defendant  dis- 
trict, it  is  fair  to  presume  that  the  school  house  which  was  fur- 
nished with  the  seats  and  desks  purchased  from  the  plaintiff,  was 
used  in  the  same  manner  as  school  houses  are  ordinarily  used. 
It  is  fair  to  presume  that  school  district  meetings  were  therein 
held  annually  at  the  time  appointed  by  law.  It  is  fair  to  presume 
that  the  school  district  board  met  there  and  caused  the  seats  to 
placed  in  the  building  and  to  be  used  by  the  district.  The  board 
and  the  residents  of  the  school  district  must  all  have  known  orf 
the  use  of  this  property,  and  their  continued  retention  and  use  of 
it  shows  a  perfect  and  complete  ratification  of  the  purchase  made 
by  the  district  officers."  In  the  case  of  Sullivan  v.  School  Dis- 
trict, 39  Kans.  347,  it  was  held  that  a  contract  for  the  construc- 
tion of  a  school  house,  made  by  one  member  of  the  school  district 
board  alone,  on  behalf  of  the  district,  might  be  ratified  and  made 
binding  on  the  whole  school  district.  This  case  came  again 
before  this  court,  and  is  reported  in  48  Kans.  624,  and  the  court 
then  held  that :  "  A  contract  for  building  a  school  house,  void 
because  made  only  by  one  member  of  the  school  board,  may  be 
ratified  and  made  binding  by  the  action  of  the  school  district  in 
completing  the  building  left  unfinished  by  an  absconding  con- 
tractor, by  furnishing  the  same  with  seats,  desks  and  other  neces- 
sary school  house  furniture,  by  occupying  the  same  for  school 
house  purposes,  arid  by  insuring  the  same."  l  A  bill  was  tiled  by 
a  taxpayer  in  Iowa  against  the  vendor  of  land  sold  to  a  county 
for  a  poor  house  farm,  the  county  treasurer  and  supervisors,  to 
which  the  county  was  not  made  a  party,  to  have  the  contract  set 
aside  as  being  ultra  vires,  and  the  treasurer  enjoined  from  pay- 
ing certain  warrants  issued  for  the  residue  of  the  purchase  money 
(the  county  having  paid  a  part  of  the  purchase  money  and  been 
placed  in  possession).  The  Supreme  Court  held  that  the  bill 
was  not  maintainable  in  a  court  of  equity,  because  such  a  decree 
would  be  inequitable  while  the  county  was  allowed  to  retain  the 
land,  and  its  title  could  not  be  disturbed  in  an  action  to  which  it 
was  not  a  party.8  A  corporation  which  has  enjoyed  the  provis- 

1  Union  School  Furniture  Company  court  said:  "It  appears  to  us  to  be 

v.  School  District  No.  60,  in  Elk  well  settled  as  a  rule,  with  one  excep- 

County.  (1893)  50  Kans.  727,  730,  731.  tion,  that,  where  the  consideration 

*  Turner  t.  Cruzen,  (1886)  70  Iowa,  received  by  a  corporation  under  an 

202;  s.  c.,  30  N.  "VV.  Rep.  483.  The  ultra  tire*  contract  can  be  restored,  a 


';"'J  ULTRA  VIBES  —  Pritl.ic  <  •  >UI'<  >i:.\  l  I  441 

iun-  of  a  lease  from  a  city,  cannot,  in  an  action  f<»r  rent,  claim 
tliat  neither  it  nor  the  city  ha<l  [»<> wer  t«»  execute  the  lease.1  It 
was  in>i>tc<l  in  an  Indiana  case  that  as  a  county  had  received  tin 
full  benefit  of  a  contract  which  it  was  beyond  it-  p.. \vt-r  i»  make. 
it  was  estopj>ed  to  bet  up  that  it  was  ultm  ud  to  sus- 

tain this  j)osition  counsel  relied  ujxm  State  Board  of  Agriculture 
v.  Citizens'  Street  Railway  Company,  47  I  ml.  407.  The  Supreme 
Court  said:  "That,  however,  was  the  case  of  a  private  corpora- 
tion, the  street  railway  company,  that  sought  to  avoid  its  obliga- 
tion on  the  ground  of  want  of  power  to  make  the  contract. 
There  is  a  broad  difference  between  a  private  corporation  organ- 
ixed  for  a  private  purpose,  though  subserving  a  public  interest, 
and  a  public  corporation,  like  a  county  or  city,  organized  for 
public  purposes  only,  and  whose  obligations  must  be  paid  from 
public  funds  raised  for  public  purposes  only.  The  latter  class  of 
corporations  may  always  defend,  on  the  ground  that  the  supposed 
contract  was  outside  of  the  authority  conferred  on  it  by  law.  In 

court  of  equity  will  not  relieve  the  very  object  of  the  constitutional  pro- 
corporation,  as  against  the  contract,  vision  would  be  defeated." 
without  providing  for  a  restoration  of  'City  of  Corpus  Christ!  r.  Central 
the  consideration.  Pratt  r.  Short,  53  Wharf  &  Warehouse  Co.,  (Tex.  Civ. 
How.  Pr.  506;  Leonard  r.  City  of  App.  1894)  27  S.  W.  Rep.  803.  The 
Canton,  35  Miss.  189;  Argent!  r.  San  court  said:  "There  was  nothing  [in 
Francisco,  16  Cal.  255.  282;  Moore  r.  this  lease  contract]  immoral  or  illegal. 
Mayor,  etc..  of  New  York,  73  N.  Y.  in  the  sense  of  an  infraction  of  a  posi- 
238;  Lucas  County  r.  Hunt,  S  Ohio  live  prohibition  of  law,  in  the  action 
St.  488."  Afterwards  it  was  said:  of  cither  party.  At  most,  their  action 
'  \Vr  are  aware  that  there  is  a  class  of  was  in  excess  of  the  powers  conferred, 
cases  where  courts  of  equity  declare  a  The  restrictions  upon  the  powers  of 
contract  ultra  rireti,  and  grant  relief  in  the  city  government  are  imposed  by 
favor  of  a  corporation,  without  any  law  for  the  protection  of  the  inhabit - 
decree  for  the  restoration  of  the  con-  ants  of  the  city  and  the  general  public, 
sideration  received  by  the  corporation.  By  proper  proceedings,  taken  by  the 
This  is  so  where  municipal  bonds  right  parties  in  due  time,  all  such 
have  been  issued  in  excess  of  the  con-  transgressions  of  power  may  be 
stitutional  limit  of  indebtedness,  and  promptly  remedied.  But,  when  such 
the  money  obtained  thereon  has  been  contracts  have  been  allowed  to  stand 
expended.  Courts  of  equity  decree  until  fully  carried  out,  it  does  not  lir 
the  cancellation  of  such  bonds,  or  en-  in  the  mouth  of  the  {tarty  who  re- 
join payment,  without  decreeing  re-  ceived  their  benefits  to  urge  the  de- 
payment  to  the  bondholders  of  the  fense  of  nltnt  rir?*."  See  Bigelow 
money  received  by  the  corporation  Estop.  405;  7  Am.  &  Eng.  Encycl. 
on  the  bonds.  But  this  results  from  Law,  •,*.»;  IVnch  I'riv.  Corp.  £$  421- 
thc  necessity  of  the  case.  If  the  420.  •!:{-..'.  4:«.  As  to  a  taxpayer  hav- 
courts  should  decree  repayment,  the  ing  no  right  to  complain  of  an  illegal 
56 


442  ULTRA  VIRES  —  PUBLIC  CORPORATIONS.  [§  266 

1  Dillon  Munic.  Corp.  §  381.  the  author,  after  stating 'the  gen- 
eral doctrine,  that  the  officer  of  a  municipal  corporation  cannot 
bind  the  corporation  by  any  contract  which  is  beyond  the  scope 
of  its  powers,  or  entirely  foreign  to  the  purposes  of  the  corpora- 
tion, says :  '  It  results  from  this  doctrine  that  unauthorized  con- 
tracts are  void,  and  in  actions  thereon,  the  corporation  may 
successfully  interpose  the  plea  of  ultra  vires,  setting  up  as  a 
defense  its  own  want  of  power  under  its  charter,  or  constituent 
statute,  to  enter  into  the  contract.'"  *  A  county  id  not  estoppel 
as  against  a  warrant  issued  by  one  of  its  officers,  from  setting  up 
the  defense  of  ultra  vires*  The  Kansas  Supreme  Court  has 
said,  upon  this  matter  of  estoppel  of  a  corporation  :  "  The  ten- 
dency of  the  courts  and  others,  at  the  present  time,  is  to  treat 
corporations,  including  municipal  corporations,  witli  respect  to 
their  business  transactions,  about  the  same  as  the  courts  and  others 
treat  individuals,  and  where  a  corporation,  municipal  or  other- 
wise, "has  received  benefits  from  others,  upon  contracts  ?////•'< 
v ires  or  void  because  of  some  irregularity  or  want  of  power  in 
their  creation,  but  not  void  because  made  in  violation  of  expivs< 
law,  or  good  morals,  or  public  .policy,  and  where  the  corporation 
retains  such  benefits,  it  must  pay  for  them." 3  Where  the  acts 
of  a.  municipal  corporation  are  such  as  the  corporation  is  pro- 
hibited from  performing,  they  will  be  ultra  vires  and  void,  and 
the  corporation  and  its  taxpayers  will  not  be  estopped  from 
insisting  upon  such  invalidity  even  as  against  parties  acquiring 
rights  without  knowledge  of  the  fact.4 

§  266.  Estoppel  of  contractor  wJth  a  public  corporation  to 
enforce  an  ultra  vires  contract. — In  an  action  by  citizens  and 
taxpayers  of  a  town  to  restrain  a  contractor  from  enforcing  a  judg- 

contract  on  the  part  of  a  city,  such  contend  that  a  contract  by  the  board 

contract  being  voidable  only   at  the  with  the  county  medical  society,  for 

option  of  the  city,  see  Waco  Water  &  medical  treatment  of  the  poor  of  the 

Light  Co.  v.  City  of  Waco,  (Tex.  Civ.  county,    was  ultra    vires  the   society 

App.  1894)  27  8.  W.  Rep.  675.  and  did  not  bind  its  members. 

1  Driftwood  Turnpike  Co.  r.  Board  3  Board    of    Comrs.     of    Hamilton 

of  Comrs.  of  Bartholomew  Co.,  (1880)  County  v.  Webb,  (1891)47  Kims.   1<)4. 

72  Ind.  226.  105,  106;  citing  City  of  Ellsworth   p. 

'Webster    County    v.    Taylor,    19  Rossiter,   (1891)  46    Kans.    237,    242; 

Iowa,  117.     In  Woodruff  v.  Commis-  Comrs.  of  Leavenworth  Co.  r.  Brewer, 

sioners  of  Noble  County,  (Ind.  App.  9  Kans.   307;    Huffman  r.   Comrs.  of 

1894)  37  N.  E.  Rep.  732,  it  was  held  Greenwood  County,  23  Kans.  281. 

that  a  county    physician    could    not  4  McPherson  v.  Foster,  43  Iowa,  48. 


§  266]  ULTBA  VIRES  —  PUBLIC  CORPORATIONS. 

ment  against  the  town  obtained  by  default  and  to  restrain  the  town 
and  its  officers  from  paying  this  contractor  anything  upon  hi* 
alleged  contract  upon  which  the  judgment  wa>  rendered,  it  being 
alleged  in  the  complaint  tliat  the  judgment  was  obtained  through 
the  connivance  of  the  officers  of  the  town,  it  appeared  that  the 
town  was  empowered  by  its  charter  to  levy  special  assessments  for 
opening  and  grading  streets  upon  the  real  estate  in  front  of,  or 
adjacent  to,  which  such  improvements  should  be  made.  A  later 
act  provided  for  the  assessing  of  the  costs  of  such  improvements 
in  the  first  instance  upon  the  property  deemed  to  be  benefited 
thereby  ;  and,  further,  it  was  provided  in  this  later  act  that  the 
town  council  should  "  order  said  improvements  to  be  made  by  the 
owners  of  real  estate,  or  occupants  of  such  real  estate,  in  front  of 
or  adjacent  to  where  said  improvements  are  so  ordered."  There 
was  a  further  provision  that  such  owners  or  occupants  "  shall 
make  or  cause  to  be  made  said  improvements  at  their  own  cost 
and  charges,"  and  that  in  case  of  their  default  the  council  may 
cause  the  improvements  to  be  made  and  assess  the  expense  upon 
the  property.  It  was  not  controverted  that  the  statute  required 
that  an  order  should  have  been  made  for  the  adjacent  proprietors 
to  make  the  improvement  and  opportunity  given  them  to  do  so 
before  the  council  could  rightfully  let  a  contract  for  doing  it,  and 
it  was  admitted  that  this  was  not  done.  Whether  this  contract 
was  ultra  vires,  and  whether  the  municipality  should  be  heard  to 
interpose  that  defense  to  an  action  by  the  other  party  to  recover 
upon  the  contract  after  it  had  been  performed,  were  the  points 
considered  by  the  Minnesota  Supreme  Court.  The  court  held 
that  the  contract  was  unauthorized,  and  that,  not  having  been 
misled  by  any  fact,  the  contractor  was  not  entitled  to  recover  on 
such  contract.1  The  court,  after  stating  the  powers  of  the  cor- 
poration, and  restrictions  upon  the  same,  said  :  "  Not  only  was  the 
party  entering  into  this  contract  legally  chargeable  with  notice; 
that  by  the  public  charter  the  authority  of  the  council  was  thus 
restricted  (McDonald  v.  Mayor,  68  N.  Y.  23;  Schumm  y.  Sey- 
mour, 24  N.  J.  Eq.  143),  but  the  allegation  in  the  complaint  that 
the  plaintiff  warned  the  defendant  that  the  contract  was  void 
before  he  commenced  to  perform  it,  is  admitted  by  the  answer. 
The  doctrine  of  ultra  vires  has  with  good  reason  l»een  applied 

:  Newbery  r.  Fox,  (1887)  87  Minn,    ing  the  sustaining  of  a  demurrer  to 
141:    s.  < ..  33  N.  W.  Hep.  333.  affirm-    the  iinswcr  of  defendant. 


444  ULTRA  VIRES  —  PUBLIC  CORPORATIONS.  [§  266 

with  greater  strictness  to  municipal  bodies  than  to  private  cor- 
porations, and  in  general  a  municipality  is  not  estopped  from 
denying  the  validity  of  a  contract  made  by  its  officers  when  there 
lias  been  no  authority  for  making  such  a  contract.1  A  different 
rule  of  law  would,  in  effect,  vastly  enlarge  the  power  of  public 
agents  to  bind  a  municipality  by  contract,  not  only  unauthorized 
but  prohibited  by  the  law.  It  would  tend  to  nullify  the  limita- 
tions and  restrictions  imposed  with  respect  to  the  powers  of  such 
agents,  and  to  a  dangerous  extent  expose  the  public  to  the  very 
evils  and  abuses  which  such  limitations  are  designed  to  prevent. 
In  the  case  here  presented  it  is  not  to  be  denied  that  the  town 
council  had  no  authority  to  make  this  contract ;  that  the  charter 
set  forth  the  conditions  which  would  authorize  sucli  a  contract  to 
be  made ;  that  those  prescribed  conditions  had  not  been  fulfilled, 
nor  did  the  defendant  believe  that  they  had  been.  The  most 
that  appears  in  his  favor  is  that,  without  being  misled  or  mis- 
taken as  to  the  fact,  but  being  warned  that  the  contract  was  void, 
he  nevertheless  judged  that  it  was  legally  valid  ;  and,  being  also 
advised  by  the  members  of  the  council,  he  took  the  risk  of  per- 
forming it.  The  contract  being  thus  unauthorized  was  not 
effectual  as  a  contract,  and  the  defendant  does  not  appear  in  a 
position  entitling  him  to  invoke  the  doctrine  of  estoppel  to  aid 
him  in  enforcing  the  claim  as  though  the  contract  was  obligatory 
upon  the  town."  The  Supreme  Court  of  Colorado  has  held  that 
the  provision  of  the  charter  of  the  city  involved  declaring  that 
neither  the  city  council  nor  any  officer  of  the  city  shall  make  any 
contract  or  do  any  thing  binding  or  imposing  upon  the  city  any 
liability  to  pay  money  as  upon  contract  until  a  definite  appropria- 
tion shall  be  made  to  meet  the  requirements  or  consequences  of 
such  contract,  was  mandatory,  and  the  ditch  company  furnishing 
the  water  for  the  necessary  uses  of  the  city  could  not  recover 
against  the  city  the  reasonable  price  for  the  use  of  the  water  in 
the  absence  of  such  a  definite  appropriation.2 

1  Citing  Mayor  v.  Ray,  19  Wall.  468;  The  court  referred  to  the  cases  of 

Brady  T.  Mayor  of  New  York,  20  N.  Argenti  v.  City  of  San  Francisco,  16 

Y.  312;  Hague  v.  City  of  Philadel-  Cal.  255;  Nelson  T.  Mayor,  63  N.  Y. 

phia,  48  Pa.  St.  527;  1  Dill.  Mun.  535,  quoting  from  the  opinion  of 

Corp.  457;  Nash  n.  City  of  St.  Paul,  FOLGER,  J.,  in  the  latter,  and  cited 

8  Minn.  (172).  further,  McDonald  T.  Mayor,  68  N.  Y. 

*  Smith  Canal  or  Ditch  Co.  r.  City  of  28;  Smith  r.  City  of  Newburgh,  77  N. 

Denver,  (Colo.  1894)  36  Pac.  Rep.  844.  Y.  130;  McCoy  v.  Briant,  53  Cal.  247; 


§  2»!7  I  ULTRA  VIRES —  PUBLIC  CORPORATIONS.  1  \'< 

§  267.  Injunction  of  public  officials  —  rules. —  The  Snprvtin; 
Court  of  Washington  lias  held  in  a  taxpayer's  action  against  the 
commissioners  of  a  county,  that  the  taxpayer  was  entitled  t<»  ;m 
injunction  to  restrain  them  from  issuing  certain  bonds  as  the  del  >t 
proposed  to  be  increased  was  beyond  the  limitation  of  indebted- 
ness which  the  corporation  was  allowed  to  incur  and  had  not 
been  properly  ratified  or  validated,  and,  further,  the  arrangement 
with  a  trust  company  for  the  sale  of  the  bonds,  by  which  the  hit- 
ter was  to  be  allowed  commissions,  etc.,  of  a  large  amount,  vio- 
lated the  requirement  of  law  that  they  should  not  sell  the  bonds 
below  par.1 

People  v.  May,  9  Colo.  80;  s.  c.,  10  manner  best  calculated  to  accomplish 

Pac.  Rep.  641.     When  one  benefited  that  object.    Lawless  r.  Reese,  4  Bibb, 

by  a  contract  with  a  municipality  can-  309.     The  propriety  of  their  election 

not  object  that  it  was  ultra  rire*  the  and  the  binding  efficiency  of  their  t-m- 

municipality,  see    City  of  Buffalo  v.  tract  cannot  be  questioned  collaterally. 

Balcom,  (1892)  184  N.  Y.  532;  s.  c.,  32  If  their  proposed  expenditure  was  an 

N.  E.  Rep.  7.  abuse  of  their  powers,  any  of  the  c«>r- 

1 1 1 unt  P.  Fawcettetal., County  Com-  porators  have  an  ample  remedy  by  in- 

missioners,  (Wash.  1894)  36  Pac.  Rep.  junction.     See  Christopher  c.   Mayor 

818.     In  Avery  v.  Job,  (Ore.  1894)  36  of  New  York,  13  Barb.  567.  and  au- 

Pac.  Rep.  293,  the  Supreme  Court  af-  thorities  cited."    For  a  full  discussion 

firmed  the  granting  of  an  injunction  of  the  subject  of  injunctions  against 

in  a  taxpayer's  suit,  restraining   the  public  boards  of  commissioners,  etc., 

mayor,  etc.,  of  the  city  from  purchas-  see    Stevens  v.   St.   Mary's   Training 

ing  a  plant  of  a  waterworks  company  School,  (1893)  144  111.  336.     That  per- 

for  $28,000,  worth  only  $10,000,  and  sons  dealing  with  a  municipal  corpo- 

inadequate  and  unsuited  to  the  pur-  ration  through  its  officers  must  know 

pose,  though  the  purchase  or  erection  and  are  charged  with  a  knowledge  of 

of  waterworks  was  a  matter  within  the  their  powers  in  contracting,  see  Mc- 

discretion  of  the  city  council.     In  In-  Donald  r.  Mayor,  etc.,  of  New  York, 

tendant   &  Town  Council  of  Living-  68  N.  Y.  23;   Cornell  r.  Guilford.    1 

ston  v.  Pippin,  (1858)  81  Ala.  542,  an  Den.  510;  Sutro  P.  Pettit,  74  Cal.  W2; 

action  against  the  municipality  to  re-  Hodges  r.  Buffalo,  2  Den.  110;  Lowell 

cover  the  price  agreed  to  be  paid  for  Savings  Bank  c.  Winchester,  8  Allen, 

the  boring  of  an  artesian  well,  it  was  109;     Merchants'     Bank     r.     Bergen 

held   that   the   municipal  corporation  County,   115  U.   8.   884;   Wallace  r. 

could    not   set  up    the  defense  that  Mayor,  etc.,  of  San  Jose,  29  Cal.  181; 

though  its  corporate  authorities  had  Dorsey  County  o.  Whitehead,  47  Ark. 

power  to  contract  for  the  procuring  of  205;  Barton  r.  Swepston,  44  Ark.  437; 

a  supply  of  water  on  the  public  square  Schumrn  t.    Seymour,  24  N.  J.  Eq. 

of    the    town,    they    ought   to    have  148;    Alton    r.   Mulledy,  21    III.    76; 

adopted  some  loss  expensive  means  of  Cleveland  v.  State  Bank  of  Ohio,  16 

procuring  it.     The  court  said:  "The  Ohio  St.  236;  Chicago  c.  Shober,  etc.. 

corporate  authorities,  having  the  power  Co.,  6  Bradw.  (111.)  560;  Craycraft    v. 

to  procure  the  supply  of  water,  were  Selvage,  10  Bush  (Ky.),  708;   Perkin- 

themselves  the  judges  of  the  mode  and  son  r.   St.   Louis,   4  Mo.   App.   322; 


446 


ULTRA  VIRES PUBLIC  CORPORATIONS. 


[§267 


Clark  T.  Polk  County,  19  Iowa,  248; 
Carpenter  v.  Union,  58  Iowa,  335; 
Estep  v.  Keokuk  County,  18  Iowa, 
199;  Whiteside  v.  United  States,  93  U. 
S.  247;  Harshman  v.  Bates  County,  92 
U.  8.  569;  Maupin  v.  Franklin  County, 
67  Mo.  327.  As'  to  when  a  municipal 
corporation  is  not  estopped  to  set  up  a 
plea  of  ultra  vires  in  actions  brought 
upon  contracts  entered  into  by  its  offi- 
cers, see  Sioux  City  v.  Weare,  59 
Iowa,  95;  Stidger  v.  Redoak,  64  Iowa, 
465;  State  v.  Haskell,  20  Iowa,  276; 
East  Oakland  v.  Skinner,  94  U.  S.  255; 
Post  v.  Kendall  County,  105  U.  S.  667; 
McClure  v.  Oxford  Township,  94  U. 
S.  429;  Bates  County  v.  Winters,97  U. 
S.  83;  South  Ottawa  v.  Perkins,  94  U. 
S.  260;  Daviess  County  v.  Dickinson, 
117  U.  S.  657;  Burrill  v.  Boston,  2 
Cliff.  590;  Fox  v.  New  Orleans,  12  La. 
Ann.  154;  Seibrecht  v.  New  Orleans, 
12  La.  Ann.  496;  Cheeney  v.  Brook- 
field,  60  Mo.  53;  McCaslin  t>.  State,  99 
Ind.  423;  State  v.  Bevers,  86  N.  C.  588; 
Dill  v.  Wareham,  7  Met.  438;  Yancey 
v.  Hopkins,  1  Munf.  (Va.)  419 ;  Nalle 
v.  Fenwick,  4  Rand.  (Va.)  585;  Ship- 


man  v.  State,  43  Wis.  381;  Perry  v. 
Superior  City,  26  Wis.  64;  State  t. 
Hastings,  12  Wis.  596;  Nash  T.  St. 
Paul,  8  Minn.  172;  Donovan  v.  Mayor, 
etc.,  of  New  York,  33  N.  Y.  291;  Ap- 
pleby  v.  Mayor,  etc.,  15  How.  Pr.  428; 
Martin  v.  Mayor,  etc.,  of  Brooklyn,  1 
Hill,  545;  Albany  t>.  Cunliff,  2  N.  V. 
165;  Overseers  of  Norwich  v.  Over- 
seers of  New  Berlin,  18  Johns,  382; 
Cowen  v.  West  Troy,  43  Barb.  48; 
Trustees  of  Paris  Township  v.  Cherry, 
8  Ohio  St.  564;  Western  College  of 
Medicine  v.  Cleveland,  12  Ohio  St. 
375;  Mitchell  t>.  Rockland,  41  Me.  363; 
Fluty  v.  School  District,  49  Ark.  94; 
Hal  but  v.  Forrest  City,  34  Ark.  246; 
Mitchell  v.  Rockland,  45  Me.  496; 
People  v.  Baraga  Township,  39  Mich. 
554;  Taft  v.  Pittsford,  28  Vt.  286; 
Haynes  v.  Covington,  13  Sm.  &  Marsh 
(Miss.),  408;  Treadway  v.  Schnauber, 
1  Dak.  236;  Neely  v.  Yorkville,  10  S. 
C.  141;  Bryan  v.  Page,  51  Tex.  532; 
Trustees  of  Belleview  v.  Hohn,  82  Ky. 
1;  s.  c.,  4  Am.  &Eng.  Corp.  Cas.  524; 
Murphy  v.  Louisville,  9  Bush  (Ky.), 
189. 


CHAPTER  Vin. 


ULTRA  VIBES  — PRIVATE  CORPORATIONS. 


368.  The  doctrine  of  ultra  vires  as 
explained  by  English  courts. 

269.  These  rules  applied  by  English 

courts  to  special  acts  of  cor- 
porations. 

270.  The  doctrine  of  ultra  vires  as  ex- 

plained byUnitril  Statescourts 

271.  Illustrations  of  acts  not  ultra 

vires  the  corporation. 
X.'7'J    Illustrations  of  acts  ultra  vires 

the  corporation. 
27:$.   Leasing  corporation's  property 

and  franchises  for  a  term  of 

years. 

274.  Loaning  funds  of  a  corporation. 

275.  Investing  funds  of  corporation 

in  stock  of  others. 

276.  Directors  of  an  insurance  com- 

pany    raising     a     guaranty 
capital. 


£  277.  Converting   common  Into  pre- 
ferred stock. 

278.  The  effect  of  laches  on  the  part 

of  complaining  stockholders 
in  such  coses. 

279.  Rules  declan-d  by  courts  as  to 

estoppel  of  corporations  to 
plead  ultra  vires. 

280.  When    the    doctrine    of    ultra 

vires  is  not  applicable. 

281.  Rules  declared  by  courts  as  tc 

estoppel  of  parties  to  con- 
travts  with  corporations  to 
plead  ultra  vires. 

282.  Financial    arrangements    con- 

trary to  public  policy  —  rules 
governing  proceedings  on 
the  part  of  the  state,  etc. 


§  268.  The  doctrine  of  ultra  vires  as  explained  by  Eng- 
lish courts. —  Where  a  corporation  is  created  by  an  act  of  parlia- 
ment for  particular  purposes,  with  special  powers,  "  their  deed, 
under  their  corporate  seal,  and  that  regularly  affixed,  does  not 
bind  them,  if  it  appear  by  the  express  provisions  of  the  statute 
creating  the  corporation,  or  by  necessary  or  reasonable  inference 
from  its  enactment*),  that  the  deed  was  ultra  vires  —  that  is,  that 
the  legislature  meant  that  such  a  deed  should  not  !><•  made,"  was 
stated  to  be  the  rule  by  Baron  PAKKK.  '  Ix>rd  Chancellor  CHAN- 
WORTH  has  olwerved  in  a  case  that  he  thought  the  statement  of 
the  rule  by  Baron  PAKKK  "  the  more  correct  way  of  enumerating 
the  doctrine,  though  practically  it  makes  very  little  difference 
whether  we  say  that  the  railway  company  has  no  authority  given 
to  it  by  its  incorporation  to  en'.er  into  contracts  as  to  matters  not 
connected  with  its  corpoi-ate  duties,  or  that  it  is  impliedly  pro- 

1  South  Yorkshire  Railway  r.  Great    way  r.  Stewart,  8  Macq.  882,  415,  by 
Northern    Railway,   9  Ezch.  %.  84.    Lord  WKKKLKYDALK. 
See,  also,  Scottish  Northeastern  Hail- 


448  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  20J) 

hibited  from  so  doing,  because  by  necessary  inference  the  legisla- 
ture must  be  considered  to  have  intended  that  no  such  contracts 
should  be  entered  into."1  Lord  ST.  LEONARD  has  distinctly  recog- 
nized that  "  directors  cannot  act  in  opposition  to  the  purpose  for 
which  their  company  was  incorporated,  nor  bind  their  companies 
by  contracts  foreign  to  the  purposes  for  which  they  were  estab- 
lished."2 Lord  Chancellor  CRANWORTII  has  said  that  the  English 
authorities  had  "  established  the  proposition  that  a  railway  com- 
pany cannot  devote  any  part  of  its  funds  to  an  object  not  within 
the  scope  of  its  original  constitution,  how  beneficial  soever  that 
object  might  seem  likely  to  prove ; "  and,  after  a  review  of  the 
cases  reported,  "  it  must,  therefore,  be  now  considered  as  a  well- 
settled  doctrine  that  a  company  incorporated  by  act  of  parliament 
for  a  special  purpose  cannot  devote  any  part  of  its  funds  to  objects 
unauthorized  by  the  terms  of.  its  incorporation,  however  desirable 
such  an  application  may  appear  to  be."3 

§  269.  These  rules  applied  by  English  courts  to  special 
acts  of  corporations. — In  an  English  case  the  objects  of  the 
company  registered  under  the  English  Joint-Stock  Companies 
Act  of  1862  was  created  were  stated  in  its  memorandum  of  asso- 
ciation to  be  "  to  make  and  sell  or  lend  or  hire  railway  carriages 
and  wagons  and  all  kinds  of  railway  plant  fittings,  machinery 
and  rolling  stock  ;  to  carry  on  the  business  of  mechanical  engi- 
neers and  general  contractors ;  to  purchase,  lease,  work  and  sell 
mines,  minerals,  land  and  buildings  ;  to  purchase  and  sell,  as  mer- 
chants, timber,  coal,  metals  or  other  materials,  and  to  buy  and  sell 
any  such  materials  on  commission  or  as  agents."  The  directors 
agreed  to  purchase  a  concession  for  making  a  railway  in  a  foreign 
country,  and  afterward  (on  account  of  difficulties  existing  by  the 
law  of  that  country)  agreed  to  assign  the  concession  to  an  asso- 
ciation formed  there,  which  was  to  supply  the  materials  for  the 
construction  of  the  railway  and  receive  periodical  payments  from 
the  English  company.  In  an  action  at  law  brought  by  the 
foreign  associates  against  the  English  company  upon  this  agree- 
ment, it  was  held  in  the  lower  courts,  as  well  as  in  the  House  of 
Lords,  to  be  ultra  vires.  The  House  of  Lords  unanimously  held 
the  contract  not  to  be  within  the  scope  of  the  memorandum  of 

1  Shrewsbury  &  Birmingham  Rail-       9  Eastern      Counties      Railway     v. 
way  v.  Northwestern  Railway,  6  H.  L.    Hawkes,  5  H.  L.  Gas.  331. 
Cas.  113,  135-137.  »Ibid. 


§  269] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


association  and,  therefore,  void  and  incapable  of  being  ratified, 
ami  that  the  action  could  not  In-  maintained.1  In  an  Kn^li^h  case 
it  was  held  that  no  action  could  be  maintained  by  one  railway 
company  against  another  upon  an  agreement  made  by  tin*  i 
to  take  a  lease  of  the  railway  of  the  first  company  and  to  pay  the 
expenses  incurred  by  that  company  in  the  soliciting  and  promot- 
ing of  bills  in  parliament  for  the  extension  and  improvement  of 
that  railway,  even  if  the  object  and  effect  of  the  agreement 
were  to  increase  the  profits  of  the  defendants'  railway.2  In  a 


1  Ashbury  Railway  Carriage  &  Iron 
Co.  v.  Ricbc,  L.  R.,  7  H.  L.  653;  in  the 
lower  courts,  L.  R.,  9  Exch.  224. 
Lord  SELBORNE  of  the  House  of 
Lords  said:  "The  action  in  this  case 
is  brought  upon  a  contract  not  directly 
or  indirectly  to  execute  any  works, 
but  to  find  capital  fora  foreign  mil  way 
company  in  exchange  for  shares  and 
bonds  of  that  company.  Such  a  con- 
tract, in  my  opinion,  was  not  author- 
ized by  the  memorandum  of  asso- 
ciation of  the  Ashbury  Company.  All 
your  lordships  and  all  the  judges  in 
the  courts  below  appear  to  be  so  far 
agreed.  But  this,  in  my  judgment,  is 
really  decisive  of  the  whole  case. 
*  *  *  I  think  that  contracts  for 
objects  and  purposes  foreign  to  or  in- 
consistent with  the  memorandum  of 
association  are  ultra  rire*  of  the  cor- 
poration itself.  And  it  seems  to  me 
far  more  accurate  to  say  that  the 
Inability  of  such  companies  to  make 
such  contracts  rests  on  an  original 
limitation  and  circumscription  of 
their  powers  by  the  law,  and  for  the 
purposes  of  their  incorporation,  than 
that  it  depends  upon  some  express  or 
Implied  prohibition,  making  acts  un- 
lawful which  otherwise  they  would 
have  had  a  legal  capacity  to  do.  This 
being  so,  it  necessarily  follows  *  *  * 
that  where  there  could  be  no  mandate 
there  cannot  be  any  ratification;  and 
that  the  assent  of  all  the  shareholders 
can  make  no  difference  when  a 
stranger  to  the  corporation  is  suing  the 
57 


company  in  its  corporate  name  upon  a 
contract  under  the  common  seal.  No 
agreement  of  shareholders  can  make 
that  a  contract  of  the  corporation 
which  the  law  says  cannot  and  shall 
not  be  so." 

*East  Anglian  Railways  r.  K 
Counties  Railway,  11  C.  B.  775.  It 
was  said  by  Chief  Justin-  JKKVIS.  in 
delivering  the  judgment  of  himself 
and  Justices  MAULK,  WILLIAMS  and 
TALFOURD:  "This  act  is  a  public  act 
accessible  to  all  and  supposed  to  be 
known  to  all,  and  the  plaintiffs  must, 
therefore,  be  presumed  to  have  dealt 
with  the  defendants  with  a  full 
knowledge  of  their  respective  rights 
whatever  those  rights  may  be.  It  is 
clear  that  the  defendants  have  a  lim- 
ited authority  only  and  are  a  corpora- 
tion only  for  the  purpose  of  making 
and  maintaining  the  railway  sanctioned 
by  the  act;  and  that  their  funds  can 
only  be  applied  for  the  purposes 
directed  and  provided  for  by  the  stat- 
ute. Indeed,  it  is  not  contended  that 
a  company  so  constituted  can  engage 
in  new  trades  not  contemplated  l>y 
their  act;  but  it  is  said  that  they  may 
embark  in  other  undertakings,  how- 
ever various,  provided  the  object  of 
the  directors  be  to  increase  the  profits 
of  their  own  railway.  This,  in  truth, 
is  the  same  proposition  in  another 
form,  for  if  the  company  cannot  earn- 
on  a  trade  merely  because  it  was  not 
contemplated  by  the  act,  they  cannot 
embark  in  other  undertakings  not 


450 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§270 


case  where  a  railway  company,  authorized  by  act  of  parliament 
to  purchase  a  branch  line  and  to  raise  a  sum  of  money  for  the 
purpose  of  constructing  that  line,  applied  part  of  the  sum  so 
raised  to  the  construction  of  its  main  line,  Vice-Chancellor  WIG- 
RAM  and  Lord  Chancellor  COTTENHAM,  on  appeal,  sustained  the 
bill  of  a  shareholder,  not  only  to  restrain  such  application  of  the 
rest  of  the  sum,  but  also  for  an  account  of  the  part  already 
illegally  expended.1 

§  270.  The  doctrine  of  ultra  vires  as  explained  by 
United  States  courts. —  The  Supreme  Court  of  the  United 
States  has  approved  the  rules  established  in  the  English  cases, 
and  held  that  the  purchase  of  a  steamboat  to  run  in  connection 
with  a  railroad  corporation's  road  and  the  giving  of  a  note  for 
the  same,  was  a  departure  from  the  business  of  the  corporation, 
and  that  the  officers  in  the  purchase  and  the  execution  of  the 
note  for  the  Durchase  money  exceeded  -their  authority.2  Speak- 


sanctioned  by  the  act  merely  because 
they  hope  the  speculation  may  ulti- 
mately increase  the  profits  of  the 
shareholders.  They  cannot  engage  in 
a  new  trade  because  they  are  a  cor- 
poration only  for  the  purpose  of  mak- 
and  maintaining  the  Eastern  Counties 
Railway.  What  additional  power  do 
they  acquire  from  the  fact  that  the 
undertaking  may  in  some  way  benefit 
their  line?  Whatever  may  be  their 
object  or  the  prospect  of  success, 
they  are  still  but  a  corporation  for  the 
purpose  only  of  making  and  main- 
taining the  Eastern  Counties  Railway; 
and  if  they  cannot  embark  in  new 
trades  because  they  have  only  a  lim- 
ited authority,  for  the  same  reason 
they  can  do  nothing  not  authorized  by 
their  act  and  not  within  the  scope  of 
their  authority.  Every  proprietor, 
when  he  takes  shares,  has  a  right  to 
expect  that  the  conditions  upon  which 
the  act  was  obtained  will  be  per- 
formed; and  it  is  no  sufficient  answer 
to  a  shareholder  expecting  his  divi- 
dend that  the  money  has  been  ex- 
pended upon  undertakings  which  at 


some  remote  period  may  be  highly 
beneficial  to  the  line.  The  public  also 
has  an  interest  in  the  proper  adminis- 
tration of  the  powers  conferred  by  the 
act.  The  comfort  and  safety  of  the 
line  may  be  seriously  impaired  if  the 
money  supposed  to  be  necessary  and 
destined  by  parliament  for  the  main- 
tenance of  the  railway  be  expended  in 
other  undertakings  not  contemplated 
when  the  act  was  obtained  and  not 
expressly  sanctioned  by  the  legisla- 
ture." See,  also,  Macgregor  v.  Dover 
&  Deal  Railway,  18  Q.  B.  618. 

1  Bagshaw  v.  Eastern  Union  Rail- 
way, 7  Hare,  114;  s.  c.,  2  Macn.  & 
Gord.  389;  2  Hall  &  Twells,  201.  In 
Caledonian  &  Dumbartonshire  Rail- 
way r.  Magistrates  of  Helensburgh,  2 
Macq.  391,  the  House  of  Lords  held 
that  no  action  would  lie  against  a  rail- 
way company  on  an  agreement  of  its 
projectors  to  advance  money  to  con- 
struct a  pier  and  harbor  at  the  end  of 
a  proposed  branch  of  the  railway. 

8  Pearce  v.  Madison  &  Indianapolis 
Railroad,  21  How.  441. 


§•270]  i  I.TK'A  \  n:i>  —  PRIVATI   < •..I:I-..I:A  i  451 

in^  of  the  decision  in  Ashbury  Railway  Carriage  «fc  Iron  Co.  v. 
Riche,  7  II.  L.  653,  as  establishing  M the  broad  doctrine  tlmt  a 
contract  not  witbin  tlie  scope  of  the  powers  conferred  on  the 
corporation  cannot  be  made  valid  l»v  the  assent  of  every  one  of 
tin-  >h;iiv!iolders,  nor  can  it  by  any  partial  performance  become 
the  foundation  of  a  right  of  action,"  Mr.  Justice  MILI.KR,  of  the 
Supreme  Court  of  the  United  States,  expressed  the  opinion  that 
that  decision  "represents  the  decided  preponderance  of  authority 
both  in  this  country  and  in  England,  and  is  based  upon  sound 
principles."  l  This  may  be  generally  stated  as  settled  law  with 
reference  to  corporations.  A  corporation  has  power  to  do  such 
business  only  as  it  is  authorized  to  do,  and  no  other.  It  is  not 
hdil  out  by  the  government  nor  by  the  stockholders  as  authorized 
to  make  contracts  which  are  beyond  the  purposes  and  scope  of  its 
charter.  It  is  not  vested  with  all  the  capacities  of  a  natural  per- 
son, or  of  an  ordinary  partnership,  but  with  such  only  as  its  char- 
ter confers.  If  it  exceeds  its  chartered  powers,  not  only  may  the 
government  take  away  its  charter,  but  those  who  have  subscribed 
to  its  stock  may  avoid  any  contract  made  by  the  corporation  in 
clear  excess  of  its  powers.  If  it  makes  a  contract  manifestly 
beyond  the  powers  conferred  by  its  charter,  and,  therefore,  unlaw- 
ful, a  court  of  chancery,  on  the  application  of  a  stockholder, 
will  restrain  the  corporation  from  carrying  out  the  contract,  and 
a.  court  of  common  law  will  sustain  no  action  on  the  contract 
against  the  corporation.2  The  Court  of  Appeals  of  Maryland 

1  Thomas  t.   Railroad   Co.,  101   U.  light  of  a  common  partnership  and  OB 

8.  71.  subject  to  no  greater  vigilance  than 

*  Davis  c.  Old  Colony  R.  R.  Co.,  common  partnerships  are,  would,  I 
(1881)  131  Mass.  258.  This  reference  think,  be  greatly  to  mistake  the  func- 
is  made  to  a  leading  English  case:  tions  which  they  perform  and  the 
44  In  the  lending  case  of  Colman  r.  powers  which  tney  exercise  of  inter- 
Eastern  Counties  Railway,  10  Beav.  1,  ference,  not  only  with  the  public  but 
the  directors  of  a  railway  company  with  the  private  rights  of  all  individu- 
•were  restrained  by  injunction  from  als  in  this  realm.  We  are  to  look 
carrying  out  an  agreement  by  which,  upon  those  powers  as  given  to  them 
for  the  purpose  of  increasing  its  traffic,  in  consideration  of  a  benefit  which, 
they  proposed  to  guarantee  certain  notwithstanding  all  other  sacrifices,  it 
profits  to,  and  to  secure  the  capital  of,  a  is  to  be  presumed  and  hoped,  on  tin- 
steam  packet  company,  to  ply  between  whole,  will  be  obtained  by  the  public. 
a  port  near  one  end  of  the  railway  in  But  it  being  the  interest  of  the  public 
England  and  certain  foreign  ports,  and  to  protect  the  private  rights  of  all  in 
Lord  LAM;  i>  M.I:.  M.  R.,  said:  'To  dividuals,  and  to  defend  them  from  all 
look  upon  a  railway  company  in  the  liabilities  beyond  those  necessarily  oc- 


452  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§270 

have  decided  that  corporations  are  not  only  incapable  of  making 
contracts  which  are  forbidden  by  their  charter,  but  in  general 
they  can  make  none  which  are  not  necessary,  either  directly  or 
indirectly,  to  effect  the  objects  of  their  creation,  and  that  the  cor- 
poration itself  may,  in  an  action  brought  against  it  upon  such 
contract,  deny  its  power  to  enter  into  it.1  In  a  New  York 
case,  involving  the  issue  of  preferred  stock  by  a  corporation  to 
certain  of  its  stockholders  who  advanced  money  for  t'he  purposes 
of  the  corporation,  FOLGER,  J.,  of  the  Commission  of  Appeals, 
very  fully  explained  this  doctrine  in  words  which  have  been  gen- 
erally approved  and  accepted  as  correct  by  the  courts  of  this 
country.  He  said  :  "  In  the  application  of  the  doctrine  of  ultra 
vires,  it  is  to  be  borne  in  mind  that  it  has  two  phases,  one 
where  the  public  is  concerned  ;  one  where  the  question  is  between 
the  corporate  body  and  the  stockholders  in  it,  or  between  it  and 
its  stockholders  and  third  parties  dealing  with  it  and  through  it 

casioned  by  the  powers  given  by  the  and  thereby  to  increase  the  profit  to 
several  acts,  those  powers  must  always  the  shareholders.  There  is,  however, 
be  carefully  looked  to,  and  I  am  no  authority  for  anything  of  that  kind, 
clearly  of  opinion  that  the  powers  It  has  been  stated  that  these  things,  to 
which  are  given  by  an  act  of  parlia-  a  small  extent,  have  frequently  been 
ment  like  that  now  in  question,  extend  done  since  the  establishment  of  rail- 
no  further  than  is  expressly  stated  in  ways,  but  unless  the  acts  so  done  can 
the  act,  or  is  necessarily  and  properly  be  proved  to  be  in  conformity  with  the 
required  for  carrying  into  effect  the  powers  given  by  the  special  acts  of 
undertaking  and  works  which  the  act  parliament,  under  which  those  acts  are 
has  expressly  sanctioned.  *  *  *  done,  they  furnish  no  authority  what- 
Ample  powers  are  given  for  the  pur-  ever.'  And  after  full  consideration  of 
pose  of  constructing  and  maintaining  the  case  he  summed  up  his  opinion 
the  railway,  and  for  doing  all  those  thus:  '  To  pledge  the  funds  of  this 
things  required  for  its  proper  use  when  company  for  the  purpose  of  support- 
made,  but  I  apprehend  that  it  has  no-  ing  another  company  engaged  in  a 
where  been  stated  that  a  railway  com-  hazardous  speculation,  is  a  thing 
pany,  as  such,  has  power  to  enter  into  which,  according  to  the  terms  of  this 
all  sorts  of  other  transactions.  In-  act  of  parliament  they  have  riot  a 
deed,  it  has  been  very  properly  admit-  right  to  do.'  They  have  the  power  to 
ted  that  railway  companies  have  no  do  all  such  things  as  are  necessary  and 
right  to  enter  into  new  trades  or  busi-  proper  for  the  purpose  of  carrying  out 
nesses  not  pointed  out  by  their  acts;  the  intention  of  the  act  of  parliament, 
but  it  has  not  been  contended  that  and  they  have  no  power  of  doing  any- 
they  have  a  right  to  pledge  without  thing  beyond  it."  See,  also,  Salomons 
limit  the  funds  of  the  company  for  the  v.  Laing,  12  Beav.  339,  352,  353. 
encouragement  of  other  transactions,  '  Pennsylvania,  Delaware  &  Mary- 
however  various  and  extensive,  pro-  land  Steam  Navigation  Co.  v.  Dan- 
vided  the  object  of  their  liability  is  to  dridge,  8  Gill  &  Johns.  (Md.)  248. 
increase  the  traffic  upon  the  railway 


§271]  DLTBA  VIBBI         ri:i\  ATE  CORPORATIONS. 

with  them.  "When  the  public  i-  concerned,  t.>  re-train  tliecorpora- 
timi  within  the  limit-  «.f  tin-  power  given  to  it  by  its  charter,  an 
assent  1>\  tbertoekholden  t.»  the  use  of  unauthorized  power  by  the* 
corporate  body  will  be  of  no  avail.  When  it  in  a  question  of  the 
right  of  a  stockholder  to  restrain  tin-  corporate  body  within  its 
express  or  incidental  powers,  the  right  of  the  stockholder  may,  in 
many  cases,  be  denied  on  the  ground  of  hi-  •  \|.r«  >s  assent  or  his 
intelligent  though  tacit  consent  to  the  corporate  action.  If  there 
be  a  departure  from  statutory  direction,  which  is  to  be  considered 
merely  a  breach  of  trust  to  be  restrained  by  a  stockholder,  it  is 
pertinent  to  consider  what  has  been  his  conduct  in  regard  thereto. 
A  corporation  may  do  acts  which  affect  the  public  to  its  harm, 
inasmuch  as  they  are  per  se  illegal  or  are  malutn  prohibitum. 
Then  no  assent  of  stockholders  can  validate  them.  It  may  do 
acts  not  thus  illegal,  though  there  is  want  of  power  to  do  them, 
which  affect  only  the  interest  of  the  stockholders.  They  may  be 
made  good  by  the  assent  of  the  stockholders,  so  that  strangers  to 
the  stockholders  dealing  in  good  faith  with  the  corporation  will 
be  protected  in  a  reliance  upon  those  acts.  The  instance  put  in 
Bissell  v.  Mich.  So.,  etc.,  R.  R.  Co.,  22  N.  Y.  269,  is  illustrative. 
A  bank  has  no  authority  from  the  state  to  engage  in  benevolent 
enterprises,  and  a  subscription,  though  formally  made,  for  a 
charitable  object,  would  be  out  of  its  powers,  but  it  would  not 
be  otherwise  an  illegal  act,  yet.  if  every  stockholder  did  expressly 
assent  to  such  an  application  of  the  corporate  funds,  though  it 
would  still  be  in  one  sense  ultra  vires,  no  wrong  wrould  be  done, 
no  public  interest  harmed,  and  no  stockholder  could  object  or 
claim  that  there  was  an  infringement  of  his  rights  and  have 
redress  or  protection.  Such  an  act,  though  beyond  the  power 
given  by  the  charter,  unless  expressly  prohibited,  if  con  firmed  by 
the  stockholders,  could  not  be  avoided  by  any  of  them  to  the 
harm  of  third  persons.  This  arises  from  the  principle  that  the 
trust  for  stockholders  is  not  of  a  public  nature."  ' 

§  271.  Illustrations  of  acts  not  ultra  vires  the  corporation.— 
In  furtherance  of  its  legitimate  objects  and  in  the  due  prosecution 
of  its  business,  a  corporation  may  loan  money  and  take  mortgage 
security.3  If  the  term  for  which  a  corporation  is  authorized  t«» 

•Kent  r.  Quicksilver  Mining  Co..  'Madison,  etc..  Plank  Hoad  Co.  r. 
(1879)  78  N.  Y.  159,  185.  186.  Water-town  Plank  Road  Co.. r>  NVis.  173. 


454 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§27t 


loan  money  on  mortgage  be  limited  to  one  year,  it  may  still 
enforce  securities  given  for  a  loan  of  two  years,  if  there  is  no  pen- 
alty attached  to  taking  such  securities ;  and  it  may  ratify  a  loan 
made  without  the  required  vote  of  its  directors.1  A  building  and 
loan  association  having  conferred  upon  it  by  the  statutes  of  a  state 
expressly  the  power  to  loan  money  to  its  shareholders,  on  mort- 
gages of  real  estate,  on  such  terms  and  conditions  as  may  be  pre- 
scribed by  the  by-laws,  a  loan  to  one  of  its  shareholders,  though 
not  strictly  in  conformity  to  one  of  its  by-laws,  or  even  contra- 
vening it,  would  not  be  ultra  vires?  Corporations  formed  under 
the  general  law  of  California,  it  has  been  held,  have  the  power  to 
purchase  and  hold  an  exclusive  franchise  or  privilege  granted  by 
the  legislature  to  an  individual  and  his  assigns.3  It  does  not  fol- 


1  Germantown  F.  M.  Ins.  Co.  v. 
Dhein,  43  Wis.  420. 

1  Kelly  T.  Mobile  Building  &  Loan 
Association,  (1879)  64  Ala.  501.  In 
Cooper  v.  Frederick,  (1846)  9  Ala.  738,  it 
was  held  that  a  resolution  by  the  direct- 
ors of  a  railroad  corporation,  that  the 
stockholders  might  relinquish  one-half 
of  their  stock  and  the  payments  pre- 
viously made  accounted  for  as  if  made 
on  the  stock  retained,  provided  the 
stockholders  paid  all  the  calls  subse- 
quently made  by  the  directory,  was  in 
the  nature  of  a  contract,  entered  into 
between  the  corporation  and  its  mem- 
bers, and  was  not  on  its  face  illegal 
and  improper. 

3  California  State  Telegraph  Co.  v. 
Alta  Telegraph  Co.,  (1863),  22  Cal. 
398.  A  purchase  by  a  corporation  in 
the  face  of  a  positive  prohibition 
would  be  void;  but  that  is  not  this 
case.  There  was  no  provision  of  law 
forbidding  the  purchase;  and,  admit- 
ting that  the  corporation  had  no 
power  to  make  it,  the  want  of  power, 
in  the  absence  of  an  express  prohibi- 
tion, is  not  sufficient  to  avoid  it  as  to 
third  persons.  The  rule  in  such  cases 
was  laid  down  by  this  court  in  Na- 
toma  Water  &  Mining  Co.  v.  Clarkin, 
14  Cal.  544.  In  that  case  the  corpo- 
ration was  empowered  to  purchase 


such  property  as  the  purposes  of  the 
corporation  should  require,  and  it 
was  objected  that  the  property  in 
controversy  was  not  of  that  de- 
scription, and  that  the  corporation 
had  no  power  to  purchase  it.  The 
court  overruled  the  objection,  saying: 
"  Whether  or  not  the  premises  in  con- 
troversy are  necessary  for  those  pur- 
poses, it  is  not  material  to  inquire; 
that  is  a  matter  between  the  govern- 
ment and  the  corporation,  and  is  no 
concern  of  the  defendant."  The  rea- 
son of  the  rule  is  obvious.  As  be- 
tween the  parties  the  purchase  is  valid 
and  it  must  be  so  as  to  third  persons, 
until,  by  a  proper  proceeding,  a  for- 
feiture has  been  declared.  It  is  well 
settled  that  a  cause  of  forfeiture  can- 
not be  inquired  into  collaterally." 
In  his  concurring  opinion  COPB, 
Ch.  J.,  said:  "As  to  the  capacity 
of  the  corporation  to  purchase,  the 
defendant  is  not  the  party  to  ob- 
ject. If  the  corporation,  in  making 
the  purchase,  has  acquired  property 
which,  under  the  law  of  its  incorpora- 
tion, it  had  no  right  to  acquire,  all 
that  can  be  said  is  that  it  has  exceeded 
its  powers,  and  may  be  deprived  of 
the  property  by  a  judgment  of  for- 
feiture. The  question  is  one  which, 
the  state  alone  can  raise." 


§  271]  TI.l  KA  VIKE8  —  PKIVATK  CoKl'ORATIOXS. 

lo\v  l'n>m  the  prohibition  in  u  charter  of  a,  corporation  of  dealing 
in  commercial  paper  that  the  corporation  may  not  receive  ami 
sell  notes  given  for  the  sale  of  its  land.-.1  A  corporation  -ueoeed- 
ing  to  the  bu>iness  of  an  individual  in  IN  line  of  manufacture-, 
tor  in>tance,  may  accept  from  the  individual  whom  it  .succeeded 
an  order  accepted  by  him  upon  particular  term-.-  Though  tho 
articles  of  an  incorporated  college  may  not  e.\pre»ly  give  it  power 
to  raise  and  control  funds  by  taking  endowment  notes,  it  may 
accept  and  enforce  payment  of  such  notes.3  A  contract  entered 
into  by  a  railroad  corporation  before  the  completion  of  its  line  ,,f 
road,  for  the  transportation  of  freight  after  the  completion  of  its 
line,  is  not  ultra  vire*,  but  is  binding  and  enforceable.4  And 
such  a  corporation,  while  retaining  the  benefit  of  such  a  contract 
which  has  been  fully  executed,  cannot  assert  that  it  had  no  power 
to  make  the  contract  the  consideration  for  which  it  had  received.5 
A  railroad  corporation,  under  the  statutes  of  Indiana,  may  pay  in 
advance  for  the  use  of  another  railroad  thus  aiding  in  its  coir 
strnction.'  It  is  not  beyond  the  power  of  a  corporation  author- 
ized by  its  charter  to  purchase  "any  real  estate  or  other  prop- 
erty," etc.,  to  purchase  its  own  stock.7  In  an  early  Massachusetts 
case  it  was  held  that  where  a  statute  of  the  state  prohibited  the 
receiving  or  negotiating  in  any  way  of  bills  or  notes  of  banks  \\^\ 
incorporated  in  that  state,  the  taking  of  a  note  payable  in  such  bills 
was  an  &ct  ultra  vires  a  Massachusetts  banking  institution  and  the 

"Buckley  r.  Briggs,  (1860)  30  Mo.  « Aurora  &  Cincinnati  R.  Co.  v. 
4.72  In  Western  Organ  Co.  r.  Red-  City  of  Lawrenceburgh,  (1877)56  Intl. 
dish,  51  Iowa,  55,  it  was  held  that  the  80.  As  to  the  right  of  a  corporation 
corporation,  though  organized  for  the  to  purchase  its  own  stock  and  reissue 
manufacture  and  sale  of  musical  instru-  it,  see  City  Bank  r.  Bruce,  17  N  V. 
menu,  with  no  power  to  engage  in  the  507;  C.,  P.  &  S.  W.  R.  R.  Co.  c.  Mar- 
business  of  loaning  money,  might  still  seilles.  84  111.  145.  643;  L.  8.  I.  Co.  v. 
take  from  its  agent  in  payment  of  in-  Drexel,  90  N.  Y.  98;  State  Bank  r. 
ill-lit i-dness  by  him  to  the  corporation  Pox,  3  Blatchf.  434;  Otter  e.  Brevoort 
tli.-  note  of  a  third  party  belonging  to  P.  Co.,  50  Barb.  256.  As  to  the  JM»\V«T 
him.  of  n  corporation  to  purch.-iM-  sh.m-s  of 

'Cook   Manufacturing  Co.    r.  Ran-  its  own  stock  in  good  faith,  and  not  in 

dall,  62  Iowa  244.  fraud   of   its  creditors,    see  Chicago. 

3  Simpson     Centenary     College     r.  Pekin  &  So.Westi-rn  K  K  ( o .  .    1'n -i 

Bryan,  50  Iowa.  293.  dent,  etc.,  Town  of   Marseilles.  (18 

«  Louisville.  New  Albany  &  Chicago  84    111.  145;  on  n-li.arin-.  *4  111    H4::; 

Ry.   Co.   c.  Flanagan,  (1887)113  Ind.  Clnpp      I1- M -.n.  (1883),  KM  III 
498.  :  Iowa    Lumber    Co.    v.   Foster,  49 


456  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§271 

note  was  void.1  A  manufacturing  corporation  may  take  shares 
of  another  corporation  in  payment  of  a  debt.2  An  academy 
being  incorporated  for  the  purpose  of  holding  funds  to  be  applied 
to  the  education  and  moral  and  religious  improvement  of  youth, 
its  trustees  are  capable  of  holding  funds  in  trust  for  an  associa- 
tion the  objects  of  which  are  similar  and  to  any  extent  auxiliary 
to  those  for  which  they  may  have  been  incorporated.3  A  corpo- 
ration vested  with  power  to  take  and  dispose  of  the  securities  of 
another  corporation  may  guarantee  the  payment  of  those  securities 
if  it  disposes  of  them  to  another  party  in  payment  of  its  own 
debt.  So,  too,  if  it  buys  property  subject  to  a  mortgage  security 
bond,  it  may  guarantee  the  payment  of  such  bonds  if  the  guar- 
anty be  taken  as  payment  pro  tanto  of  its  debt.4  A  corporation 
created  for  the  purpose  of  constructing  a  road,  empowered  by 
statute  to  borrow  money  to  be  used  in  the  construction  of  its  road 
or  in  paying  for  materials  purchased  for  its  construction  and  to 
mortgage  its  road  to  secure  the  payment  of  the  money  so  bor- 
rowed, may  mortgage  its  road  to  secure  the  payment  of  money 
due  a  contractor  for  constructing  the  same  ;  and  it  may  mortgage 
any  portion  of  its  road  as  well  as  the  whole  of  it.5  Such  a  corpo- 
ration, the  charter  of  which  authorizes  it  to  borrow  money  "  on 
such  terms  as  might  be  agreed  upon  between  the  parties,"  may 
borrow  money  at  a  rate  of  interest  beyond  that  established  by  the 
general  law.6  An  insurance  corporation  authorized  to  invest  its 
capital,  profits  and  surplus  funds  in  such  securities,  and  in  such 
manner  as  it  may  elect,  and  required  to  invest  its  reinsurance 
fund  among  other  securities,  in  "  bonds  and  mortgages  on  unin- 

1  President.  Directors,  etc.,  of  (1892)  50  X.  J.  Eq.  656,  the  defendant 
Springfield  Bank  r.  Merrick,  (1817)  14  corporation  being  authorized  by  char- 
Mass.  322.  ter  to  issue  bonds  for  proper  corporate 

9  Howe  v.  Boston  Carpet  Co  ,  (1860)  purposes,  and  the  validity  of  the  con- 

16  Gray,  493;  citing  Hodges  v.   New  tract  being  established,  the  Court   of 

England  Screw  Co.,  1  R.  I.  312,  and  Chancery  declined  to  interfere  to  regu- 

3  R.  I.  9;  Treadwell  r.  Salisbury  Mfg.  late  the  character  of  the  payments,  or 

Co.,  7  Gray,  393.  of  the  instruments  to  be  issued  there  - 

*  Phillips  Academy  v.  King  (1815),  for,  as  long  as  the  same  were  not  ex- 

12  Mass.  546.  pressly  unauthorized. 

4  Ellerman     v.     Chicago     Junction  6  Greensburgh,     Milford    &     Hope 

Railway  &  Union  Stock  Yards  Com-  Turnpike  Go.  ».  McCormick,  (1873)  45 

pany,   (1891),  49  N.    J.  Eq.  217.     In  Ind.  239. 

Willoughby  v.  Chicago  Junction  Rail-  6  Morrison  r.  Eaton  &  liamilton  R. 

ways&  Union  Stock  Yards  Company,  R.  Co.  (1860)14  Ind.  110. 


.  1J  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  1.-7 


cumbered  real  estate,"  will  not  commit  an  art  '////•-/  /•//•<*  by 
making  a  loan  of  money  to  one,  accepting  his  notes  and  mortgage 
to  secure  them.1  The  charter  of  a  Massachusetts  corporation 
authorized  it  to  purchase  and  liold  "in  fee  .simple  or  otherwise" 
real  and  personal  estate  to  the  amount  of  $50,00o,  which  was 
increa-ed  by  subsequent  statutes  to  $600,000.  The  corporation 
was  also  by  its  charter  authorized  to  appropriate  its  funds  to 
charitable  purposes,  and  to  employ  its  annual  income,  among 
other  purposes,  "  to  promote  inventions  and  improvements  in  the 
mechanic  arts,  by  granting  premiums  for  said  inventions  and 
improvements."  There  was  no  direction  in  the  charter  or  subse- 
quent statutes  as  to  the  manner  in  which  the  provisions  for  grant- 
ing these  premiums  should  be  carried  out.  It  was  held  by  the 
Supreme  Court  of  Judicature  that  the  corporation  might  pur- 
chase land  and  erect  a  permanent  building  thereon  in  which 
to  hold  exhibitions  and  the  meetings  of  the  corporation.- 

'"Daly  r.  National  Life  Insurance  for  carrying  out  this  provision, 

Co.,  (1878)64  Ind.  1.  not  inconsistent  with  any  other  pro- 

"  Richardson  r.  Massachusetts  Chari-  vision  of  the  charter;  and  any  profit 

table  Mechanic  Association,  (1881)  131  arising  therefrom  might  properly 

Mass.  174.  It  was  said  by  the  court:  be  held  by  the  association  and  the 

"  For  many  years  the  association  has  income  thereof  devoted  to  the  pur- 

been  in  the  habit  of  holding  such  ex-  poses  for  which  it  was  incorpo- 

hibitions  in  buildings  hired  or  tempo-  rated.  In  order  to  do  this,  a  place. 

rarily  erected  for  that  purpose.  The  must  be  provided  for  the  exhibition. 

money  received  from  such  exhibitions,  either  by  hiring  buildings,  or  by  erect- 

oviTand  above  the  expenses,  has  been  ing  temporary  or  permanent  buildings 

invested  in  real  and  personal  estate,  for  the  purpose,  for  the  association  has 

and  the  income  therefrom  devoted  to  full  power  to  acquire  title  to  real  es- 

the  use  of  the  association  as  directed  tate  in  fee  simple  or  otherwise,  and  it 

by  the  charter.  We  cannot  say  that  can  undoubtedly  hold  such  real  estate 

the  method  thus  adopted  for  carrying  as  is  necessary  for  its  use  in  the  exer- 

into  execution  this  particular  provis-  cise  of  the  powers  conferred  upon  it." 

ion  of  the  charter  is  beyond  the  power  In  Seymour  r.  Spring  Forest  Cemetery 

of  the  corporation.  The  charter  fail-  Association.  (1892)  64  Hun.  <»:V,J;  s.  c., 

ing  to  indicate  in  what  manner  this  19  N.  Y.  Supp.  94,  the  bonds  given  by 

power  shall  be  exercised,  a  wide  dis-  the  association  for  lands  purchased 

cretion  is  given  to  the  association;  for  under  the  powers  granted  suchassocia- 

there  are  many  ways  in  which  it  might  lions  by  statute  to  "  purchase  such  real 

be  executed.  An  exhibition  open  to  estate  as  the  purposes  of  the  associu- 

the  public  at  a  proper  charge,  at  tion  may  require  "  were  held  not  to  be 

which  mechanics  may  display  their  void  MS  ultr<i  rirm.  See  Fuld  r.  Burr 

inventions  and  improvements,  and  Brewing  Co.,  (Ct.  Coin.  PI.  N  V  .('in. 

compete  for  premiums  and  gratuities,  1HU2)  1H  N.  Y.  Supp.  456,  for  an 

would  seem  to  be  a  reasonable  method  illustration  of  what  guaranty  was 
58 


458 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§271 


Where  a  railroad  corporation  agreed  to  load  steamers  chartered  by 
a  cotton  compress  company  with  cotton  on  terms  named  in  their 
contract  for  shipment,  and  the  compress  company  had,  by  the 
delay  of  the  railroad  corporation  in  delivering  the  cotton  for 
shipment,  to  pay  a  large  sum  for  demurrage  and  brought  its 
action  against  the  railroad  corporation  for  its  recovery,  the  Court 
of  Appeals  of  Virginia  held  that  the  contract  on  the  part  of  the 
railroad  corporation  was  not  ultra  vires.1  A  loan  of  money 
upon  mortgage  security  by  a  corporation  organized  for  the  pur- 
pose of  constructing  ditches  for  the  conveyance  and  sale  of  water, 
the  California  Supreme  Court  has  held,  was  not  necessarily  an  act 
exceeding  its  corporate  powers  ;  further,  such  a  contract,  if  neces- 
sary to  attain  its  general  objects  and  made  as  an  insident  to  the 
exercise  of  its  granted  powers,  was  valid,  and  in  the  absence  of 
proof  it  would  be  presumed.2  A  corporation,  organized  under 


not  ultra  vires  Ihis  corporation,  and, 
if  so,  the  plea  of  ultra  vires  was 
not  available,  in  which  case  Schurr 
«.  Investment  Co.,  (Ct.  Com.  PI. 
N.  Y.  City,  1892)  18  N.  Y.  Supp. 
454,  was  distinguished.  Illustration 
of  a  contract  not  ultra  vires  the  corpo- 
ration, see  United  Lines  Telegraph 
Co.  v.  Safe  Deposit  &  Trust  Co.,  (1893) 
147  U.  S.  431;  s.  c.,  13  Sup.  Ct,  Rep. 
396.  What  class  of  contract  by  a  rail- 
road corporation  is  not  ultra  vires,  see 
Union  Pacific  Ry.  Co.  ».  Chicago,  R. 
I.  &P.  Ry.  Co.,  (1892)  51  Fed.  Rep. 
309;  s.  c.,  2  C.  C.  A.  174;  10  U.  S. 
App.  98. 

1  Norfolk  &  Western  R.  R.  Co.  v. 
Shippers'  Compress  Co. ,  (1887)  83  Va. 
272;  s.  c.,  2  S.  E.  Rep.  139.  The  court 
said:  "The  contract  was  incident  to 
and  for  the  benefit  of  their  business  as 
common  carriers,  and  it  was  but  a 
part  of  a  long-established  and  system- 
atic policy  of  these  railroads  compos- 
ing the  air  lines  to  induce  and  control 
the  transportation  of  cotton  for  the 
interior  west  and  southwest  over  their 
line  for  shipment  to  England  from  the 
port  of  N(f\v  York.  It  was  not  a  con- 
tract to  buy  or  sell  cotton,  but  simply 


to  deliver  a  certain  number  of  bales  of 
cotton,  at  a  specified  time,  at  Norfolk, 
for  shipment  to  Liverpool  by  char- 
tered steamers  for  that  purpose.  It 
was  not  contrary  to  or  forbidden  by 
their  charter,  and  it  was  for  the  inter- 
ests of  commerce  and  in  the  line  of 
their  business."  Citing  additionally, 
as  authority,  1  Wood  Ry.  Law,  £  170, 
pp.  474,  479,  480,  523;  §§  179,  182; 
Pierce  on  Railroads,  499-501,  508-510. 
s  Union  Water  Co.  r.  Murphy's  Flat 
Fluming  Co. ,  (1863)  22  Cal.  621,  ' '  For 
instance,"  said  the  court,  "it  might  be 
necessary  for  such  a  corporation  to 
make  advances,  in  the  nature  of  a  loan, 
to  enable  a  contractor  to  construct 
their  works,  or  it  might  be  very  nec- 
essary for  such  a  corporation  to  pro- 
cure an  additional  supply  of  water, 
and  a  loan  of  money  to  another  water 
company  who  may  be  engaged  in  con- 
structing ditches  which  will  bring  such 
additional  supply,  may  be  the  direct 
and  necessary  means  to  attain  that 
object.  So,  too,  it  might  become  nec- 
essary for  a  corporation  engaged  in  a 
large  enterprise,  such  as  the  construc- 
tion of  large  canals,  railroads,  turn- 
pike roads,  and  the  like,  to  borrow 


8271] 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


4.V.> 


the  laws  of  Illinois,  through  its  stockholders  SUM]  officers  eir 
into   an    agreement   with   other    [xjrsons   ownin.ir    patent-, 
adapted  to  its  business,  by  which   a   new   corporation   \v«w  organ- 
i/ed.  the  former  as  a  part  of  its  agreement  transferring  to  the 
new  one  10,000  of  its  shares  of  stock,  which  had  been  prop- 


money  on  favorable  terms  and  at  a  low 
rate  of  interest;  it  might  be  necessary 
to  borrow  it  upon  long  time,  providing 
a  sinking  fund  for  its  payment,  by 
setting  apart  a  certain  portion  of  the 
corporate  revenues,  to  be  loaned  out 
on  interest,  suffering  the  principal  and 
interest  to  accumulate  to  an  amount 
sufficient  to  repay  the  borrowed  money 
when  due.  Such  is  the  usual  mode  of 
conducting  the  business  of  corpora- 
tions of  that  character,  and  there  can 
be  no  objection  to  it  so  long  as  the 
legitimate  business  of  the  corporation 
is  not  changed  into  that  of  a  loan  com- 
pany. So  long  as  the  loans  are  a  mere 
incident  to  the  exercise  of  its  legiti- 
mate powers  they  are  rightful  and 
valid.  So  numerous  other  cases  of  a 
like  character  might  be  suggested 
where  loans  by  a  corporation  might  be 
very  proper  and  necessary  in  con- 
ducting its  business  operations;  and  if 
all  corporations  are  to  be  considered  as 
absolutely  prohibited.or  not  permitted, 
to  make  any  loan  of  money  except  in 
the  few  classes  of  cases  of  corporations 
\vlu-re  it  is  expressly  allowed  by  the 
statute,  and  all  such  contracts  are  to 
be  held  void,  a  result  would  be  pro- 
duced which  certainly  never  was  in- 
tendril  by  the  legislature,  nor  is  it 
sustained  by  the  rules  of  law.  A  cor- 
poration had  power  to  insure  lives  and 
grant  annuities,  and  it  was  held  that, 
as  it  must  have  funds  to  apply  to 
those  purposes,  it  might  loan  its 
money,  and  the  loan  by  it  would  be 
presumed  to  have  been  made  in  the 
ordinary  course  of  its  business,  and, 
therefore,  valid,  although  it  hud  no 
express  power  to  loan  money.  The 
authority  to  loan  money  was  upheld 


as  an  incident  to  the  other  powers  con- 
t'erred  by  the  charter.  Farmers'  I.  A: 
T.  Co.  t>.  Clowes,  4  Edw.  CI. 
8.  c.,  8  Comst.  470;  Farmers'  L.  &  T. 
IVrry.  15  Sandf.  Ch.  889.  So, 
too,  an  insurance  company  was  incur- 
poratrd  without  any  special  provision 
in  relation  to  the.  mode  of  investing  ita 
capital,  and  it  was  held  that  it  had  tin- 
power  to  invest  the  whole  or  any  part 
of  it*  capital  by  way  of  loans  on  bond 
and  mortgage  and  lo  reinvest  it  in  the 
same  way  whenever  it  should  become. 
necessary  or  convenient  to  do  so. 
Mann  v.  Eckford.  15  Wend  r.pj. 
Where  a  bank  was  authorized  to  take 
mortgages  in  security  for  debts  pre- 
viously contracted,  it  was  held  that  if 
the  loan  and  mortgage  were  concur- 
rent acts  it  was  not  a  violation  of  the 
restraining  clause  of  the  statute. 
Silver  Lake  Bank  r.  North,  4  Johns. 
Ch.  370;  Baird  ».  Bank  of  Washing- 
ton, 11  Serg.  &  R.  411.  A  plankroad 
company  was  not  authorized  to  loan 
money,  but  if  necessary  it  can  legally 
loan  a  sum  of  money  to  one  of  its  con- 
tractors to  enable  him  to  build  a 
portion  of  its  road.  Madison,  etc.. 
Plank  Road  Co.  v.  Watertown  Plank 
Road  Co.,  5  Wis.  173.  A  corporation 
was  prohibited  from  dealing  in  goods, 
wares  mid  merchandise.  Held,  that  a 
loan  made,  secured  by  a  quantity  of 
cotton,  which  was  to  be  shipped  and 
sold  and  the  proceeds  credited  to  the 
debtor  on  the  loan,  was  not  a  violation 
of  the  charter.  Bates  r  State  Bank. 
2  Ala.  465.  Ho,  too,  a  sale  by  a  hank 
of  a  quantity  of  butter  which  it  had 
taken  in  settlement  of  a  debt  was 
deemed  no  violation  of  a  similar 
clause  in  its  charter.  Sacketts  Harbor 


400  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§271 

erly  set  apart  for  sale  for  making  capital,  to  be  used  by  the  new 
corporation  in  the  same  manner.  In  an  action  against  one  who 
had  purchased  500  shares  of  this  stock,  upon  his  notes  given  for 
the  same,  his  plea  was  that  it  was  an  overissue  of  the  stock  of 
the  corporation.  This  point  was  ruled  against  the  defendant  by 
the  Appellate  Court  of  Missouri,  and  at  the  same  time  the  court 
considered  the  question  whether  such  an  agreement,  when  ratified 
by  the  stockholders  of  the  old  company  and  carried  out  by 
delivery  of  the  stock  to  the  new  company,  was  repugnant  to  the 
laws  of  the  state  of  Illinois.  The  court  said  :  "  Our  examination 
of  the  Illinois  decisions  has  led  us  to  tne  opinion  that  this  con- 
tract or  arrangement  was  not  ultra  vires  under  the  law  of  that 
state.  There  are  numerous  cases  of  the  Supreme  Court  of  that 
state  which  hold  that  a  corporation  may  purchase  its  own  stock 
and  violate  no  duty  to  its  own  stockholders.  Chetlain  v.  Ins. 
Co.,  86  111.  220 ;  Chicago,  etc.,  Kailroad  Co.  v.  President,  84  111. 
145.  In  the  Chetlain  case  the  court  held  that  if  A  subscribed 
for  ten  shares  of  the  capital  stock  of  a  corporation,  and,  having  paid 
two  hundred  dollars,  was  willing  to  receive  a  certificate  for  two 
shares  of  one  hundred  dollars  each  and  cancel  his  subscription  for 
the  ten  shares,  this,  could  be  done,  and  that  the  other  eight  shares 
would  belong  to  the  company,  and  that  it  had  a  right  to  sell  them 
to  whom  it  pleased.  The  doctrine  of  this  case  would  indicate 
that  the  agreement  to  donate  the  ten  thousand  shares  was  invalid, 
and  when  ratified  by  the  stockholders  of  the  old  company  it 
vested  in  the  new  corporation  the  title  to  the  stock  and  the  com- 
pany had  the  right  to  sell  it  to  whom  they  pleased.  *  * 
There  is  no  principle  of  law  known  to  us  which  would  release 
the  defendant  from  his  liability  to  pay  these  notes.  No  question 
of  fraud  or  misrepresentation  is  urged ;  in  fact,  the  record  shows 
that  the  plan  of  incorporation,  and  especially  the  plan  adopted  for 
the  sale  oT  the  stock,  was  devised  by  the  defendant  himself.  He 
was  an  officer  and  director  of.  the  corporation  and  took  an  active 
part  in  the  management  of  its  business,  and  he  is,  therefore,  in  no 
position  to  claim  that  he  was  overreached  or  in  any  way  deceived 

Bank  r.  Lewis  County  Bank,  11  Barb,  prohibit  a  supply  of  goods  to  those 

213.     A  glass  company,  not  author-  employed    in    the    manufactory,   and 

ized  to  sell  goods  generally,  sold  goods  that  the  corporation  might  recover  for 

to  one  in  their  service,  and  it  was  held  them.     Chester  Glass  Co.  v.  Dewey, 

that  the  legislature  did  not  intend  to  16  Mass.  102." 


§271] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


iu  the  purchase  of  the  stock  or  in  the  execution  of  the  notes."1  In 
a  Kansas  case  the  Supreme  Court  held  that  a  contract  entered 
into  by  a  town  company  incorporated  "  for  the  purchase  of  laud, 
the  surveying  and  platting  ot  town  sites  and  selling  town  lots  and 
other  lands,"  in  which  it  was  agreed  that  if  a  certain  party  would 
remove  a  bank,  a  barn  and  a  restaurant  located  elsewhere  to  tin- 
town  site,  the  town  company  would  convey  to  him  certain  lot.-  in 
the  town  and  pay  him  the  sum  of  $1,000,  tended  diiv<-tly  to 
enhance  the  value  of  the  remaining  property  of  the  corporation, 
and  was  not  necessarily  ultra  vires."1  A  contractor  for  construc- 
tion of  a  railroad  in  Wisconsin  was  stopped  from  his  work  with 


1  Eggmann  r.  Blanke,  (1890)  40  Mo. 
App.  818. 

'Sherman  Center  Town  Company 
T.  Russell,  (1891)46  Kans.  382;  a.  c., 
28  Pac.  Rep.  715.  Aryuendo,  the  court 
said,  upon  the  insist  incut  that  the  con- 
tract was  ultra  vires:  "The  corpora- 
tion may  exercise  not  only  the  powers 
expressly  enumerated  in  its  charter,  if 
they  are  authorized  by  law,  but  '  may 
enter  into  any  obligation  or  contract 
essential  to  the  exercise  of  the  powers 
expressly  enumerated.'  Gen.  Stat.  of 
1889,  «[  1167.  The  company  is  not  re- 
stricted to  the  mere  purchase  and  sale  of 
lots,  but  may  doubtless  enter  into  con- 
tracts which  would  directly  tend  to 
promote  the  prosperity  of  the  town, 
and  enhance  the  value  of  the  lots  re- 
maining unsold.  To  this  end  it  may 
expend  money  for  the  advertising  of 
the  property,  the  making  of  improve- 
ments on  a  part  of  the  same,  may  con- 
trad  for  the  erection  of  school  build- 
ings and  other  improvements,  the  di- 
rect and  proximate  tendency  of  which 
will  be  to  attract  people  to  the  town 
and  make  the  property  of  the  company 
more  desirable  and  salable.  The  lo- 
cation of  [this  party]  with  his  bank, 
hi-;  liarn  and  restaurant  at  tin-  town  of 
Sherman  Center  no  doubt  tended  di- 
rectly and  proximately  to  build  up  tin- 
town  and  give  it  prestige  in  that  < -11111- 
munity,  thus  enhancing  the  value  of 


the  remaining  lots  and  promoting  the 
legitimate  objects  of  the  corporation. 
In  Whetstone  P.  Ottawa  University, 
13  Kans.  820,  the  question  arose 
whether  the  Ottawa  Town  Company 
could  donate  the  property  of  the  cor- 
poration to  the  Ottawa  University  for 
the  purpose  of  erecting  a  school  build- 
ing outside  of  the  limits  of  the  town 
of  Ottawa,  and  more  than  one-fourth 
of  a  mile  outside  of  the  limits  of  the 
property  and  the  land  owned  by  the 
town  company.  Mr.  Justice  BKKWI-.U, 
who  pronounced  the  judgment  of  the 
court,  remarked  tlut  '  Town-site  com- 
panies arc  neither  novel  nor  rare  in 
Kansas.  Every  county  has  been  the 
home  of  several,  and  the  manner  of 
their  working,  and  the  means  em- 
ployed to  accomplish  their  purposes, 
are  familiar  to  us  all.  Nor  is  Kansas 
peculiar  in  this  respect.  Every  west- 
ern state  is  full  of  them.  They  are 
private  corporations,  organized  for 
the  purposes  of  gain.  They  take  real 
estate,  lay  it  off  in  lots  and  blocks, 
streets  and  alleys,  induce  people  to 
settle  and  purchase,  and  by  the  sale  of 
lots  make  their  profits.  *  *  *  If 
by  the  donation  of  one  lot  tin 
double  the  value  of  the  remainder,  is 
not  the  one  lot  used  directly  to  accom- 
plish the  legitimate  object  of  the  cor- 
poration ?  If  by  donating  one  hun- 
dred lots  to  the  county  they  can  secure 


462  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§  271 

the  company  largely  in  debt  to  him.  He  brought  action  and 
obtained  judgment.  Execution  had  been  returned  nuUa  lona. 
This  company  had  had  a  benefit  of  a  grant  of  land.  Another 
company  had,  through  its  sole  ownership  of  the  stock  and  by 
improper  practices,  managed  to  have  the  whole  of  the  property  of 
the  indebted  company  transferred  to  itself.  The  United  States 
Supreme  Court  upheld  the  suit  of  representatives  of  the  judg- 
ment creditors  against  this  other  company  to  enforce  the 
payment  against  the  transferred  property,  holding  that  a  sole 
stockholder  in  a  corporation  could  not  secure  the  transfer  to 
itself  of  all  the  property  of  the  corporation  so  as  to  deprive  a 
creditor  of  the  corporation  of  the  payment  of  his  debt.1  It 
appeared  in  a  Massachusetts  case  that  a  mutual  benefit  order 
deposited  money  with  a  trust  company,  which  trust  company 
became  thereafter  unable  to  repay  it.  The  benefit  order  assigned 
the  fund  to  another  in  terms  to  secure  a  promissory  note  given 
for  a  loan,  the  money  obtained  by  the  loan  being  disbursed  in 
the  usual  course  of  its  business.  The  Supreme  Judicial  Court  of 
that  state  held  that,  as  the  effect  of  the  assignment  of  the  fund  was 
to  secure  the  debt,  it  was  noc  ultra  vires  even  if  conceded  that  the 
benefit  order  could  not  legally  make  a  promissory  note.  Further, 
the  loan,  to  secure  which  the  assignment  of  the  fund  was  given, 
having  been  authorized  at  a  meeting  of  the  order  and  the  money 
obtained  used  for  its  benefit,  equity  would  not,  at  the  instance  of 
the  receiver  of  the  insolvent  trust  company,  the  depositary 
of  the  fund,  forbid  its  payment  to  the  assignee  out  of  money  in 
his  hands  on  the  ground  that  the  officers  executing  the  assign- 
ment had  no  authority  to  do  so.2 

the  county  seat  and  the  erection  of  It  seems  to  us  that  this  must  be  the 
county  buildings,  are  they  net  further-  test:  If  the  direct  and  proximate  ten- 
ing  the  very  purpose  of  building  up  a  dency  of  the  improvements  sought  to 
town  ?  *  *  *  The  purpose  of  se-  be  obtained  by  the  donation  is  the 
curing  improvements  on  the  town  site  building  up  of  the  town  and  the  en- 
is  not  simply  that  the  improvements  hanced  value  of  the  remaining  prop- 
be  there,  but  that  thereby  the  property  erty  of  the  corporation,  the  donation  is 
the  corporation  has  to  sell  may  be  en-  not  ultra  vires.'  " 
hanced  in  value.  And  if  the  lots  were  !  Angle  v.  Chicago,  St.  Paul,  Minne- 
donated  to  secure  the  erection  of  a  apolis  &  Omaha  Ry.  Co.,  (1894)  151 
hospital  or  school  at  a  remote  place,  as  U.  S.  1. 

suggested  by  counsel,  there  would  be       *  Commonwealth  r.    Suffolk  Trust 

no  resultant  benefit  to  the  corporation  Co.,  (Mass.  1894)  37  N.  E.  Rep.  757. 
of  enhanced  value  of  its  unsold  lots. 


.     -'72]  ULTRA  VIRES I'KIVAll.  i  .  .!:!•< . RATIONS. 

.  272.  Illustrations  of  acts  ultra  vires  the  corporation. —  A 

corporation  confined  by  it>  charter  t<.  one  bu-iness  cannot  law- 
fully engage  in  enterprises  foreign  to  tliat  bu-ine--.  For  in.-tance, 
a  railroad  corporation,  the  purposes  of  which  an-  .-trictly  confined 
to  tin-  completion  and  maintaining  of  a  railroad,  cannot  lawfully 
engage  in  banking.1  Neither  can  a  corporation  engaged  in  in>ur 
ing  property.2  While  a  railroad  corporation  may  adopt  an\ 
venient  mean-,  proper  in  themselves,  tending  directly  to  the  exe- 
cution of  the  powers  conferred  upon  it  hy  its  charter,  and  not 
amounting  to  the  transaction  of  any  distinct  unauthori/ed  busi- 
in--- -,:!  it  cannot  engage  in  such  business  as  banking,  manufactnr- 
ing,  speculating  in  land,  or  the  like,  as  a  means  of  raising  funds 
to  build  or  operate  its  road.4  A  provision  in  the  charter  of  an 
in.Mirance  corporation  authorizing  it  to  receive  money  on  deposit, 
"  and  to  give  acknowledgments  for  deposits  in  such  manner  and 
form  as  they  may  deem  convenient  and  necessary  to  transact  such 
business,"  has  IKJCII  held  not  to  authorize  the  corporation  to  issue 
certificates  of  deposit  to  circulate  as  money,  and  with  the  intent 
that  they  shall  so  circulate.5  A  railroad  corporation,  chartered 
for  the  specific  purpose  of  constructing  a  railroad  from  one  point 
within  the  state  to  the  state  line,  and  then  to  connect  with  a  rail- 
road corporation  of  that  other  state,  with  no  express  power  to 
execute  bills  and  notes,  is  limited  to  executing  such  bills  or  notes 
to  such  as  may  be  necessary  or  proper  in  carrying  through  that 
undertaking.  It  cannot  execute  accommodation  paper,  or  paper 
to  aid  any  undertaking  not  contemplated  by  its  charter;  and  such 

1  People   r.    River    Raisin   &    I^ake  add  to  its  granted   powers  by  an  in- 

Kric  It.  R.  Co.,  (1804)  12  Mich.  389.  genious  device,  and  obtain  by  subter- 

*  Blair  r.   Perpetual   Insurance  Co.,  fuge   an   authority   which   legislative 
(1847)  10  Mo.  559.  caution  withheld  from  it."     In  Phila- 

3  Clark  r.  Farrington,   11  Wis.   306.  delphia  Loan  Co.  r.  Towner,  (1889)  13 

4  Waldo  r.  Chicago,  St.  Paul  &  Fond  Conn.  249,  a  provision  of  the  charter  of 
du  Lac  R.  R.  Co.,  14  Wis.  575.  the  corporation  that  "nothing  therein 

*  Bliss  r.   Anderson,   (1858)  31   Ala.  contained  should  \w  construed  to  au- 
612.     The  court  said:   "The  corpora-  thorize  the  company  to  discount  notes 
tion   may  issue  its  certificates  of  de-  or  exercise  any  banking   privileges," 
posit  in  any  manner  and   form  which  was  held  to  prohibit   the  taking  of  a 
will  accomplish  its  business  of  a  de-  note  for  the  sum  loaned,  and   the  se- 
pository,  but  not  in  such  manner  anil  curing  of  the  interest  on  that  sum  in 
form    as    will    accomplish    that    and  advance,   fur  the   period  of  the  loan. 
.•mother  business.     If  it  can  so  fashion  and  that  there  could  be  no  recovery  on 
its  certificates  of  deposit  as  to  procure  a  note  thus  discounted. 

for  them  a  circulation  as  money,  it  can 


ULTRA  VIRES PRIVATE  CORPORATIONS.  [§'-"- 

paper,  if  executed,  would  be  void  in  the  hands  of  an  assignee.1 
Neither  a  railroad  corporation  organized  under  the  laws  of,  or 
chartered  in  Massachusetts,  nor  a  corporation  organized  under  the 
statutes  of  that  state  for  the  manufacture  and  sale  of  musical 
instruments,  has  power  to  guarantee  the  payment  of  expenses  of  a 
musical  festival ;  and  no  action  can  be  maintained  upon  such  a 
contract  of  guaranty,  though  it  may  be  made  with  the  reasonable 
belief  that  the  holding  of  such  a  festival  would  be  of  great  benefit 
to  the  corporations  by  increasing  their  proper  business.8  Though 
corporations  createH  for  the  purpose  of  carrying  on  a  manufactur- 
ing business  have  implied  power  to  make  negotiable  paper  for  use 
within  the  scope  of  their  business,  they  have  no  power  to  become 
parties  to  bills  or  notes  for  the  accommodation  of  others.3  It  is 
not  within  the  powers  of  a  manufacturing  corporation,  limited  by 
its  charter  in  the  use  of  mercantile  paper  to  that  necessary  for  the 
convenient  prosecution  of  its  business,  to  accept  paper  drawn  by 
third  parties  for  accommodation.4  A  contract  by  which  a  rail- 
road corporation  undertook  to  grant  the  exclusive  right  to  con- 
struct and  maintain  a  telegraph  line  along  its  road  to  a  single  tel- 
egraph company,  has  been  held  in  the  United  States  Circuit 
Court  for  the  district  of  "Washington  to  be  ultra  vires  and  void.5 

1  Smead  v.  Indianapolis,  Pittsburgh  !  Davis  v.  Old   Colony  It.   R.  Co., 

&  Cleveland  R.  R.  Co.,  (1858)  11  Ind.  (1881)  131  Mass.  258;  Davis  t.   Ameri- 

104.     In  Abbott «.  Baltimore  &  Rap-  can  urgan  Co.,  (1881)  131  Mass.   258. 

pahannock  Steam  Packet  Co.,  (1850)  1  3  National  Bank  of  Republic  of  New 

Md.  Ch.  542,  the  object  of  the  corpora-  York  v.  Young,  Receiver  of  Joseph 

tion,  as  stated  in  its  charter,  was  "  for  Dixon  Crucible   Co.,  (1886)  41  N.  J. 

the  purpose  of  establishing  and  con-  Eq.  531;  s.  c.,  7  Atl.  Rep.  488;  citing 

ducting  a  line  of  steamboats  and  stages  1  Dan.  Neg.  Inst.  §§  382,  386;  Green's 

or  carriages  between   Baltimore  and  Brice's  Ultra  Vires,  255,  272. 

Fredericksburg,  and  the  several  ports  4  Webster  v.   Howe    Machine    Co., 

and  places  on  the  Rappahannock,  and  (1886)  54  Conn.  394;  s.  c.,  8  Atl.  Rep. 

on    the     rivers    and    waters    of    the  482. 

Chesapeake  bay,    for   the  conveyance  6  Pacific    Postal    Telegraph     Cable 

of   passengers  and    transportation  of  Co.  v.  Western  Union  Telegraph  Co., 

merchandise  and  other  articles."     The  (1892)  50  Fed.   Rep.  493.     HANFORD, 

High    Court  of    Chancery   of    Mary-  D.  J.,  gave  as  a  reason  for  this  ruling 

land    held    that  it    was    beyond    the  "that  the    laws  of   the  territory  of 

power  of  this  corporation  to  enter  into  Washington  in  force  when  [the  con- 

an  obligation  to  aid  in  an  improvement,  tract]  was  made,  did  not  authorize  a 

the  purpose  of  which  was  to  open  the  railway  corporation  to  transfer  land 

Rappahannock    river,   and    render   it  acquired    for    railroad    purposes    by 

navigable    to   the    basin    in    or    near  lease,  so  as  to  divest  itself  of  its  duties 

Fredericksburg.  and  obligations  to  the  public  as  to  the 


|2T2] 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


The-  New  York  Court  of  Appeals  has  held  that  while  a  corpora- 
tion organized  under  the  Manufacturing  Act  of  that  state  has  the 
general  power  to  bind  itself  by  promissory  notes  and  contracts  of 
indorsement  made  in  the  usual  course  of  business,  it  has  no  power 
to  indorse  notes  for  the  accommodation  of  the  maker  for  a  con- 
.-idcration  paid.1  The  court,  in  its  opinion,  said:  "It  i-i  \vt-Il 
settled  that  such  a  power  is  not  incidental  to  the  powers  expressly 
conferred  on  corporations  organized  under  statutes  authorizing 
the  formation  of  corporations  for  banking,  insuring,  manufactur- 
ing and  like  business  corporations." a  A  contract  by  which  a  street 


use  of  such.  By  the  plaintiffs  own 
showing  it  appears  that  [the  railway 
company]  was  incorporated  to  do  a 
general  transportation  business  by  rail, 
and  to  be  a  competitor  for  interstate 
.and  international  commerce.  Its  fran- 
chise from  tin-  state,  therefore,  made 
it  to  a  certain  extent  a  public  agent 
endowed  with  part  of  the  sovereign 
power  of  the  commonwealth,  and  a 
railroad  constructed  in  this  state  by  a 
corporation  orgaui/ed  under  the  laws 
of  the  state  or  its  predecessor,  the  ter- 
ritory, must  necessarily  be  a  highway 
for  public  use,  in  and  to  which  the 
public  have  rights  limited  and  regu- 
lated by  law.  There  is  no  statute 
authorizing  such  a  transfer  of  prop- 
erty in  the  right  of  way  and  control 
thereof  as  the  plaintiff  now  claims 
was  made  to  it  by  such  contract,  and, 
without  express  authority  conferred 
by  a  statute,  no  transfer  of  such  prop- 
erty or  of  the  right  to  control  the 
same,  could  be  made  whereby  the 
rights  of  the  public,  or  a  third  party, 
e.  g.,  the  Western  Union  Telegraph 
Company,  could  be  in  any  manner 
abridged."  Citing  Lakin  ».  Willamette 
Valley,  etc.,  R.  R.  Co.,  18  Or.  486;  s. 
c.,  11  Pac.  Rep.  68;  Braslin  r.  Somer- 
ville  Horse  R.  R.  Co.,  145  Mass.  64; 
s  (  ,  18  N.  E.  Rep.  65;  Palmer  v. 
Railway  Co.,  (Idaho)  16  Pac.  K<-p. 
V,:;;  Railroad  Co.  ».  Brown,  17  Wall. 
•14.-,;  Itailroad  Co.  v.  Crane,  118  U.  8. 
488,  484;  8.  c.,  5  Sup.  Ct.  Rep.  578; 
59 


Oregon  Railroad  &  Navigation  Co.  r. 
Oregonian  Co.,  180  U.  S.  1;  8.  c.,  9 
Sup.  Ct.  Rep.  409;  Van  Dresser  r.  Navi- 
gation Co.,  48  Fwl.  K.-I).  208;  U.  8.  «. 
\\V-t.rn  I  nion  Tel.  Co.,  50  Fed.  U«-p. 
28.  That  contracts  beyond  the  power 
of  a  corporation  to  make  cannot  be 
made  bint  ling  by  a  ratification,  see 
Brady  r.  Mayor,  etc..  of  New  York, 
(1859)  20  X.  7.819.  Case  holding  a  con- 
tract of  sale  of  the  property  of  a  «-«>rpo 
nition  to  a  foreign  corporation,  organ- 
ized through  its  procurement,  for  the 
purpose  of  taking  its  place  and  its  as- 
sets and  carrying  on  its  business  ultrn 
cires:  People  v.  Ballard,  (1892)  134  N. 
Y.  269;  s.  c.,  82  N.  E.  Rep.  54,  re 
versing  People  r.  Ballard,  56  Hun, 
125. 

1  National  Park  Bank  of  New  York 
v.  German- American  Mutual  Ware- 
housing &  Security  Co.,  (1889)  116 
N  Y.  281,  reversing  Same  P.  Same,  21 
J.  &  S.  367. 

1  Citing  Central  Bank  e.  Empire 
Stone  Dressing  Co.,  26  Barb.  23; 
Bridgeport  City  Bank  r.  Empire  Stone 
Dressing  Co.,  30  Barb.  421;  Farmers 
&  Mechanics'  Rank  r.  Empire  Stone 
Dressing  Co.,  5  Bosw.  275;  Morford  r. 
Farmers'  Bank  of  Saratoga,  26  Barb. 
.M,-  Bank  of  Gcnesee  P.  Patchin  Bank, 
13  N.  Y.  309;  .Ktna  National  Hank  r. 
Charter  Oak  Life  Ins.  Co.,  50  Conn. 
167;  Monument  National  Bank  r. 
Globe  Works.  101  Mass.  57;  Davis  r. 
Old  Colony  R.  R.  Co.,  181  Mass 


ULTRA  VIEES  —  PRIVATE  CORPORATIONS. 


[§272 


railway  corporation  transferred  the  entire  control  of  its  road  with 
all  its  franchises,  receiving  in  return  only  a  fixed  rent  paid  in  the 
form  of  a  dividend  to  its  stockholders,  has  been  held  to  be  ultra 
vires  and  void.1  A  firm  of  commission  merchants  and  members 
of  the  Cotton  Exchange  of  New  York  received  from  the  cashier 
of  a  Texas  savings  bank  and  trust  corporation,  orders  to  pur- 
chase cotton  —  dealing  in  futures  as  it  is  known  —  on  account  of 
customers  of  the  bank.  They  made  such  purchases,  and  there 
being  a  loss  in  the  end,  brought  their  action  against  the  Texas 
corporation  for  the  amount.  The  New  York  Court  of  Appeals 
held  the  transaction  to  be  ultra  vires  the  corporation.2  There 


Culver  v.  Reno  Real  Estate  Co.,  91  Pa. 
St.  367;  Hall  r.  Auburn  Turnpike  Co., 
27  Cal.  255.  As  to  a  manufacturing 
corporation  discounting  a  note,  see 
Lawrenceville  Cement  Co.  r.  Parker, 
(1890)  10  N.  Y.  Supp.  831. 

1  Middlesex  R.  R.  Co.  *.  Boston  & 
Chelsea  R.  R.  Co.,  (1874)  115  Mass. 
347;  citing  Richardson  v.  Sibley,  11 
Alien,  65. 

7  Jemison  v.  Citizens'  Savings  Bank 
of  Jefferson,  Texas,  (1890)  122  N.  Y. 
135.  In  the  opinion  it  was  said: 
"Corporations  are  artificial  creations 
existing  by  virtue  of  some  statute  and 
organized  for  the  purposes  denned  in 
their  charters.  A  person  dealing  with 
a  corporation  is  chargeable  with  notice 
of  its  powers  and  the  purposes  for 
which  it  is  formed,  and  when  dealing 
with  its  agents  or  officers  is  bound  to 
know  the  extent  of  their  power  and 
authority.  A  corporation  necessarily 
carries  its  charter  wherever  it  goes,  for 
that  is  the  law  of  its  existence.  It 
follows  that  the  plaintiffs  must  have 
known  or  are  chargeable  with  knowl- 
edge of  the  corporate  powers  of  the 
defendant  and  of  the  extent  to  which 
its  cashier  could  bind  the  corporation. 
Alexander  v.  Cauldwell,  83  N.  Y.  480; 
Hoyt  v.  Thompson,  19  N.  Y.  207-222; 
Relfe  r.  Rundle,  103  U.  8.  222-226; 
Davis  r.  Old  Colony  R.  R.  Co.,  131 
Mass.  258-260;  Leonard  r.  A.  Ins.  Co., 


97  Ind.  299.  Savings  banks  are  de- 
signed to  encourage  economy  and  fru- 
gality among  persons  of  small  means 
and  are  organized  with  restrictions  and 
provisions  intended  to  secure  depos- 
itors against  loss.  Speculative  con- 
tracts entered  into  for  the  sale  or  pur- 
chase of  stock  by  a  savings  bank  at 
the  stock  board  or  elsewhere,  sub- 
ject to  the  hazard  and  contingency  of 
gain  or  loss,  are  ultra  vires,  and  a  per- 
version of  tne  powers  conferred  by  its 
charter.  People,  etc.,  v.  M.  &  T.  S. 
Inst.,  92  N.  Y.  7-9;  Sistare  v.  Best,  88 
N.  Y.  527-531.  Contracts  of  corpo- 
rations are  ultra  vires  when  they  in- 
volve adventures  or  undertakings  out- 
side and  not  within  the  scope  or  power 
given  by  their  charters.  The  acts 
under  which  they  are  organized  were 
framed  in  view  of  the  rights  of  the 
public  and  the  interest  of  the  stock- 
holders. As  artificial  creations  they 
possess  only  the  powers  with  which 
they  were  endowed.  An  act  may  be 
malum  in  se  or  malum  prohibitiim,  or 
an  act  may  not  be  immoral  or  pro- 
hibited by  any  statute,  and  still  it  may 
be  in  excess  of  the  powers  vested  in 
the  officers  of  a  corporation,  unau- 
thorized and  prejudicial  to  the  stock- 
holders. In  either  case  the  plea  of  ultra 
vires  should  prevail  unless  it  would  de- 
feat justice  or  accomplish  a  legal 
wrong."  The  court  then  applied  the 


§272] 


ULTRA  VIRES — PRIVATE  CORPORATIONS. 


was  a  contention  in  this  case  that  the  contract  had  been  exe- 
rutrd  on  the  part  of  the  plaintiffs,  and  that  the  corporation 
was  »-t.']»|>r<i  t'pnn  M-tiiiiLr  up  tin-  defense  of  ultra  pirat,  Tin- 
Court  of  Appeals  held,  however,  that,  under  the  circumstances 
of  this  case,  the  defense  was  still  available  to  the  corporation.1 


principles  to  the  case  at  bar:  "  As  we 
have  seen,  the  defendant  was  chartered 
for  the  purpose  of  receiving  on  deposit 
or  in  trust  such  sums  of  money  as  may 
from  time  to  time  be  offered  by  trades- 
men, merchants,  clerks,  laborers,  serv- 
ants and  others.  It  was  authorized 
to  loan  these  moneys  according  to  the 
Constitution  and  laws  of  the  state  and 
to  discount  in  accordance  with  bunk 
usages,  taking  such  security  therefor, 
either  real  or  personal,  as  the  directors 
may  deem  sufficient.  In  addition 
thereto  the  defendant  was  given  power 
to  borrow  money,  buy  and  sell  ex- 
change, bullion,  bank  notes,  govern- 
ment stocks  and  other  securities.  The 
authority  here  given  to  buy  and  sell 
exchange,  bullion,  bank  notes,  gov- 
ernment stocks  and  other  securities 
does  not  embrace  or  include  specula- 
tive contracts  in  cotton  futures  any 
more  than  it  does  hay,  oats,  provisions 
or  dry  goods.  The  exchange,  bullion, 
bank  notes,  securities,  etc.,  author- 
ized are  those  of  fixed  value,  current 
in  the  market  and  not  subject  to  the 
control  of  speculators.  Whilst  the 
buying  and  selling  of  cotton  to  be 
delivered  in  the  future  may  not  ordi- 
narily be  immoral  or  prohibited  by 
any  statute,  it  is  not  included  in  the 
powers  given  to  the  defendant  by  its 
charter.  The  transaction  in  question 
was  prejudicial  to  its  stockholders 
and  tended  to  endanger  and  destroy 
the  safeguards  provided  for  the  de- 
positors. The  stockholders  and  de- 
positors had  the  right  to  have  their 
funds  invested  in  accordance  with  the 
provisions  of  the  charter  and  the  Con- 
stitution and  laws  of  the  state,  and  in 
so  fur  as  this  right  was  violated  by  the 


transaction  in  question  it  was  a  misap- 
propriation of  the  funds  und  immoral." 
'Jemison  r.  Citizens'  Savings  Bank 
of  Jefferson,  Texas.  (1890)  122  N.  Y. 
135.  The  court  re  vie  wed  lead  ing  cases 
pertinent  to  this  question,  saying: 
"In  the  case  of  Whitney  Arms  Co.  t. 
Barlow,  63  N.  Y.  62.  the  plaintiff  was 
a  corporation  organized  for  the  pur- 
pose of  manufacturing  every  variety 
of  firearms  and  other  implements  of 
war,  and  all  kinds  of  machinery 
adapted  to  the  construction  thereof 
It  entered  into  a  contract  with  the 
American  Seal  Lock  Company  to 
manufacture  and  deliver  ten  thousand 
locks.  The  locks  having  been  de- 
li vered,  it  was  held  that  the  contract  was 
fully  executed,  and  the  plea  of  ultra 
rires  would  not  prevail  as  a  defense  to  an 
action  brought  to  recover  the  contract 
price."  Citing  Huntington  v.  Savings 
Bank,  96  U.  S.  388;  Thomas  t>.  R. 
R.  Co.,  101  U.  S.  71;  Nassau  Bank  r. 
Jones,  95  N.  Y.  115;  Leslie  r.  Lorillard, 
1 10  N.  Y.  519.  The  court  said  further: 
"  We  do  not  question  the  rule  thus 
invoked.  It  has  been  repeatedly  de- 
clared in  other  cases,  as,  for  instance, 
in  Parish  r.  Wheeler,  22  N.  Y.  494,  in 
which  it  was  held  that  a  railroad  com- 
pany having  purchased  and  received  a 
steamboat,  could  be  compelled  to  pay 
for  it,  although  the  power  to  purchase 
such  boat  was  not  included  in  its  char- 
ter. But  this  doctrine  has  no  applica- 
tion to  executory  contracts  which  are 
sought  to  be  made  the  foundation  of 
an  action,  or  to  contracts  that  are  pro- 
hibited as  against  public  policy  or  im- 
moral. Nassau  Bank  r.  Jones,  tupra  ; 
P.  C.  &  8.  L.  R.  Co.  r.  K.  &  H.  B. 
Co.,  131  U.  S.  871-389.  In  the  case  at 


468 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§  272 


In  an  Iowa  case  it  was  held  that  it  was  ultra  vires  a  corpora- 
tion organized  under  articles  of  incorporation  which  defined  its 
business  to  be  "  the  general  freight  and  transfer  business,  and 
such  other  business  as  may  not  be  inconsistent  therewith,"  to 
become  surety  on  a  bond  given  to  another  corporation.1  The 
court  also  held  that  the  contract  of  suretyship  being  utterly  void 
there  was  no  estoppel  of  the  corporation  to  plead  ultra  vires  as  to 
the  undertaking.2 


bar,  the  transaction,  as  we  have  seen, 
was  not  only  immoral  and  in  violation 
of  the  rights  of  the  stockholders  and 
depositors,  but  the  defendant  had  re- 
ceived nothing  by  virtue  of  it.  The 
cotton  had  been  purchased  by  the 
plaintiffs  in  their  own  name,  they  tak- 
ing title  thereto  and  holding  it  upon 
the  defendant's  account.  It  was  pur- 
chased under  the  rules  of  the  Cotton 
Exchange  of  the  city  of  New  York,  in 
which  the  members  doing  business 
therein,  with  other  members,  act  as 
principals  and  are  liable  as  such.  The 
most  that  can  be  claimed  is  that  they 
held  the  cotton,  or  the  contracts  there- 
for, subject  to  the  call  or  order  of  the 
-defendant.  There  had  been  no  deliv- 
ery of  any  cotton  or  property  of  any 
kind,  or  transfer  of  any  title  to  such 
property  to  the  defendant.  If  the 
steamboat  had  never  been  delivered  to 
the  railroad  company  so  as  to  transfer 
the  title  thereto,  or  if  the  ten  thousand 
locks  had  never  been  delivered  to  the 
American  Seal  Lock  Company,  very 
different  questions  would  have  been 
presented  in  the  cases  to  which  we 
have  called  attention.  We,  conse- 
quently, are  of  the  opinion  that  under 
the  circumstances  of  this  case,  the  de- 
fense of  ultra  vires  is  still  available  to 
the  defendant." 

1  Lucas  v.  White  Line  Transfer  Co., 
(1886)  70  Iowa,  541;  s.  c.,  30  N.  W. 
Rep.  771.  The  court,  through  ROTH- 
KOCK,  J.,  said:  "The  simple  act  of 
giving  security  for  another  is  out  of 
the  line  of  the  prosecution  of  any  busi- 


ness. It  is  a  mere  accommodation, 
and  it  cannot  be  assumed  that  the 
articles  gave  the  officers  of  defendant 
any  power  to  jeopardize  its  capital  in 
any  such  venture,"  and  quotes  as  fol- 
lows: "It  is  no  part  of  the  ordinary 
business  of  commercial  corporations, 
and  a  fortiori  still  less,  of  non-com- 
mercial corporations,  to  become  surety 
for  others.  Under  ordinary  circum- 
stances, without  positive  authority  in 
this  behalf  in  the  grant  of  corporate 
power,  all  engagements  of  this  descrip- 
tion are  ultra  vires,  whether  in  the  in- 
direct form  of  going  on  accommodation 
bills  or  otherwise  becoming  liable  for 
the  debts  of  others.  Green's  Brice 
Ultra  Vires,  252;  Madison,  etc.,  Plank 
Road  Co.  v.  Waterman,  etc.,  Plank 
Road  C.o.,  5  Wis.  59." 

9  Lucas  v.  White  Line  Transfer  Co., 
(1886)  70  Iowa,  541;  s.  c.,  30  N.  W. 
Rep.  771.  This  holding  was  reached 
by  the  application  of  the  following 
rules,  as  stated  by  ROTHROCK,  J.,  to 
the  case:  "(1)  Every  person  dealing 
with  a  corporation  is  charged  with 
knowledge  of  its  powers,  as  set  out  in 
its  recorded  articles  of  incorporation. 
(2)  Where  a  corporation  exercises 
powers  not  given  by  its  charter,  it 
violates  the  law  of  its  organization, 
and  may  be  proceeded  against  by  the 
state,  through  its  attorney-general,  as 
provided  by  the  statute,  and  the  unani- 
mous consent  of  all  the  stockholders 
cannot  make  illegal  acts  valid.  The 
state  has  the  right  to  interfere  in  such 
case.  (3)  Where  a  third  party  makes 


§273] 


ULTBA  VIRES  —  PRIVATE  CORPORATIONS. 


§  273-  Leasing  corporation's  property  and  franchises  for 
a  term  of  years.  —  The  Indiana  Supreme  Court  has  held  that  a 
lease  of  its  road  by  a  railway  corporation  of  that  state  for  a  long 
term  «.f  vears,  with  the  privilege  of  renewal  of  the  same,  to 
another  corporation  of  tin-  >ame  kind  in  consideration  of  the  latter 

with  the  officers  of  a  corporation  an 
illegal  contract  beyond  the  powers  of 
the  corporation,  as  shown  by  its  char- 
ter, such  third  party  cannot  recover, 
because  he  acts  with  knowledge  that 
the  officers  have  exceeded  ihi-ir  power, 
and  between  him  and  another  corpora- 
tion, or  its  stockholders,  no  amount  of 
ratification  by  those  authori/.ed  to 
make  the  contract  will  make  it  valid. 
(4)  Where  the  officers  of  a  corporation 
make  a  contract  with  third  parties  in 
regard  to  matters  apparently  within 
their  corporate  powers,  but  which, 
upon  the  proof  of  extrinsic  facts  (of 
which  such  parties  had  no  notice),  lie 
beyond  their  powers,  the  corporation 
must  be  held,  unless  it  may  avoid  lia- 
bility by  taking  timely  steps  to  pre- 
vent loss  or  damage  to  such  third  party; 
for  in  such  cases  the  third  party  is  inno- 
cent, and  the  corporation  stockholders 
less  innocent,  for  having  selected  offi- 
cers not  worthy  of  the  trust  reposed  in 
them.  (5)  This  class  of  cases  may  be 
illustrated  by  that  where  the  officers 
of  a  corporation  empowered  to  build 
and  operate  a  certain  line  of  railroad. 
purchased  iron  to  be  used  for  another 
line  without  the  knowledge  of  the 
vendee.  So,  in  case  of  Humphrey  v. 
Patron's  Mercantile  Assn.,  50  Iowa, 
607,  the  debts  of  the  corporation 
were,  by  its  articles,  limited  to 
a  certain  amount;  but  the  officers 
of  the  association,  in  dealing  with 
Humphrey,  exceeded  that  amount 
without  his  knowledge  or  means  of 
knowledge,  and  the  corporation  was 
held.  Thompson  r.  Lambert.  44 
Iowa.  289,  belongs  to  the  same  class  of 
cases,  with  the  addition  that  in  the 
last  case  the  stockholders  who  ob- 


to  what  they  termed  an  ultra 
cire*  contract  were  charged  with  knowl- 
edge of  and  participation  in  the  act 
they  claimed  lobe  illegal  and  were  In 
no  condition  tc  complain.  A  corpora- 
tion cannot  retain  benefits  derived 
from. -in  ultra  rirm  contract ;  and  at  the 
xiiuc  time  tn-.it  the  contract  as  entirely 
void,  unless,  perhaps,  in  cases  where 
the  <>tli<-r  party  lias  assisted  willfully 
in  putting  it  beyond  the  power  of  the 
corporation  to  return  what  is  re 
on  such  contract.  (6)  Where  the  cor- 
poration has  permitted  its  offi<-<  r>  to 
engage  in  ultra  rira  transactions,  the 
officers  commit  a  wrong  or  tortious  act 
without  the  fault  of  the  injured  party, 
the  corporation  is  estopped  from  tak 
ing  advantage  of  the  ultra  tire*  char- 
acter of  the  original  undertaking." 
As  to  the  doctrine  that  cliarters  not 
expressly  or  by  implication  authoriz- 
ing an  act  prohibit  it  and  render  such 
act  void,  see  Safford  */.  Wyckoff.  1 
Hill,  11;  Leavitt  r.  Palmer,  3  Comst. 
19;  Talmage  v.  Pell,  8  Seld.  328; 
Tracy  P.  Talmage,  14  N.  Y.  162,  179; 
Bissell  P.  Michigan  So.,  etc.,  K.  H.  Co., 
22  N.  Y.  258,  289;  Whitney  Arms  Co. 
i>.  Barlow,  63  N.  Y.  62,  68;  Alexander 
v.  Cauldwell.  83  N.  Y.  480,  485;  Nas- 
sau Bank  v.  Jones,  95  N.  Y.  1K>.  1JJ; 
New  York  Firemen  Ins.  Co.  v.  Ely, 

5  Conn.  560,  572;  Hood  v.  New  York 

6  New  Haven  R.  K.   Co..  ^  Conn. 
502;  Elmore  r.  Naugatuck  R.  R.  Co.. 
28  Conn.  457;  Mutual  Savings  Bank 
r.  Meriden  Agency  Co.,  24  Conn.  159; 
Naugatuck    R.   R.    Co.   r.  Watcrbury 
Button  Co..  24  Conn.  468.     Contracts 
held    nltrn    rira  and   void:  Twiss  r. 
Guaranty    Life  Assn.  of  Iowa,  (1898) 
87  Iowa,  733;  8.  c.,  55  N.  W.  Rep.  8, 


470 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§273 


paying  the  taxes  thereon,  performing  certain  contracts  theretofore 
made  by  the  former  company  and  the  payment  to  the  former 
company,  or  to  its  use,  certain  sums  of  money,  was-ultra  vires, 
based  upon  the  doctrine  that  a  charter  granted  to  a  railway  cor- 
poration for  the  purpose  of  constructing,  owning  and  maintaining 
a  railroad,  confers  a  trust  special  to  the  corporation  in  relation  to 
the  purposes  of  its  creation,  and  hence  such  a  corporation  has  no 
power  to  enter  into  contracts  foreign  to  those  for  which  it  was 
created,  or  to  delegate  its  franchises,  or  to  incapacitate  itself  to 
discharge  its  duties  to  the  public  by  a  lease  or  sale  of  its  road. 
Agreements  of  that  character,  unauthorized  by  its  charter,  are 
inconsistent  with  the  obligations  of  the  corporation  to  the  public, 
ultra  vires  and  void.1  The  court  held  that  the  contract  for  lease 


following  Lucas  v.  Transfer  Co.,  70 
Iowa,  542;  s.  c.,  30  N.  W.  Rep.  771. 
See  on  ultra  vires  Wardner,  Bushnell  & 
Glessner  Co.  v.  Jack,  82  Iowa,  435; 
Carson  City  Sav.  Banke.  Elevator  Co., 
90  Mich.  550;  Seymour  v.  Association, 
64  Hun,  632;  Richelieu  Hotel  Co.  r. 
Encampment  Co.,  140  111.  248;  s.  c., 
29  N.  E.  Rep.  1044,  affirming  41  111. 
App.  268;  Dewey  v.  Railway  Co.,  91 
Mich.  351;  Heims  Brewing  Co.  r. 
Flannery,  137  111.  309;  Buckeye  Marble 
&  Freestone  Co.  r.  Harvey,  (1892) 
92  Tenn.  115;  s.  c.,  20  S  W.  Rep.  427; 
As  to  a  corporation  with  the  usual 
powers,  when  not  prohibited  by  its 
articles  of  incorporation,  contracting 
for  the  surrender  of  its  stock,  see 
Rollins  v.  Shaver  Wagon  &  Carriage 
Co.,  (1890)  80  Iowa,  380;  s.  c.,  45  N. 
W.  Rep.  1037.  When  a  plea  of  ultra 
vires  will  be  held  sufficient.  Gillespie 
v.  Davidge  Fertili/er  Co.,  66  Hun. 
627;  s.  c.,  20  N.  Y.  Supp.  833.  When 
a  contract  will  not  be  declared  -ultra 
vires.  Nashua  &  Lowell  Railroad 
Corp.  p.  Boston  &  Lowell  R.  Corp., 
(1892)  157  Mass.  268;  s.  c.,  31  N.  E. 
Rep.  1060;  Odd  Fellows  Hall  Asso- 
ciation of  Portland  v.  Hegele,  (1893) 
24  Ore.  16;  s.  c.,  32  Pac.  Rep.  679; 
Welsh  r.  Ferd  Heim  Brewing  Co.,  47 
Mo.  App.  608;  Glass  c.  Ferd  Heim 


Brewing  Co.,  47  Mo.  App.  639; 
United  Lines  Telegraph  Co.  v.  Boston 
Safe  Deposit  &  Trust  Co.,  147  U.  S. 
431;  s.  c.,  13  Sup.  Ct.  Rep.  396.  For  il- 
lustrations of  contracts  which  have 
been  held  not  to  be  ultra  vires,  see 
Wolf  v.  Arminus  Copper  Mine  Co.,  6 
Misc.  Rep.  562;  s.  c.,  27  X.  Y.  Supp. 
642,  in  which  Abbot  r.  Rubber  Co., 
33  Barb.  578,  was  distinguished; 
Ashenbroedel  Club  r.  Finlay,  53  Mo. 
App.  256.  As  to  ultra  vires  generally, 
see  Oelbermanu  r.  New  York  &  N.  Ry. 
Co.,  77  Hun,  332;  s.  c.,  29  N.  Y. 
Supp.  545;  Pauly  v.  Coronado  Beach 
Co.,  56  Fed.  Rep.  428;  Denny  Hotel 
Co.  v.  Schram,  6  Wash.  134.  Es- 
topped to  plead  ultra  vires.  Kennedy 
v.  California  Sav.  Bank,  (1894)  101 
Cal.  495;  s.  c.,  35  Pac.  Rep.  1039: 
Kadish  T.  Garden  City  Equitable 
Loan  &  Bldg.  Assn.,  47  111.  App.  602; 
Smith  r.  White  (Tex.  Civ.  App.)  25  8. 
W.  Rep.  809;  Head  v.  Cleburne  Bldg. 
&  Loan  Assn.,  (Tex.  Civ.  App.)  25  S. 
W.  Rep.  810;  Cameron  r,.  First  Nat. 
Bank.  4  Tex.  Civ.  App.  309;  s.  c. ,  23 
S.  W.  Rep.  334;  Butte  Hardware  Co. 
r.  Schwab,  (Mont.)  34  Pac.  Rep.  24; 
Magee  v.  Pacific  Improvement  Co.,  98 
Cal.  678;  s.  c.,  33  Pac.  Rep.  772. 

1  Board  of  Commissioners  of  Tippe- 
canoe  Co.    c.  La  Fayette,  Muncie  & 


I  -:•••• 


ULTRA  V1KKS  — 1'KIVA  11    OOBPOBATION8. 


171 


of  this  road  wu-  made  without  authority  «.f  law;  that  the  board 
of  directors  and  agents  of  the  corporation  had  no  power  to  make 
it;  and  that  it  was  in  violation  of  tin,-  rights  of  the  stockholders 
and  in  contravention  of  public  policy.1  Tin-  court  .-aid.  how- 
:  "  \\'e  do  not  decide  that  railroad  companies  cannot  become 
lessors  or  lessees  of  other  railroad  companie-.  or  make  other  eon- 
tracts  with  other  railroad  companies,  for  the  purpose  of  running 
their  lines  in  conjunction,  facilitating  commerce,  travel  and  tran.- 
portation,  or  for  any  of  the  legitimate  purposes  for  which  railroad 
companies  are  organized.  There  is  much  in  the  legislation  of  the 
state  favoring  this  view,  and  many  decisions  of  this  court  sus- 
taining the  advancing  enterprise  of  the  country,  but  all  such  con- 
tracts must  come  within  the  powers  of  the  agency  that  makes 
them,  and  must  not  violate  the  rights  of  stockholder-  or  contravene 
public  policy.3  It  was  contended  in  this  case  that  the  Indiana 
statute  of  February  23,  1853,  entitled  an  "act  to  authorixe  rail- 
road companies  to  consolidate,  etc.,"  had  removed  this  disability 
which  these  principles  of  law  imposed  upon  such  corporations. 
The  Supreme  Court  held  adversely  to  the  contention.8  It 


Bloomington    R.    R.    Co.,    (1875)  50 
Ind.  85. 

1  Ibid. ;  citing  in  support  of  these 
conclusions:  1  Redf.  on  Railways,  236, 
594.  616,  641,  644,  650;  Boston,  etc., 
R.  R.  Corp.  r.  Salem,  etc.,  R.  R.  Co., 
2  Gray,  1;  Black  r.  Delaware,  etc., 
Canal  Co.,  7  C.  E.  Green  (N.  J.),  130; 
Bissell  r.  Michigan  Southern,  etc.,  R. 
It.  Co..  -J2  X.  Y.  258;  Fall  River  Iron 
Works  Co.  r.  Old  Colony,  etc.,  R.  R. 
Co.,  5  Allen,  221;  Great  Luxembourg 
Ry.  Co.  r.  Magnay.  25  Beav.  586; 
Beman  r.  Rufford,  1  Sim.  (N.  S.)550; 
Bagshaw  r.  Eastern  Union  Ry.  Co.,  2 
Macn.  &  G.  389;  Bank  of  Middlebury 
r.  Edgerton,  30  Vt.  182;  Marsh  r.  Ful- 
ton Co.,  10  Wall.  676;  Column  r.  East- 
ern Counties  Ry.  Co.,  10  Beav.  1; 
Township  of  Pine  Grove  r.  Talrott. 
19  Wall.  666;  East  Anglian  Ry.  Co.  r 
Eastern  Counties  Ry.  Co.,  11  C.  B. 
775;  Uirlmrdson  r.  Siblcy,  11  Allm. 
65;  Eidman  r.  Bowman,  58  HI.  444; 
Stewart's  Appeal,  56  Pa.  St.  4KJ; 


Madison,  etc.,  Plank  Road  Co.  t.  Wa- 
tertown,  etc.,  Plank  Road  Co.,  7  Wis. 
59;  Eldridge  r.  Smith,  34  Vt.  484;  Per- 
rine  r.  Chesapeake,  etc.,  Co.,  9  How. 
172;  Bet!  ford  R.  R.  Co.  r.  Bowser,  48 
Pa.  St.  29;  Pearcer.  Madison,  etc.,  R 
R.  Co.,  21  How.  441;  European,  etc., 
Ry.  Co.  r.  Poor,  59  Me.  277;  Wright  r. 
Bundy,  11  Ind.  398;  Eaton  &  Hamilton 
R.  R.  Co.  r.  Hunt,  20  Ind.  457;  Board  of 
Comrs.,  etc.,  r.  Reynolds,  44  Ind.  509; 
Sparrow  r.  Evansville,  etc.,  R.  R.  Co., 
7  Ind.  369;  Fisher  r.  Evansville,  etc., 
R.  R.  Co.,  7  Ind.  407;  Booe  r.  Junction 
R.  R.  Co.,  10  Ind.  93;  McCray  t. 
Junction  R.  R.  Co.,  9  Ind.  :IV<:  Sln-l 
byvillj,  etc.,  Turnpike  Co.  r.  Barms. 
42  Ind.  498. 

"Board  of  Commivioncr*  of  Tippe- 
canoe  Co.  r.  I*a  Fayette.  Muncie  & 
Bloomington  R.  R.  Co.,  (1875)50  Ind. 
85,  115. 

•Ibid.  The  court  said:  "That  art 
is  '  to  nut liori/r  railroad  companies  to 
consolidate  their  stock  with  the  -tork 


472  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§  27'> 

appeared  in  a  case  before  the  United  States  Supreme  Court  that 
a  corporation  organized  under  the  laws  of  Pennsylvania  as  a 
manufacturing  corporation  with  a  certain  capital  stock,  for  twenty 
years,  for  "  the  transportation  of  passengers  in  railroad  cars  con- 
structed and  owned  by  the  said  company  "  under  certain  patents, 
carried  on  the  business  of  manufacturing  sleeping  cars  under  its 
patents,  and  of  hiring  or  letting  the  cars  to  railroad  companies  by 
written  contracts,  receiving  a  revenue  from  the  sale  of  berths  and 
accommodations  to  passengers.  Seven  years  afterwards,  by 
special  statute,  the  charter  was  extended  for  ninety-nine  years,  and 
the  corporation  was  empowered  to  double  its  capital  stock,  and 
"  to  enter  into  contracts  with  corporations  in  this  or  any  other 
state  for  the  leasing  or  hiring  and  transfer  to  them,  or  any  of  them, 
of  its  railway  cars  and  other  personal  property."  Upon  the 
passage  of  this  statute  this  corporation  entered  into  a  contract 
with  a  corporation  of  another  state  organized  for  similar  pur- 
poses, by  which  it  leased  and  transferred  to  the  latter  all  its  cars, 
railroad  contracts,  patent  rights  and  other  personal  property, 
moneys,  credits  and  rights  of  action,  for  the  term  of  ninety-nine 
years,  except  so  far  as  the  contracts  and  patents  shall  expire 
sooner ;  and  covenanted  not  to  "  engage  in  the  business  of  manu- 
facturing, using  or  hiring  sleeping  cars  "  while  the  contract  should 
remain  in  force  ;  the  lessee  engaged  to  pay  all  the  existing  debts 

of  railroad  companies  in  this  or  in  an  with  any  such  road  constructed  in  an 

adjoining  state,  and  to  connect  their  adjoining  state,   for  the  transportation 

roads  with  the  roads    of    said   com-  of  freight  and  passengers,  or  for  the  use 

panies,'  etc.     The  title  nowhere  men-  of  its  said  road,  as  to  the  board  of  di- 

tions  a  lease  or  a  sale.     Indeed,  the  rectors  may   seem   proper.'     Even  if 

words  '  to  connect  their  roads  with  the  this  section  could  be  held  to  authorize 

roads  of  said  companies '  would  seem  the  transfer  of  the  use  of  one  road  to 

to  exclude  such  a  conclusion.     To  con-  another,  the  words  cannot  fairly  mean 

nect  one  road  with  another  does  not  the  transfer  of  one  division  of  a  road 

fairly   mean  to  lease  it  or  sell  it  to  to  the  injury  of  another  division  of 

another.     Much  less  can  it  mean  to  the  same  road,  thus  putting  the  two 

authorize  the  corporation  to  sever  the  divisions  in  direct   antagonism,  both 

trunk  of  its  road,  transfer  the  western  in  their  interest  and   connection.     Al- 

division,  for  an  unlimited  time,  to  the  though  the  words,  '  as  to  such  board  of 

corporation  of  another  state,  and  sub-  directors  may  seem  proper,'  express  a 

ordinate  its  eastern    division  to    the  general  power,  they  must  be  construed 

western  and  to  a  foreign  corporation,  in  reference  to  the  subject-matter  to 

The  third   section  of  the  act  is   not  which  they  are  applied,  and  limited 

strongly  relied  upon.     It  enacts  that  within  the  powers  of  the  corporation 

a  railroad  company  'shall  have  power  and  the  rights  of  the  stockholders." 
to  make  such  contracts  and  agreements 


I  873 


II.TKA.  VIKKS  —  PRIVATE  f<  >I:IMI:.\  i  : 


473 


of  the  les-or  corporation  and  to  pay  a  fixed  sum  annually,  during 
the  term  of  ninety-nine  years,  unle.-s  tin-  contract  was  sooner 
terminated  as  provided  in  its  terms.  The  lessor  corporation 
brought  tliis  action  to  recover  of  the  lessee  corporation  a  large 
sum  of  iiioiirv  claimed  to  be  due  from  it  on  this  contract.  The 
Supreme  ( '«>urt  held  the  contract  to  be  unlawful  and  void,  because 
it  was  ultra  vires  the  corporate  powers  of  the  lessor  corporation 
and  involved  an  abandonment  of  its  duty  to  the  public  ;  also,  that 
the  suit  was  not  maintainable  nor  could  there  be  a  recovery  by 
the  lessor  corporation  upon  the  contract  even  though  the  lessee 
had  enjoyed  the  benefits  of  the  contract.1  In  the  United  States 


1  Central  Transportation  Co.  r.  Pull- 
man's Palace  Car  Co.,  (1891)  189  U.  8. 
24;  s.  c.,  11  Sup  Ct.  Hep.  478.  Mr. 
Justice  OKAY  in  the  opinion  which  he 
delivered  for  the  court  quoted  from 
and  reviewed  the  following  cases: 
York  &  Maryland  Railroad  r.  Winans, 
17  How.  30;  Pearcc  r.  Madison  &  In- 
dianapolis Kailro.-id.  21  How.  441; 
Zabriskic  r.  Cleveland,  etc..  Railroad, 
•J:5  1  low. 381;  Thomas  r.  Railroad  Co., 
101  U.  S.  71;  Branch  r.  Jesup.  106  U.  8. 
488;  Pennsylvania  Railroad  r.  St. Louis, 
etc.,  Railroad,  118  U.  S.  290;  Salt  Lake 
City  r.  Hollister,  118  U.  S.  256;  Willa- 
mette, etc..  Co.  r.  Bank  of  British 
Columbia,  119  U.  S.  191;  Green  Bay  & 
.Minnesota  Railroad  r.  Union  Steam- 
boat Co..  107  U.  S.  98;  Pittsburgh, 
<  t<  .  Railway  *>.  Keokuk  &  Hamilton 
Bridge,  181  U.  8.  871;  Oregon  Rail- 
way r.  Oregonian  Railway,  130  U.  8. 
1.  Upon  a  contention  that  the  lessor 
corporation  was  on  a  different  footing 
from  railroad  corporations  and  the 
like,  it  was  said:  "  The  plaintiff  *  *  * 
was  not  an  ordinary  manufacturing 
corporation,  such  as  might,  like  a  part- 
nership or  an  individual  engaged  in 
manufactures,  sell  or  lease  all  its  prop- 
erty to  another  corporation.  Ardesco 
oil  Co.  r.  North  American  Oil  Com- 
pany. 66  Pa.  St.  875;  Tread  well  r. 
Salisbury  Manuf.  Co..  7  Gray.  893. 
But  the  purpose  of  its  corporation,  as 
60 


defined  in  its  charter,  and  recognized 
and  confirmed  by  the  legislature,  ln-im: 
the  transportation  of  passengers,  tilt- 
plaintiff  exercised  a  public  employ- 
ment, and  was  charged  with  the  duty 
of  accommodating  the  public  in  the 
line  of  that  employment,  exactly  «>r 
responding  to  the  duty  which  a  rail- 
road corporation  or  a  steamboat  com- 
pany  as  a  carrier  of  passengers  owes 
to  the  public  independently  of  possess- 
ing  any  rights  of  eminent  domain. 
The  public  nature  of  that  duty  was 
not  affected  by  the  fact  that  it  was  to 
be  performed  by  means  of  cars  con- 
structed and  of  patent  rights  owned 
by  the  corporation,  and  over  roads, 
owned  by  others.  The  vla>nliff  was 
not  a  strictly  private,  but  a  quasi  pub- 
lic corporation;  and  it  must  be  so 
treated  as  regards  the  validity  of  any 
attempt  on  its  part  to  absolve  itself 
from  the  performance  of  those  duties 
to  the  public,  the  performance  of 
which  by  the  corporation  itself  was 
the  remuneration  that  it  was  required 
by  law  to  make  to  the  public  in  re- 
turn for  the  grant  of  its  franchise. 
Pickard  r.  Pullman  Southern  Car  Co., 
117  U.  8.  84;  York  &  Maryland  Rail- 
road r.  Winans,  17  How.  80,  89;  Rail 
road  Co.  r.  Lockwood.  17  Wall  :r>7. 
Liverpool  &  Great  Western  Steam  Co 
9,  Phii-nix  Ins.  (•„..  129  U.  S.  897  ' 
After  referring  to  the  express  pow- 


474 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


Circuit  Court  for  the  northern  district  of  Washington  it  has  been 
held  that  a  railroad  company  organized  under  the  laws  of  that 
state  has  no  authority  to  transfer  its  franchises,  except  by  sale 
and  conveyance  or  lease  made  in  accordance  with  the  statutes 
relating  to  the  transfer  of  titles  to  such  property  ;  and  where  by 
a  so-called  "  traffic  agreement,"  the  trustees,  without  the  consent 
of  the  minority  stockholders,  in  effect,  transferred  to  another 
railroad  company  the  entire  control  and  management  of  the 
property,  for  practically  the  legal  lifetime  of  the  corporation,  such 
contract  was  illegal  and  void.1  The  Supreme  Court  of  New 


ers  conferred  upon  the  corporation,  it 
was  said:  "  Considering  the  long  term 
of  the  indenture,  the  perishable  nature 
of  the  property  transferred,  the  large 
sums  to  be  paid  quarterly  by  the  de- 
fendant by  way  of  compensation,  its 
assumption  of  the  plaintiff's  debts  and 
the  frank  avowal,  in  the  indenture  it- 
self, of  the  intention  of  the  two  cor- 
porations to  prevent  competition  and 
to  create  a  monopoly,  there  can  be  no 
doubt  that  the  chief  consideration  for 
the  sums  to  be  paid  by  the  defendant 
was  the  plaintiff's  covenant  not  to  en- 
gage in  the  business  of  manufacturing, 
using  or  hiring  sleeping  cars;  and  that, 
the  real  purpose  of  the  transaction 
was,  under  the  guise  of  a  lease  of  per- 
sonal property,  to  transfer  to  the  de- 
fendant nearly  the  whole  corporate 
franchise  of  the  plaintiff,  and  to  con- 
tinue the  plaintiff's  existence  for  the 
single  purpose  of  receiving  compensa- 
tion for  not  performing  its  duties." 
This  case  has  been  followed  in  Hamil- 
ton v.  Savannah,  F.  &  W.  Ry.  Co., 
(1892)  49  Fed.  Rep.  412. 

'Earle  v.  Seattle,  Lake  Shore  & 
Eastern  Ry.  Co.,  (1893)56  Fed.  Rep. 
909.  The  only  authority  found  in  the 
charter  of  the  company  which  had 
thus  leased  the  control  of  the  Wash- 
ington corporation,  was  where  the  con- 
gross  of  the  United  States  had  author- 
ized it  "to  accept  to  its  own  use  any 
grant,  donation,  loan,  power,  franchise, 
aid  or  assistance  which  may  be  granted 


to,  or  conferred  upon  said  company 
by  the  congress  of  the  United  States, 
by  the  legislature  of  any  state,  or  by 
any  corporation,  person  or  persons  ; 
and  said  corporation  is  authorized  to 
hold  and  enjoy  such  grant,  donation, 
loan,  power,  franchise,  aid  or  assist- 
ance to  its  own  use  for  the  purpose 
aforesaid."  In  the  opinion  rendered 
in  this  case  it  is  said  :  "  The  statute 
referred  to  does  not  prescribe  the 
manner  whereby  purchases  or  leases 
of  railways  may  be  consummated, 
otherwise  than  by  the  general  pro- 
visions of  the  several  statutes  relating 
to  corporations  and  to  conveyances 
of  property.  A  railroad  corporation 
cannot  lawfully  transfer  its  franchise 
without  authority  emanating  from  the 
power  which  granted  it.  And  an 
unauthorized  transfer,  made  in  dis- 
guise, as  by  a  traffic  contract,  will 
not,  in  a  judicial  proceeding,  be 
treated  with  greater  favor  than  if  the 
contract  expressed  plainly  the  real  in- 
tention of  the  parties.  On  the  subject 
of  traffic  contracts  the  text  of  Green's 
Brice's  Ultra  Vires  (page  427),  con- 
cisely and  clearly  states  the  law,  as 
follows  :  '  Corporations  may  make  all 
necessary  arrangements  for  cheaply 
and  expeditiously  developing  or 
carrying  on  their  particular  business; 
but  it  is  another  thing,  going  beyond 
this,  to  enter  into  contracts,  for  in- 
stance, by  which  the  exclusive  control 
or  the  exclusive  right  of  working  the 


§  27-'!  ]  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  1  7."» 

Y<irk,  in  (Jeneral  Term,  affirmed  tin-  denial  <if  a  motion  to  con- 
tinue mi  injunction  restraining  tin*  directors  of  a  corporation 
from  transferring  its  property,  assets  and  bu.-ine»  to  another 
corporation,  where  it  appeared  from  affidavits  of  the  directors 
that  they  did  not  contemplate  such  action,  but  merely  the  leasing 
of  imj>ortant  rights  and  functions  to  the  other  e..r|>oration.' 
This  was  a  case  where  a  stockholder  of  a  Minnesota  corporation 
had  made  complaint,  in  which  he  alleged  that  eight  of  the  nine 
directors  of  the  company  owned  or  controlled  a  majority  of  the 
shares  of  stock,  and  were  disposed  to  lea>e  and  transfer  the  prop- 
erty and  effects  of  the  company  for  the  term  of  twenty-five  years 
to  a  corporation  created  under  the  laws  of  the  state  of  Ne\y 
Jersey,  and,  in  effect,  to  transfer  its  business  to  that  company, 
for  one-half  the  net  profits  yielded  by  it ;  and  that  this  was  in 
contravention  of  its  charter,  and  the  laws  of  the  state  of 

line  is  handed  over  to  other  parties,  has  any  governmental  sanction  wliat- 
All  such  arrangements,  whatever  ever.  No  consolidation  has  been 
their  form,  however  disguised,  are  attempted,  and  yet  the  transaction  is 
ult i-ti  ririH  and  void.  This  applies  of  such  resemblance  to  a  consolidation 
with  peculiar  force  in  the  case  of  that  the  legal  principles  by  which  the 
those  bodies  which  have  been  created  validity  of  proceedings  to  effect  a 
for  what  may  be  conveniently  styled  consolidation  of  corporations  may  bo 
'public  purposes."'  The  court  con-  applied.  This  idea  leads  to  considera- 
tinued  :  "Now,  assuming  that  the  tion  of  the  contract  rights  of  individ- 
section  of  the  charter  above  quoted  ual  stockholders,  and  the  rule  is  that 
does  authorize  the  Northern  Pacific  a  corporation  cannot  be  consolidated 
Railroad  Company  to  take  the  benefit  with  another  if  the  right  to  do  so  wa8 
of  rights  and  privileges,  and  exercise  not  by  the  law,  or  the  constituting 
new  powers,  granted  and  conferred  by  instruments,  given  at  the  time  of  its 
the  state  of  Washington,  the  question  creation,  without  the  unanimous  con- 
whether  the  contracts  and  proceedings  sent  of  its  stockholders.  The  law  on 
by  which  it  lias  gained  control  of  the  this  subject  is  thus  stated  in  2  Mor. 
Seattle,  Lake  Shore  and  Eastern  Com-  Priv.  Corp.  $  951  :  '  A  corporation 
pany's  franchise  and  business  are  cannot  consolidate  with  another  com- 
iiltnt  vire«  or  not  depends  upon  pany,  even  pursuant  to  legislative 
whether  the  requirements  of  the  state  authority,  except  with  the  consent  of 
laws  in  this  regard  have  been  met.  all  its  shareholders.  An  unauthnri/ed 
There  has  been  no  sale  and  convey-  consolidation  may  be  prevented  l.y 
ance,  nor  lease,  of  the  railroad  prop-  any  dissenting  shareholder,  or  may  be 
erty,  in  accordance  with  the  laws  of  treated  as  ground  for  severing  hi 
this  state  relating  to  the  manner  of  nection  with  the  company,  by  a 
transferring  titles  to  such  property,  rescission  of  his  subscription.'" 
A^  the  parties  have  not  done  what  the  '  Small  r.  Minneapolis  Electro- 
statute  authorizes  to  be  done.  I  do  Matrix  Co.,  (1890)  ION.  Y.  Supp.  456. 
not  think  that  the  deal  In-tween  them 


ULTKA  VIRES PRIVATE  CORPORATIONS.  _ 

Minnesota,  under  which  it  was  incorporated.  DANIELS,  J.,  for 
the  court,  said :  "  If  the  facts  were  satisfactorily  established,  a 
case  for  an  injunction  would  be  presented ;  for  the  directors  or 
trustees  do  not  appear  to  have  been  invested  with  that  power, 
either  by  its  charter  or  the  laws  of  the  state  in  which  it  exists ; 
and,  in  the  absence'of  explicit  authority  to  transfer  its  property, 
effects  and  business  to  another  company,  it  cannot  be  presumed 
to  possess  that  power.  At  least,  the  directors  or  trustees,  having 
only  the  power  to  manage  and  conduct  its  affairs  under  the 
charter,  could  legally  make  no  such  disposition  of  its  property 
and  affairs ;  for,  instead  of  managing  and  conducting  its  business, 
that  would  be  a  destruction  of  its  business,  and  an  abdication  of 
their  own  powers  and  authority,  which  could  not  take  place  with- 
out violating  the  law  and  their  own  official  obligations ;  and  that, 
even  a  majority  owner  of  the  shares  of  the  company  would  be 
entitled  by  action  to  restrain  and  prevent."1  Referring  to  the 
admission  in  the  answer  of  the  directors,  that  a  resolution  was 
adopted  by  the  majority  of  the  board,  subject  to  the  approval  of 
the  shareholders,  to  execute  a  lease  to  the  New  Jersey  corpora- 
tion of  certain  important  rights  and  functions  of  the  Minnesota 
corporation,  and  the  stated  intention  to  extend  the  leasehold 
interests  or  rights  no  further  than  was  permitted  by  the  laws  of 
Minnesota,  it  was  said  :  "  And  it  certainly  goes  no  further  in  its 
language  or  fair  implication  to  this  extent,  which  does  not  trans- 
cend, but  limits  itself  within  the  bounds  of  the  law;  for  the 
exercise  of  lawful  authority  for  the  promotion  of  the  interests 
and  prosperity  of  the  company  is  intrusted  to  the  use  and  employ- 
ment of  its  board  of  directors  or  trustees ;  and  when  they  may, 
in  good  faith,  be  exercised,  a  case  will  not  be  presented  for  the 
interposition  of  a  court  of  equity  by  injunction."2 

§  274.  Loaning  funds  of  corporation. —  The  power  in  a  cor- 
poration to  loan  its  funds  cannot  be  implied  from  the  power 
expressly  given  it  to  borrow  money,  or  any  implied  power  it  has 
to  borrow ;  and  if  it  has  no  express  power  given  it  to  loan  its 
funds,  it  cannot  be  implied  from  the  declared  purposes  and 
objects  for  which  its  charter  was  granted  where  it  is  not  created 
for  banking  purposes,  or  to  conduct  some  business  usual  in  bank- 

1  Citing  Abbot  v.  Rubber  Co.,  33  *  Citing  Beveridge  ».  Railroad  Co., 
Barb.  578,  591.  112  N.  Y.  1;  s.  c..  19  N.  E.  Rep.  489. 


§274]  I'l.TKA  VIKE8  —  PRIVATE  CORPORATIONS.  477 

ing;  and  in  case  the  corporation  is  not  created,  as  may  a\ 
from  its  articles  of  incorporation,  f.,r  pecuniary  profit,  this  de-du- 
ration would  exclude  the  power  of  loaning  its  funds.1  Ami 
where  a  corporation  has  no  power  to  loan  its  funds,  a  pr«»mi>- 
sory  note  and  mortgage  given  as  security  to  the  corporation 
will  be  void  and  not  enforceable  in  equity.*  An  Alabama 
corporation  was  incorporated  with  a  capital  of  $1,000,000, 
to  be  paid  in  in  cash  and  such  other  money  as  it  might  receive 
in  trust,  one-half  of  which  capital  it  was  required  to  invest  in 
bonds  or  notes  secured  by  mortgage  on  land  within  the  state  of 
Alabama,  and  the  remaining  half  of  the  capital  stock,  together 
with  the  premiums  and  profits  received  by  it,  and  the  IIKIIU-VS 
received  in  trust,,  may  be  invested  in  stocks,  loaned  to  any  <-ii\ , 
county  or  company,  or  be  invested  in  such  real  or  personal  securi- 
ties as  it  might  deem  proper.  The  Supreme  Court  of  Alabama 
held  that  the  corporation  had  no  power  to  lend  its  credit  by 
making  bonds  to  fall  due  in  future,  and  exchanging  such  bonds 
for  the  bonds  of  an  individual  for  the  same  amount.8  A  corpora- 
tion organized  under  the  laws  of  California  for  the  purpose  of 
acquiring  a  certain  tract  of  land,  laying  it  out  as  a  town  and  sell- 
ing it  in  lots,  blocks,  etc.,  and  acquiring  "  street  railroad  or  other 
rights  and  franchises,  telegraph,  telephone  or  other  similar  fran- 
chises, and  gas  and  electric  light  franchises,  over  the  said  prop- 
erty, or  any  part  thereof,"  subscribed  for  shares  of  stock  in  a 
manufacturing  corporation.  Such  subscription  was  held  to  be 
ultra  vires  and  void.4 

1  Chambers  r.  Falkner,  (1880)  65  Ala.  8.  c.,  11  Sup.  Ct.  Rep.  484,  in  these 

448.  words:  "  The  charter  of  a  corporation 

'  Ibid.  read  in  the  light  of  any  general  laws 

1  Smith  v.  Alabama  Life  Insurance  which  are  applicable,  is  the  measure 
&  Trust  Co.,  (1843)  4  Ala.  558.  This  of  its  powers,  and  the  enumeration  of 
same  corporation  was  held,  under  its  those  powers  implies  the  exclusion  of 
articles  of  incorporation,  to  have  the  all  others  not  fairly  incidental.  All 
power  to  purchase  a  bill  of  exchange,  contracts  made  by  a  corporation  be- 
in  Gee  v.  Alabama  Life  Ins.  &  Trust  yond  the  scope  of  those  powers  are 
Co.,  (1848)  18  Ala.  570.  unlawful  and  void,  and  no  action  can 

!l'itily  v.  Coronado  Beach  Co.,  be  maintained  upon  them  in  the  court-; 
(1893)  56  Fed.  Hep.  428.  The  court  and  this,  upon  throe  distinct  grounds: 
placed  its  ruling  upon  the  doctrine  on  -The  obligation  of  every  one  contract  - 
this  subject  as  summed  up  by  the  8u-  ing  with  a  corporation  to  take  notice 
preme  Court  of  the  United  States,  in  of  the  legal  limits  of  its  powers;  tin- 
Central  Transportation  Co.  r.  I'ull-  interest  of  the  stockholders  not  to  l>e 
man's  Palace  Car  Co.,  189  U.  8.  48;  subjected  to  risks  which  they  have 


478  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  275 

§  275.  Investing  funds  of  corporation  in  stock  of  others.— 
In  a  Maine  case  it  appeared  that  a  savings  institution  subscribed 
for  $50,000  of  the  capital  stock  of  a  manufacturing  corporation. 
Having  no  money  to  pay  for  it,  another  corporation  paid  the 
money  to  the  manufacturing  corporation,  took  the  notes  of  the 
savings  institution  for  the  amount,  and  had  a  certificate  of  stock 
issued  in  its  name  as  collateral  security  for  the  payment  of  the 
notes.  The  Supreme  Court  of  Judicature  of  that  state  held  that 
upon  principle,  as  well  as  authority,  it  was  not  within  the  authority 
of  the  trustees  of  a  savings  institution  to  invest  its  funds  in  the 
stock  of  a  manufacturing  corporation,  unless  expressly  authorized 
so  to  do  by  its  charter,  or  the  public  laws  of  the  state.  They 
placed  their  decision  against  the  power  of  the  savings  bank  to 
enter  into  this  contract  upon  the  broader  ground  that  it  was  not 
competent  for  the  trustees  of  the  savings  bank  to  purchase  on 
credit  property  of  any  kind,  not  needed  for  immediate  use  or  the 
investment  of  existing  funds ;  that  such  power  was  not  expressly 
conferred  upon  it,  nor  could  it  be  sustained  as  an  incidental  power.1 

never  undertaken;  and,  above  all,  the  Earle,  13  Pet.  519;  Tombigbee  R.  R. 
interest  of  the  public,  that  the  corpo-  Co.  v.  Kneeland,  4  How.  16;  Runyan 
ration  sball  not  transcend  the  powers  v.  Coster's  Lessee,  14  Pet.  122;  Dart- 
conferred  upon  it  by  law."  In  Riche-  mouth  College  v.  Woodward,  4  "Wheat, 
lieu  Hotel  Company  T.  International  518,  636;  Hood  t.  New  York  &  N.  H. 
Military  Encampment  Co.,  (1892)  140  Railroad,  22  Conn.  1  and  502;  Berry, 
111.  248;  s.  c.,  29  N.  E.  Rep.  1044,  a  Receiver,  v.  Yates,  24  Barb.  199  ; 
subscription  by  this  incorporated  Mutual  Savings  Bank  v.  Aleriden 
hotel  company  to  V.,  a  contemplated  Agency  Co.,  24  Conn.  159;  Sumner  v. 
corporation  for  the  purpose  of  estab-  Marcy,  3  Woodb.  &  Min.  105;  Pearce 
lishing  this  encampment  to  draw  vis-  v.  Railroad,  21  How.  441.  It  was  sug- 
itors  to  the  city,  etc.,  was  held  foreign  gested  in  Franklin  Company  v.  Lewis- 
to  the  purposes  of  the  hotel  company,  ton  Institution  for  Savings,  supra, 
and  the  doctrine  of  ultra  vires  must  be  that  it  might  be  convenient  in  this  way 
applied  to  it.  to  provide  in  advance  for  the  invest- 
1  Franklin  Company  v.  Lewiston  In-  ment  of  funds  that  might  afterwards 
stitution  for  Savings,  (1877)  68  Me.  43.  come  into  the  possession  of  a  bank.  To 
The  ruling  as  to  the  first  point  was  this  the  court  said:  "We  think  the 
based  upon  what  the  court  considered  creation  of  debts  by  corporations  or 
the  result  of  the  rules  declared  in  the  individuals  for  no  other  purpose  than 
following  cases  bearing  upon  the  to  provide  a  ready  way  to  dispose  of 
powers  of  corporations,  to  wit:  Beaty  v.  future  acquisitions  a  proceeding  of 
Lessee  of  Knowler,  4  Pet.  152;  s.  c.,  1  very  questionable  convenience  ;  that 
McLean,  41 ;  Perrine  v.  Chesapeake  &  in  the  great  majority  of  cases  it  would 
Delaware  Canal  Co.,  9  How.  172;  be  likely  to  prove,  as  it  did  in  this  case, 
Farnum  v.  Blackstone  Canal  Co.,  1  very  inconvenient.  But  it  is  suffi- 
Sumner,  46 ;  Bank  of  Augusta  v.  cient  answer  to  say  that  the  law  im- 


75]  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  479 

It  wa>  further  held  in  this  case  that  the  lender  of  the  money,  the 
corporation  plaintiff,  having  participated  in  tin-  illegal  transac- 
tion, could  not  claim  the  privilege-  "f  a  ?>» H<I  ft<t<'  liolder  of  com- 
nierci;:!  paper;  and  that  the  saving  in>tittition,  having  received 
no  licnefit  fnun  the  transaction,  was  not  e-topped  to  set  up  the 
defen.-e  of  uJti-n  f//v.v.1  In  an  action  brought  hy  one  Ohio  cor- 
poration, an  iron  company,  a«rain>t  another,  a  railway  company, 
for  i^oods  sold  and  delivered  to  the  latter,  the  defence  made  was 
that  there  had  been  a  contract  between  the  two  corporations,  by 
the  terms  of  which  the  iron  company  was  to  >ell  to  the  railway 
company  goods  to  a  certain  amount,  and  to  receive  in  payment 
thereof  so  many  shares  ot  stock  in. the  latter.  This  involved  the 
question  of  the  authority  ot  the  iron  company  to  take  stock  in 
the  railway  company.  Upon  this  subject  the  Supreme  Court  of 
<  )hio  stated  the  law  in  that  state  to  be  as  follows  :  "  We  think  it 
well  settled  as  a  result  of  the  decisions  in  this  state,  as 
•well  as  elsewhere,  that  an -incorporated  company  cannot,  unless 
authorized  by  statute,  make  a  valid  subscription  to  the  capital 
stock  of  another;  that  such  subscription  is  ultra  mres^  and  void. 
Mr.  Morawetz.  in  stating  this  to  be  the  law,  observes:  'The  right 
of  forming  a  corporation  is  conferred  by  the  incorporation  laws 
only  upon  persons  acting  individually, and  not  upon  associations; 
moreover,  it  would,  under  ordinary  circumstances,  be  a  violation 
of  the  charter  of  an  existing  company  to  subscribe  for  shares  in 
a  new  company  and  assume  the  resulting  liabilities.'  Priv.  Corp. 
§  433.  There  lias  been  no  direct  decision  upon  the  question  by 
this  court,  but  such  has  been  the  universal  holding  elsewhere.* 
These  cases  all  proceed  upon  the  principle  that  the  powers  of 
corporations  organized  under  legislative  statutes  are  such  and  such 
only,  as  those  statutes  confer,  or  that  may  be  fairly  implied  there- 
from. This  doctrine  was  clearly  announced  and  applied  in  Straus 
/•.  Kagle  Ins.  Co.,  5  Ohio  St.  59,  and  has  been  tirmly  adhered 

poses  no  duty   upon  the  trustees  of  may  never  be  committed  to  their  care, 

savings  banks  to  provide  for  the  in  would  be  a  doctrine  as  startling  as  it 

vestment  of  future   funds  or  future  would  be  unprecedented." 

deposits.      The   whole   duty   is    per-  '  Franklin  Co.  r.   I^-wiston  Institu- 

formed  when  they  have  provided  safe  tion  for  Savings.  (1887)  68  Me.  48. 

investments  fortlie  fundsalready  com-  *  Citing    Railroad    Co.    r.    Railroad 

milled  to  their  care.     Tohold  thai  they  Co..  81  N.  J.  Eq.  475;  Franklin  Co.  r. 

may  creale  debls  binding  upon  exist  I,«  wist«m  Savings   Inst..  68  Me.  48; 

ing  deposilors  whose  money,  after  all.  Railroad  C<>.  r.  Collins.  40  Ga.  582. 


480  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  270 

to  in  this  court.  Railroad  Co.  v.  Ilinsdale,  45  Ohio  St.  556,  r>T-"i. 
No  claim  is  made  by  the  defendant  that  the  iron  company  had 
any  express  statutory  authority  to  use  its  capital  or  assets  in  aid 
of  the  construction  of  a  railroad  by  subscription  to  its  capital 
stock  or  otherwise.  The  only  averment  as  to  this,  is  that  it,  the 
iron  company,  conceived  that  it  would  be  benefited  by  the  reduc- 
tion of  the  price  of  coal  at  Cleveland,  its  place  of  business,  and 
the  market  which  the  construction  of  the  road  would  afford  for 
its  manufactures,  and  by  these  considerations  was  induced  to  make 
the  subscription.  But  all  this  can  be  of  no  avail  in  the  face,  at 
least,  of  the  prohibition  contained  in  section  3266  of  the  Revised 
Statutes,  that,  l  No  corporation  shall  employ  its  stock,  means, 
assets  or  other  property,  directly  or  indirectly,  for  any  other  pur- 
pose whatever,  than  to  accomplish  the  legitimate  objects  of  its 
creation.'  There  was  then,  as  we  think,  no  authority  whatever 
in  the  iron  company  to  make  a  valid  subscription  to  the  capital 
stock  of  the  railway  company  *  *  *  .'n 

§  276.  Directors  of  an  insurance  company  raising  a  guar- 
anty capital. —  The  directors  of  a  mutual  life  and  fire  insurance 
company,  a  New  Jersey  corporation,  after  conducting  its  busi- 
ness for  a  while,  by  resolution  determined  upon  and  formulated 
a  plan  to  raise  a  guaranty  capital  to  the  amount  of  $150,000,  to 
be  used  for  the  payment  of  losses  when  other  means  were 
exhausted.  This  was  done  by  obligations  for  money  secured  by 
mortgage  from  its  members.  Here  we  have  an  action  on  a  bill 
filed  to  recover  on  the  defendant's  mortgage  what  had  been 
assessed  against  him.  The  answer  of  defendants  set  up  the  facts 
and  circumstances  under  which  the  mortgage  was  given,  and 
insisted  that  the  action  and  all  the  proceedings  of  the  directors 
in  raising  the  guaranty  capital  were  illegal,  in  violation  of  the 
charter  of  the  company  and  against  public  policy,  and,  therefore, 
the  company  could  not  enforce  the  contract  made  with  any  of 
the  contributors  to  the  fund.  After  expressing  that  his  disposi- 
tion was  to  enforce  this  contract  on  the  part  of  the  contributors, 
upon  the  question  directly  raised,  Chancellor  WILLIAMSON  said : 
"  I  cannot  see  how  the  contract  with  the  contributors  to  this 
guaranty  fund  can  be  enforced  in  a  court  of  law  or  equity,  with- 
out repudiating  altogether  the  principle  of  the  common  law, 

1  Railway  Co.  v.  Iron  Co.,  (1888)  46  Ohio  St.  44,  49,  50. 


§276]  ULTRA   VI  K  I  >         r  i:  I  VATE  CORPORATIONS.  4M 


which  lias  been  but  re-enunciated   by  our  >tattite  ^Nixon, 
§3),  that  no  corporation  >hall  possess  or  e  .my   corporate 

powers,  except  such  as  shall  be.  exj»re»ly  ^ivcn  in  its  charter,  or 
which  shall  be  necessary  to  the  exercise  of  the  powers  so  enu  me  r 
ated  ami  given.  Was  it  within  the  scope  of  the  powers  of  this 
corporation  to  provide  any  other  capital  or  fund  as  the  baM-  »\ 
the  basis  which  it  was  empowered  to  pursue,  than  are  provided 
by  the  charter  itself?  If  it  was  illegal  for  them  to  create  such  a 
capital,  then  a  contract  which  they  may  have  made  for  its  pay- 
ment cannot  be  enforced.  This  corporation  was  incorporated 
for  the  purpose  of  insuring  lives  and  loss  by  lire.  The  charter 
provides  the  fund  out  of  which  losses  are  to  be  paid,  and  it  is 
this  feature  in  the  charter  which  stamps  the  character  of  this  cor- 
poration, and  which  makes  it  what  its  name  imports,  and  what  the 
legislature  intended  it  should  be,  a  mutual  company.  The  cor- 
porators are  mutual  insurers,  and  it  is  the  fund  which  is  made  uj> 
from  the  premiums  which  they  contribute,  and  one  per  cent  on 
the  amount  for  which  each  one  is  insured,  out  of  which  they  are 
to  be  indemnified  for  any  losses.  They  have  no  right  or  author- 
ity, by  their  charter,  to  create  any  other  fund  for  the  purpose. 
If  they  do,  it  is  in  violation  of  the  principle  which  is  to  govern 
their  mode  of  doing  the  business  for  which  they  were 
incorporated."  * 

1  Trenton  Mutual  Life  &  Fire  Insur-  corporation  incur  a  loss,  and  not  have 

ance  Co.  r.  McKelway,  (1858)  12  N.  J.  the    available    means    promptly     to 

Eq.    133,    135,    136.      Arffwntlo,    the  meet  it.   it  would  not  be  illegal  for 

chancellor  further  said:  "  It  was  ad-  them  to  make  a  loan    to    meet   tin- 

mitt.-  1.  on  the  argument,  that  it  was  exigency.      But  they   cannot,    under 

not  within  the  scope  of  the  powers  of  pretense  of  borrowing  money,  provide 

this  corporation  to  create  any  capital  a  fund   for   the    purpose    of    pi  \in.i; 

other  than  that  for  which  the  charter  credit  to  the  company.     The  question 

provides.     It  was  attempted  to  escape  is  as  to  the  bona  ji<t<*  of  the  transac- 

the  consequences  of  such  an  act  by  tion.     It  matters  not  what  you  mil  it. 

the  argument  that  this  was  nothing  the  name  does  not  affect  its  real  char 

more  than  a  contract   for  a  loan  of  acter.     Was  this  a  bona  fide  loan  of 

money,  out  of  which  the  corporation  money,  or  a  contract  for  a  loan,  made 

might  be  enabled  to  meet  the  losses  in  the  ordinary   course  of  business, 

that  might  be  incurred.     It  cannot  be  and  to  meet  an  exigency  which  would 

denied  but  that  the  corporation  might  bring  such  a  con  t  met  within  the  com 

borrow  money   under  some    circum-  pass  of  the  legitimate  powers  of  the 

S  and  that  a  contract  bona  fide  company?    Or   was  it  a  contract    to 

made  for  such  loan  would  be  illegal  provide  a  capital  or  fund  for  the  pur- 

[legal  ?],  and  not  in  contravention  of  pose  of  giving  a  credit  and  character 

the  charter.    For  instance,  should  the  to  the  company  which  L>  entirely  for- 
61 


482 


ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 


[§277 


§  277.  Converting  "  common  "  into  "  preferred  "  stock.— 
In  a  leading  New  York  case,  while  the  Court  of  Appeals  admit- 
ted the  right  of  corporations  to  classify  their  stock  at  the  outset 
by  issuing  some  "  common  "  and  some  "  preferred  "  stock,  it  \v;i- 
held  that  it  was  not,  under  the  circumstances  disclosed,  in  the 
power  of  the  corporation  involved  in  this  case  to  convert  some  of 
its  shares  into  preferred  with  a  view  of  raising  money  from  its 
stockholders,  as  it  was  not  a  "  borrowing"  of  money  in  its  proper 
sense,  but  an  interference  with  the  vested  rights  of  the  stock- 
holders as  originally  constituted.1  A  manufacturing  corporation 


eign  to  its  charter?  Can  this  be  called 
a  legitimate  contract  for  a  loan  in  the 
ordinary  course  of  business?"  The 
chancellor  then  stated  the  terms  of 
the  contract,  and,  as  to  the  acts  of  the 
directors  in  the  matter,  said:  "They 
did  not  make  the  contract  under  a 
mistake,  intending  to  make  a  mere 
loan,  and  supposing  that  they  were 
legitimately  exercising  a  power  to  do 
so.  That  was  not  their  purpose. 
They  had  a  different  object  in  view. 
It  is  expressed  iu  their  bill  of  com- 
plaint, and  recorded  several  times 
upon  their  minutes.  The  bill  of  com- 
plaint alleges  that  the  directors  con- 
cluded to  enter  into  this  negotiation 
because,  in  their  opinion,  it  would 
prove  advantageous  to  the  corporators 
to  provide  a  guaranty  capital  as  an 
additional  security  for  the  payment  of 
losses.  Here,  then,  is  the  admission 
of  the  company  upon  the  record,  that 
this  contract  was  made  for  an  illegal 
purpose.  The  minutes  of  the  corpo- 
ration show  more;  they  show  that  this 
was  a  device  for  the  purpose  of  com- 
plying with  the  laws  of  the  state  of 
New  York,  which  provides  that  no 
insurance  company  shall  transact  bus- 
iness in  that  state  unless  such  company 
is  possessed  of  an  actual  capital  of 
§150,000.  The  simple  question  then 
is  presented,  could  this  corporation 
lawfully  adopt  any  scheme  or  device 
by  which  they  could  create  a  capital 
of  $150,000,  for  the  purpose  of  acquir- 


ing a  credit  upon  which  to  transact 
business?  In  my  judgment,  they 
could  not,  and  any  contract  entered 
into  for  such  a  purpose  is  unlawful, 
and  cannot  be  enforced." 

'Kent  T.  Quicksilver  Mining  Co., 
(1879)  78  N.  Y.  159.  The  court,  how- 
ever, would  not  declare  that  a  cor- 
poration could  never,  rightfully, 
against  the  dissent  of  a  portion  of  its 
stockholders,  make  some  of  its  stock 
"preferred."  FOLGER,  J.,  speaking 
for  the  court,  said:  "The  transaction 
is  not  to  be  looked  upon  as  other  than 
a  preference  of  one  class  of  stockhold- 
ers to  another;  as  giving  to  the  first 
class  a  perpetual,  inextinguishable 
prior  right  to  a  portion  of  the  earnings 
of  the  company  before  the  other  class 
might  have  anything  therefrom.  It 
was  none  other  than  the  creation  of  a 
'preferred  stock.'  Then  there  arises 
the  query  whether  there  was  at  that 
time  power  in  the  corporation  to  dis- 
tinguish between  the  stockholders  in 
it,  to  form  them  into  two  classes,  and 
to  give  to  one  class  rights  in  the  cor- 
porate property,  business  and  earnings 
from  which  the  other  was  shut  out. 
We  are  not  prepared  to  say  that,  at  the 
first,  the  corporation  might  not  have 
lawfully  divided  the  interest  in  its 
capital  stock  into  shares  arranged  in 
classes,  preferring  one  class  to  another 
in  the  right  it  should  have  in  the 
profits  of  the  business.  The  charter 
gave  power  to  make  such  by-laws  as 


£  277]  ULTRA  VIRES PRIVATE  CORPORATION'S.  483 

organ  i/cd  under  the  laws  of  New  York  was  organi/cd  with  a 
capital  .-tuck  of  7,500  shares.  At  a  certain  time  it  owed 
$300,000,  and  for  the  purpose  of  paving  it,  stockholders  repre- 
<enting  all  the  stock,  except  that  mentioned  hen-after,  and  the 
corporation  executed  under  their  hands  and  seals  a  contract  l»y 
which  the  shareholders  agreed  to  surrender  to  the  corporation 
without  consideration  forty  per  cent  of  their  stock,  which 

it  might  deem  proper  consistent  with  New  York,  5  Cow.  538.  So  it  is  said 
the  Constitution  and  law;  ami  to  issue  in  Grant  on  Corporations,  page  80,  in 
certificates  of  stock  representing  the  a  qualified  way.  Thereby,  and  by  tin- 
value  of  the  property.  We  know  of  certificate,  as  between  it  and  every 
nothing  in  the  Constitution  or  the  law  stockholder,  the  capital  stock  of  tin; 
that  inhibits  a  corporation  from  begin-  company  was  fixed  in  amount  in  the 
ning  its  corporate  action  by  classify-  number  of  shares  into  which  it  was 
ing  the  shares  in  its  capital  stock  with  divisible,  and  in  the  peculiar  and  rela- 
peculiar  privileges  to  one  share  over  live  value  of  each  share.  The  by-law 
another,  and  then  offering  its  stock  entered  into  the  compact  between  the 
to  the  public  for  subscriptions  thereto,  corporation  and  every  taker  of  a  share; 
No  rights  arc  got  until  a  subscription  it  was  in  the  nature  of  a  contract  bu- 
is  made.  Each  subscriber  would  know  tween  them.  The  holding  and  own- 
for  what  class  of  stock  he  put  down  ing  of  a  share  gave  a  right  which  could 
his  name,  and  what  rights  he  got  when  not  be  divested  without  the  assent  of 
he  thus  became  a  stockholder.  There  the  holder  and  owner;  or  unless  the 
need  be  no  deception  or  mistake;  there  power  so  to  do  had  been  reserved  in 
would  be  no  trenching  upon  rights  some  way.  Mech.  Bank  r.  N.  Y.  & 
previously  acquired;  no  contract,  ex-  N.  H.  R.  R.  Co.,  18  N.  Y.  599-627. 
press  or  implied,  would  be  broken  or  Shares  of  stock  are  in  the  nature  of 
impaired.  This  corporation  did  other-  chose*  in  action,  and  give  the  holder  a 
wise.  A  by-law  was  duly  made  which  fixed  right  in  the  division  of  the 
declared  the  whole  value  of  its  prop-  profits  or  earnings  of  a  company  so 
erty  and  the  whole  amount  of  its  capi-  long  as  it  exists,  and  of  its  effects  when 
tal  stock  and  divided  the  whole  of  it  it  is  dissolved.  That  right  is  as  in- 
into  shares  equal  in  amount  and  violable  as  is  any  right  in  property, 
directed  the  issuing  of  certificates  of  and  can  no  more  be  taken  away  or 
stock  therefor.  It  is  not  to  be  said  lessened  against  the  will  of  the  owner 
that  this  by-law  authorized  anything  than  can  any  other  right  unless  power 
but  shares  equal  in  value  and  in  right;  is  reserved  in  the  first  instance  when  it 
or  that  the  taker  of  one  did  not  own  as  enters  into  the  constitution  of  the  right; 
large  an  interest  in  the  corporation,  its  or  is  properly  derived  afterwards  from 
capital,  affairs  and  profits  to  come,  as  a  superior  law  given.  The  certificate 
any  other  holder  of  a  share.  Certifl-  of  stock  is  the  muniment  of  the  aharc- 
cates  of  stock  were  issued  under  this  holder's  title  and  evidence  of  his  right, 
by-law  that  gave  no  expression  of  any-  It  expresses  the  contract  between  the 
thing  different  from  that.  When  that  corporation  and  his  co-stockholders 
by-law  was  adopted  it  was  as  much  ami  liim-i-lf;  and  that  contract  cannot, 
the  law  of  the  corporation  as  if  its  he  being  unwilling,  be  taken  away 
provisions  had  l>een  a  part  of  the  char-  from  him  or  changed  as  to  him  wit  li- 
ter. Presbyterian  Church  p.  City  of  out  his  prior  dereliction  or  under  the 


484 


ULTRA  VIRES PRIVATE  CORPORATIONS. 


[§27T 


amounted  to  the  sum  of  the  indebtedness,  and  authorized  the  cor- 
poration to  pay  upon  shares  to  be  issued  and  sold  in  the  place  of 
those  surrendered  ten  per  cent  per  annum  on  the  face  value  of 
the  shares  for  five  years  or  such  portion  thereof  as  could  be  paid 
out  of  the  annual  net  profits  of  the  corporation.  The  following 
statement  was  indorsed  upon  the  certificates  for  the  3,000  shares 
to  be  issued  in  lieu  of  those  surrendered,  to  wit :  "  Issued  subject 
to  agreement  with  stockholders,  dated  May  22,  1885,  on  file  in 


conditions  above  stated.  Now  it  is 
manifest  that  any  action  of  a  corpora- 
tion which  takes  hold  of  the  shares  of 
its  capital  stock  already  sold  and  in 
the  hands  of  lawful  owners  and  divides 
them  into  two  classes,  one  of  which  is 
thereby  given  prior  right  to  a  receipt 
of  a  fixed  sum  from  the  earnings  be- 
fore the  other  may  have  any  receipt 
therefrom  and  is  given  an  equal  share 
afterwards  with  the  other  in  what 
earnings  may  remain  —  destroys  the 
equality  of  the  shares,  takes  away  a 
right  which  originally  existed  in  it 
and  materially  varies  the  effect  of  the 
certificate  of  stock.  It  is  said  that 
when  a  corporation  can  lawfully  buy 
property  or  get  money  on  loan,  any 
known  assurance  may  be  exacted  and 
given  which  does  not  fall  within  the 
prohibition,  express  or  implied,  of 
some  statute  (Curtis  v.  Leavitt,  15  N. 
Y.  9,  66,  67);  and  that  is  sought  to  be 
applied  here.  But  the  prohibition  to 
such  action  as  this  is  found,  not  in- 
deed in  a  statute  commonly  so  called, 
but  in  the  constitutional  provision 
which  forbids  the  impairment  of 
vested  rights  save  for  public  purposes 
and  on  due  compensation.  The  right 
which  a  stockholder  gets  on  the  pur- 
chase of  his  share  and  the  issue  to  him 
of  the  certificate  therefor  is  such  a 
vested  right.  It  is  contended  that  the 
power  so  to  do  is  an  incidental  and 
implied  power  necessary  to  the  use  of 
the  other  powers  of  the  corporation, 
and  is  a  legitimate  means  of  investing 
money  and  securing  the  agreed  con- 


sideration therefor.  We  have  already 
conceded  that  it  is  legitimate  to  bor- 
row money  and  to  secure  the  repay- 
ment of  it  with  a  compensation  for  the 
use  of  it.  But  that  is  when  it  is  done 
in  such  way  as  to  put  the  burthen 
upon  every  share  of  stock  alike,  and 
to  enable  every  share  of  stock  to  be 
relieved  therefrom  alike,  in  such  way 
as  to  preserve  the  equality  of  right 
and  privilege  and  value  of  the  shares, 
and  maintain  intact  the  contract 
thereto  with  the  stockholder."  The 
court  then  called  attention  to  the  dis- 
tinguishing points  in  the  cases  relied 
upon  to  support  the  views  contra  to 
those  of  the  court  as  follows:  ' '  Cita- 
tions are  made  to  us  for  the  converse 
of  this;  but  they  do  not  come  up  — 
sometimes  in  their  facts,  sometimes  in 
their  declarations  —  to  the  necessity  of 
the  proposition.  Either  it  is  where 
the  capital  is  not  limited  and  it  is  new 
shares  that  may  be  issued  with  a 
preference,  and  where  there  is  express 
power  to  borrow  on  bond  and  mort- 
gage (2  Redf.  on  Rways.  chap.  33, 
sect.  4;  Harrison  v.  Mex.  Rw.,  12 
Eng.  Rep.  793) ;  or  the  amount  of 
the  capital  has  not  been  reached  and 
such  stock  is  issued  therefrom  (Hazel- 
hurst  v.  Savannah  R.  R.,  43  Ga.  53; 
Totten  v.  Tison,  54  Ga.  139);  or  there 
was  legislative  authority  (Davis  v. 
Proprietors,  8  Met.  321;  Rutland  R. 
R.  Co.  v.  Thrall,  35  Vt.  545);  or  a  re- 
striction to  authorized  capital  and 
there  was  unanimous  consent  of  the 
stockholders  (Prouty  v.  M.  8.  &  N.  I. 


§  278]  ITLTRA  VIKES  —  PRIVATE  CORPORATIONS.  485 

the  treasurer's  office,  entitled  to  first  lien  on  net  profit.-  to  the 
amount  in  such  agreement  provided.  [  Signed.]  Edw.  L.  Wood, 
Treasurer"  The  share-  M.  i.-.< tied  were  sold  at  par  and  the  debt 
paid.  On  the  back  of  the  shares  surrendered  was  printed, 
"  Profits  assigned."  The  certificates  representing  the  shares 
which  were  not  represented  in  the  signature  to  the  agreement 
above  mentioned  were  at  that  time,  with  properly  executed  |>ower 
of  attorney  for  assignment  and  transfer,  in  the  hands  of  a  creditor 
of  the  owner  of  the  shares  as  collateral  security  for  a  loan  ;  the 
loan  not  being  paid  at  maturity  the  shares  were  sold  regularly  to 
a  purchaser,  who  brought  this  action  against  the  company  to  have 
issued  to  him  a  certificate  of  shares  to  the  amount  named  in  the 
certificate  so  purchased,  he  having  refused  what  was  tendered  him 
by  the  company,  a  certificate  of  shares  with  the  words  indorsed 
thereon  of  "  Profits  assigned."  The  New  York  Court  of  Appeals 
held  that  the  purchaser  was  entitled  to  an  unconditional  certificate 
for  these  100  shares  upon  the  same  principle  as  in  the  last  case 
cited,  that  the  action  of  the  corporation  here  was  an  interference 
with  the  vested  rights  of  the  non-assenting  stockholders.1 

§  278.  The  effect  of  laches  on  the  part  of  complaining 
stockholders  in  such  cases. —  In  the  leading  New  York  case, 
where  the  conversion  of  common  stock  into  preferred  was  held 
to  have  been  ultra  vires  the  corporation,  the  findings  of  the  court 
on  the  trial  showed  that  the  by-laws  empowering  the  creation 

R.  R.,  1  Hun,  663;  43  Qa.  53,  supra);  necessary  for  the  disposal  of  the  case 
or  there  was  power  to  redeem,  which  (Williston  r.  M.  S.  &  N.  I.  R.  R.  Co., 
was  a  transaction  in  the  nature  of  a  13  Allen,  400);  or  the  issue  was  author- 
debt  (Westchester,  etc..  R.  R.  Co.  r.  ized  by  the  articles  of  association  (In 
Jackson,  77  Pa.  8t.  821);  or  the  opinion  re  A'D.  St.  Nav.  &  Col.  Co.,  20  L.  R. 
was  obiter  (Bates  r.  Androscoggin  R.  [Eq.]  889)  or  there  was  full  knowl- 
R.  Co.,  49  Me.  491);  or  it  was  the  case  edge  on  the  part  of  all  concerned 
of  a  subscription  for  stock  with  a  con-  (Lockhart  r.  Van  Alstyne,  31  Mich. 
dition  for  interest  until  the  corpora-  81);  or  the  power  in  the  corporate 
tion  was  in  operation  (Richardson  r.  body  was  conceded,  and  it  was  denied 
Vt.  &  Mass.  R.  R.  Co.,  44  Vt.  618);  or  that  it  existed  in  the  directors.  Me- 
lt was  an  action  on  a  subscription  Laughlin  t.  D.  &  W.  R  K  .  b  Mich, 
more  favorable  to  defendant  than  to  100." 

other  subscribers,  and  it  was  held  that  '  Campbell  r.  American  ZyloniteCo., 

defendant  could  not  set  up  the  lack  of  (1890)  12'.*  N.    V.  455.    FOI.LRTT,  Ch. 

equality    (Evansville    R.    R.    Co.    r.  J.,  very  fully  discusses  the  rights  of 

Kvansvi'ilc,  15  Ind.  395);  or  a  solemn  stockholders  in  the  opinion  rendered 

determination  of  this  question  was  not  in  this  case  by  him  for  the  court. 


486  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§  278 

and  issue  of  the  preferred  stock  were  authorized  at  a  stockholders' 
meeting  regularly  called  and  held  and  conducted  ;  that  the  stock 
was  at  once  offered  for  subscription  to  all  of  the  stockholders ; 
that  a  circular  informing  them  thereof  was  issued  by  authority  and 
distributed  to  the  stockholders ;  that  though  all  of  them  did  not 
avail  themselves  of  the  chance  to  take  it,  it  was  not  because  the 
chance  was  not  known.  A  large  number  of  them  did  subscribe, 
and  paid  money  for  the  privilege  to  the  corporation,  and  that 
money  went  into  the  assets  and  business  of  the  company ;  certifi- 
cates for  the  preferred  stock  were  thereupon  issued,  and  it,  as 
well  as  the  common  stock,  was  dealt  in  by  the  public  ;  saies  were 
made  of  the  two  kinds  openly  at  the  Stock  Exchange  at  prices 
for  the  one  larger  than  for  the  other,  and  quoted  in  the  daily 
public  prints ;  and  from  year  to  year  for  four  years  the  annual 
reports  of  the  directors  to  the  stockholders  spoke  of  the  two 
kinds  of  stock.  There  was  ample  knowledge,  or  means  of  knowl- 
edge, on  the  part  of  all  stockholders  of  the  action  of  the  corpora- 
tion in  the  creation  of  the  two  kinds  of  stock ;  of  the  issue  of 
certificates  for  the  preferred  stock ;  of  the  entry  of  that  stock 
into  the  channels  of  trade ;  of  the  public  dealings  in  it  at  the 
especial  marts  for  the  sale  of  such  property,  and  of  the  continued 
recognition  of  its  existence  and  validity  by  the  company  and  the 
public.  FOLGER,  J.,  for  the  Court  of  Appeals,  said  :  "  It  is  not  to 
be  conceived  that  the  owners  of  the  common  stock  of  this  corpora- 
tion did  not  have  actual  knowledge  that  there  had  been  created  a 
stock  having  ostensibly  greater  right  and  value  than  their  own, 
and  that  it  had  gone  into  the  market  and  was  dealt  in  by  the 
public  interested  in  the  validity  of  it.  For  the  lapse  of  four 
years,  however,  there  was  no  action  of  the  company,  or  of  an 
individual  stockholder,  to  have  a  judicial  declaration  that  the 
company  had  exceeded  its  powers  in  the  creation  of  the  stock, 
and  that  it  was  invalid.  We  think  that  these  facts,  most  of  which 
are  set  forth  in  the  findings  in  two  of  the  cases,  warrant  the  con- 
clusion of  law  therein,  that  the  stockholders,  by  acquiescing  in 
the  action  of  the  corporation  in  making  the  preferred  stock,  have 
ratified  and  assented  thereto,  and  that  the  same  is  binding  on 
them  by  reason  of  such  assent  and  ratification."1 

1  Kent  V.  Quicksilver  Mining  Co. ,  a  lease  of  the  franchises,  etc. ,  of  a 
(1879)  78  N.  Y.  159, 184, 185.  As  to  the  railroad  corporation  to  another,  see  St. 
effect  of  laches  in  seeking  to  invalidate  Louis,  Vandalia  &  Terre  Haute  R.  R. 


£279]  IJIKAVIKES I'KIVATK  CORPORATIONS.  487 

§  279.  Rules  declared  by  courts  as  to  estoppel  of  corpo- 
rations to  plead  ultra  vires. —  If  a  contract  by  a  corporation  l»e 
not  in  violation  of  sonic  public  law,  or  contrary  to  pnUio  policy, 
•I'teeeini*  that  only  the  immediate  parties  to  it.  a>  tin-  corporation 
itself,  or  the  stockholders,  who  an-  partie-  l.\  representation,  hold 
Mich  a  legal  portion  in  relation  to  the  contract  a-  to  entitle  them 
to  raise  the  question  of  its  validity  on  account  of  the  alleged 
want  of  capacity  to  make;  but  if  the  contract^*  in  violation  of 
some  public  law  or  against  public  policy,  in  MIC* sense  as  to  make 
it  void  and  of  no  effect  to  any  intent,  any  person  standing  in  a 
relation  of  interest  to  the  subject-matter  of  the  contract,  and  to 
be  affected  by  its  operation,  might  undoiil>tedl\  set  up  and  insist 
on  such  fatal  vice  in  it,  for  the  purpose  of  clearing  him>e!f  from 
the  consequences  of  its  being  carried  into  effect.1  In  a  fully  con- 
sidered case  upon  how  far  a  corporation  is  estopped  to  .-et  up  the 
invalidity  of  an  ultra  vires  contract,  where  fully  performed  on 
the  part  of  the  plaintiff,  and  the  tanefits  of  it  received  hy  the 
defendant  as  a  defense  to  an  action,  the  view  of  the  I'nited  States 
Supreme  Court  thereon  has  Ixjen  stated  to  be  as  follows :  ••  A 
contract  of  a  corporation  which  is  ultra  vires,  in  the  proper  sense, 
that  is  to  say,  outside  the  object  of  its  creation  as  defined  in  the 
law  of  its  organization,  and,  therefore,  beyond  the  powers  con- 
ferred upon  it  by  the  legislature,  is  not  voidable  only,  but  wholly 
void,  and  of  no  legal  effect.  The  objection  to  the  contract  is  not 
merely  that  the  corporation  ought  not  to  have  made  it,  but  that 
it  could  not  make  it.  The  contract  cannot  be  ratified  by  either 
party,  because  it  could  not  have  been  authorized  by  either.  No 
performance  on  either  side  can  give  the  unlawful  contract  any 
validity,  or  be  the  foundation  of  any  right  of  action  upori  it. 
When  a  corporation  is  acting  within  the  general  scope  of  the 
powers  conferred  upon  it  by  the  legislature  the  corporation,  as 
well  as  persons  contracting  with  it,  may  be  estopped  to  deny  that 
it  has  complied  with  the  legal  formalities  which  are  prerequisites 
to  its  existence  or  to  its  action,  because  such  requisites  might  in 

Co.  v.  Terrc  Haute  &  Indianapolis  H.  65  111.  453;  City  of  Kast  St.  Ixmis  r. 

11.  Co.,  (1892)  145  U.  S.  893;  8.  c.,  12  East  St.  Louis  Gaa  Light  &  Coke  Co., 

Sup.  Ct.  Rep.  953.  98  III.  415.  IVorh  &    S     H    H.  (V   r. 

•Vermont  &  Canada   R.    R.  Co.  v.  Thompson.  lo:i  111    1ST;  Millard  r.  St. 

Vermont  Central  R.  R.  Co.,  84  Vt.  2.  Francis   Xavier  Academy,  8  Brmlw. 

As  to  estoppel  to  plead  ultra,  iirc»,  sec  841;  Thomas  e.  Citizens'  Horse  Ry. 

Chicago  Building  Society  r.  Crowell,  Co.,  104  111.  462. 


4S8  ULTRA  VIRES PRIVATE  CORPORATIONS.  ["§  279 

fact  have  been  complied  with.  But  when  the  contract  is  beyond 
the  powers  conferred  upon  it  by  existing  laws,  neither  the  cor- 
poration, nor  the  other  party  to  the  contract,  can  be  estopped,  by 
assenting  to  it,  or  by  acting  upon  it,  to  show  that  it  was  pro- 
hibited by  those  laws,  *  *  *  A  contract  ultra  vires  being 
unlawful  and  void,  not  because  it  is  in  itself  immoral,  but  because 
the  corporation,  by  the  law  of  its  creation  is  incapable  of  making 
it,  the  courts,  wkjle  refusing  to  maintain  any  action  upon  the 
unlawful  contract,  have  always  striven  to  do  justice  between  the 
parties,  so  far  as  could  be  done  consistently  with  adherence  to 
law,  by  permitting  property  or  money,  parted  with  on  the  faith 
of  the  unlawful  contract,  to  be  recovered  back,  or  compensation  to 
be  made  for  it.  In  such  case,  however,  the  action  is  not  main- 
tained upon  the  unlawful  contract,  nor  according  to  its  terms ; 
but  on  an  implied  contract  of  the  defendant  to  return,  or,  failing 
to  do  that,  to  make  compensation  for,  property  or  money  which 
it  has  no  right  to  retain.  To  maintain  such  an  action  is  not  to 
affirm,  but  to  disaffirm,  the  unlawful  contract.  The  fraud  and 
the  limits  of  the  rule  concerning  the  remedy,  in  the  case  of  a 
contract  ultra  vires,  which  has  been  partly  performed,  and  under 
which  property  has  passed,  can  hardly  be  summed  up  better  than 
they  were  by  Mr.  Justice  MILLER,  in  a  passage  already  quoted, 
where  he  said  that  the  rule  '  stands  upon  the  broad  ground  that 
the  contract  itself  is  void,  and  that  nothing  which  has  been  done 
under  it,  nor  the  action  of  the  court,  can  infuse  any  vitality  into 
it,'  and  that  '  where  the  parties  have  so  far  acted  under  such  a 
contract  that  they  cannot  be  restored  to  their  original  condition 
the  court  inquires  if  relief  can  be  given  independently  of  the  con- 
tract, or  whether  it  will  refuse  to  interfere  as  the  matter  stands.'  "  * 
The  doctrine  seems  to  be  settled  by  the  weight  of  modern  authority 
that  a  private  corporation  cannot  avail  itself  of  the  defense  of  ultra 

1  Central  Transportation  Co.  r.  Pull-  be  secured  by  reason  of  its  having  had 
man's  Palace  Car  Co.,  (1891)  139  U.  S.  the  full  benefit  of  the  contract,  see 
24,  59,  60,  61;  s.  c.,  11  Sup.  Ct.  Rep.  Ward  v.  Johnson,  (1880)  95  111.  215; 
478.  These  remarks  of  Justice  MILLER  citing  West  v.  Menard  County  Agri- 
are  in  Pennsylvania  Railroad  v.  St.  cultural  Board,  82  111.  206;  Maher  r. 
Louis,  etc.,  Railroad,  118  U.S.  317.  As  Chicago,  38  111.  266;  Railway  Co.  t>. 
to  a  bank  being  estopped  to  interpose  McCarthy,  96  U.  S.  267;  San  Antonio 
the  defense  of  ultra  vires  to  defeat  the  V.  Mehaffy,  96  U.  S.  315;  Morris  R. 
execution  of  a  trust  in  favor  of  its  de-  R.  Co.  0.  Railroad  Co.,  20  N.  J.  Eq. 
positors  in  and  lenders  to  its  investment  642. 
department,  by  which  they  were  to 


,9]  ULTRA  VIBES —  PRIVATE  Coi:i'«  'RATIONS. 

\vheiv  tin-  contract  ha>  been,  in  good  faith,  fully  j>erformed 
by  tluj  other  party,  and  the  corporation  lias  had  tin-  l>enefit  of  the 
contract  and  the  performance.1  Though  a  contract  of  a  corpora- 
tion may  be  strictly  ultra  /v/r«,  yet,  if  not  interfered  with  i>y  the 
htockliolders  or  the  state,  and  it  In-  not  of  a  class  of  contracts 
expressly  prohibited,  and  there  be  reasonable  ground  to  suppose 
that  the  agents  of  the  corporation  have  acted  in  good  faith, 
objections  raised  by  the  corporation  itself  or  by  one  having  no 
interest  in  the  question,  except  for  purposes  of  unjust  ad  vantage, 
will  not  IHJ  listened  to  by  the  courts.*  If  a  contract  made  by 
officers  of  a  corporation  with  third  parties  apparently  within  their 
powers,  upon  proof  of  extrinsic  facts  of  which  the  third  party- 
had  no  notice,  was  beyond  them,  the  corporation  will  l>e  held 
liable  unless  it  take  timely  steps  to  prevent  loss  or  damage  to  the 
third  parties.8  A  corporation  will  be  estopped  to  take  advantage 
of  the  ultra  vires  character  of  an  original  undertaking  where  its 
officers  have  been  permitted  by  it  to  engage  in  such  transactions, 
and  in  prosecution  of  them  the  officers  commit  a  wrong  or  torti 
ous  act  without  the  fault  of  the  injured  part}'.4  The  benefit* 
derived  from  an  ultra  vires  contract  cannot  be  retained  by  the 
corporation  and  the  contract  treated  as  entirely  void,  unless,  \ycr- 
haps,  in  cases  where  the  other  party  to  the  contract  has  assisted 
willfully  in  putting  it  beyond  the  power  of  the  corporation  to 

'Darst   r.    Gale,   (1876)83  111.  136;  N.  Y.  Supp.  909.     When  an  allegation 

citiiiLT  Ex  parte  Chippendale,4  DeGex,  in  an  answer  that  the  contracts  are  «/- 

M.  &  G.  19;  Whitney  Arms  Co.  r.  Bar-  tra  rires  the  corporation  is  a  sufficient 

low,  63  N.  Y.   62;  Bradley  ».  Ballard,  defense,  see  Gillespie  r.  Davidge  Fertil- 

55  111.  413.  izer  Co.,  (1892)  66  Hun,  627;  8.  c..  20 

*Noyesr.  Rutland  &  Burlington  R.  N.Y.  Supp.  833.    When  estoppel  to  de- 

R,  Co.,27Vt.  110;  Rutland  &  Burling-  fend  on  the  ground  that  act  was  nltrn 

ton  R.   R.  Co.  t.   Proctor,  29  Vt.  93;  viret,  see   Homestead  Bank  P.  Wood, 

Sturges  r.   Knapp,  31  Vt.  62.     As  to  (Ct.  Cm.  PI.  N.  Y.  City.  1892)  20  N.  Y. 

who  may  or  may  not  set  up  the  do-  Supp.  640;  s.  c.,  1  Misc.  Rep.  145.    I.- 

fense  of  ultra  riret,  see  Western  Organ  toppel  of  corporations  to  plead  «//n» 

Co.  t.  Reddish.  51  Iowa,  5.r>.    As  toes-  tint.     Carson  City  Savings  Bank    r. 

toppel  of  a  stockholder  to  complain  of  Carson   City    Elevator  Co.,   (1892)90 

an  act  ultra  nre»  on  the  part  of  the  cor-  Mich.  550;  a.  c.,  51  N.  W.  Rep.  641; 

poration  or  its  officers,  see  I)es  Moines  citing  Day  r.  Buggy  Co.,   57    Midi 

Gas  Co.  r.  West,  50  Iowa.  16,  involv-  151;    Steel    Works    P     Bresnahan.   f,u 

inga  fraudulent  issue  of  bnmls.    1'ixlrr  Midi.  337. 

what  circumstances  a  stockholder  can-  *  Lucas  t.  White  Line  Transfer  Co., 

not  object  to  a  plan  of  reorganization  70  Iowa,  541;  s.c.,  80  N.  W.  Rep.  771. 

of  a  corporation  as  ultra  rire*,  see  Hoi-  *  Ibid. 
lins  P.  St.  Paul.  M.  &  M.  R.  Co.,  (1889)9 
02 


490 


ULTRA  VIRES PKI\  AIM 


[§270 


return  what  it  received  on  the  contract.1  The  Court  of  Civil 
Appeals  of  Texas  has  held  that  where  the  directors  of  a  corpora- 
tion, authorized  by  charter  to  establish  and  maintain  a  hotel,  pur- 
chased competing  hotel  property  and  received  the  benefit  of  the 
transaction  for  two  years  they  would  not  be  heard  to  allege  that 
the  transaction  was  ultra  m'res.3  A  corporation  cannot  set  up 
the  limit  of  indebtedness  fixed  in  its  charter  as  a  defense,  where 
the  consideration  of  the  indebtedness  has  been  received  by  it.3 
In  lilce  manner  it  would  be  estopped  from  setting  up  want  of 
authority  as  a  defense  as  against  money  advanced  to  pay  indebted- 
ness in  excess  of  the  limit  of  indebtedness  fixed  in  its  charter.4 
It  is  not  beyond  the  powers  of  a  corporation  organized  for  the 
purpose  of  owning  ditches  for  the  conveyance  and  sale  of  water 


1  Ibid. 

'Steger  v.  Davis,  (Tex.  Ct,  App. 
1894)  27  S.  W.  Rep.  1068.  The  court 
concluded  its  opinion  in  these  words: 
"  In  the  case  of  Publishing  Co,  v.  Hit- 
son,  80  Tex.  218;  s.  c.,  14  S.  W.  Rep. 
843,  and  16  S.  W.  Rep.  551,  the  court 
says:  '  It  is  a  reasonable  and  '  volun- 
tary rule '  in  its  application  to  agen- 
cies, that  where  the  principal,  with 
knowledge  of  the  facts,  acquiesces  in 
the  acts  done  under  an  assumed  agency 
he  should  not  be  heard  subsequently 
to  impeach  them  upon  the  ground  that 
they,  were  done  without  authority. 
Kelsey  v.  Bank,  69  Pa.  St.  430.  This 
rule  applies  to  corporations  as  well  as 
to  individuals.  An  express  assent,  it 
is  said,  is  not  essential  on  the  part  of 
the  stockholders  to  operate  as  an 
equitable  estoppel  upon  them.  It  may 
be  inferred  from  the  failure  to 
promptly  condemn  the  unauthorized 
although  not  illegal  act,  and  to  seek  ju- 
dicial redress.  Sheldon,  etc.,  Co.  r. 
Eickemeyer  Hat  Blocking  Machine 
CQ.,  90  N.  Y.  607,  614.'  "  See,  also, 
Bond  T.  Manufacturing  Co.,  82  Tex. 
309;  s.  c.,  18  S.  W.  Rep.  691;  Russell 
v.  Railway  Co.,  68  Tex.  646;  s.  c.,  5  S. 
W.  Rep.  686;  Stafford  v.  Harris.  82 Tex. 
178;  s.  c.,  17  S.W.  Rep.  530.  Astopri- 
vate  corporations,  having  received  the 


benefits  of  a  contract  beyond  their 
power  to  make,  being  estopped  to  set 
up  that  excess  of  authority  to  excuse 
them  from  discharging  their  part  of  the 
contract,  see  De  Groff  r.  American 
Linen  Thread  Co.,  (1860)  21  N.  Y.  124, 
Sherman  Center  Town  Company  v, 
Fletcher,  46  Kans.  524;  Town  Co.  v. 
Morris,  43  Kans.  282;  s.  c.,  23  Pac. 
Rep.  569;  Town  Co.  T.  Swigart,  43 
Kans.  292;  s.  c.,  23  Pac.  Rep.  569; 
Tootle  v .  First  National  Bank  of  Port 
Angeles.  (1893)  6  Wash.  St.  181;  s.  c., 
83  Pac.  Rep.  345;  Heims  Brewing 
Co.  v.  Flannery,  (1891)  137  111.  309; 
Watts-Campbell  Co.  v.  Yuengling, 
51  Hun,  302;  s.  c.,  3  N.  Y.  Supp. 
869.  The  right  to  object  to  sucli 
contracts,  or  raise  the  question  of 
ultra  vires:  Baker  v.  North  Western 
Guaranty  Loan  Co.,  36  Minn.  185; 
s.  c.,  30  N.  W.  Rep.  464;  Starin 
v.  Edson,  112  N.  Y.  206;  s.  c.,  19 
N.  E.  Rep.  670.  In  Main  r.  Casserly. 
(1885)  67  Cal.  127,  a  corporation  which 
had  received  and  retained  the  consid- 
eration of  a  promissory  note  executed 
by  it  was  held  liable,  although  the  note 
was  executed  in  pursuance  of  a  con- 
tract ultra  vires. 

3  Humphrey  t>.  Patrons,  etc.,  Associ- 
ation, 50  Iowa,  607. 

4  Ibid. 


§279]  ULTRA  VIRES  —  PRIVATE  CORPOR  AT  I  -t'.'l 

to  sell  and  convey  all  its  corporate  property,  pn>\  ided  tin-  sale  !>•• 
made  for  corporate  or  lawful  purposes,  and  strangers  taking  a 
conveyance  of  such  property  have  a  right  to  a--iinie,  as  again-t 
tin-  corporation,  that  tho  sale  was  for  a  lawful  purpose.  And  if 
the  validity  of  such  a  sale  be  contested  l»y  the  corporation  on  the 
ground  that  it  was  in  ado  for  an  unlawful  purpose  it  would 
devolve  upon  the  corporation  to  show  that  the  party  making  the 
purchase  knew  of  such  unlawful  purpose.1  Even  if  unlawful 
for  a  corporation  to  make  a  sale  of  all  its  property  to  another 
corporation,  and  receive  in  payment  therefor  the  stock  of  the 
grantee  to  be  distributed  among  its  own  stockholders,  if  such  sale 
is  made,  and  the  contract  fully  executed,  the  corporation  it-elf 
cannot  receive  back  the  property  sold  or  set  aside  the  contract 
on  account  of  its  illegality.* 

1  Miners'  Ditch  Company  t.  Zeller-  second  sense,  the  right  of  the  corpora- 
bach,  (1869)  37  Cal.  543.  tion  to  avail  itself  of  the  plea  will  .!-•- 

*Ibid.  SAWTEK,  Ch.  J.,  said:  "The  pend  upon  the  circumstances  of  tin: 
term  nit ra  tires,  whether  with  strict  case.  The  opinions  in  the  cases  below 
propriety  or  not,  is  also  used  in  differ-  are  extracted  from  freely  to  show  the 
ent  senses.  An  act  is  said  to  be  ultra  class  of  circumstances  under  which  tln> 
vires  when  it  is  not  within  the  scope  of  plea  of  ultra  tires  would  not  be  avail- 
the  powers  of  the  corporation  to  per-  able  to  the  corporation,  to  wit:  1 
form  it  under  any  circumstances  or  for  r.  Michigan  Southern  &  Northern  In- 
any  purpose.  An  actis  also  sometimes  diana  I?.  R.  Cos.,  22  N.  Y.  262;  Mayor 
said  to  be  ultra  tires  with  reference  to  "of  Norwich  r.  Norfolk  Railway  dun- 
the  rights  of  certain  parties,  when  the  pany,  30Eng.  L.  &Eq.  128;  McGregor 
corporation  is  not  authorized  to  per-  P.  Dover  &  Deal  Railway  Co.,  17  Jur. 
form  it  without  their  consent;  or,  with  21;  8.  c.,16Eng.  L.  &  Eq.  180;  Simp- 
reference  to  some  specific  purpose,  son  v.  Denison,  10  Hare,  51;  Simpson 
when  it  is  not  authorized  to  perform  it  r.  Denison,  13  Eng.  L.  &  Eq.  359; 
for  that  purpose,  although  fully  within  Eastern  Counties  Railway  Co.  r. 
the  scope  of  the  general  powers  of  the  Hawkcs,  35  Eng.  L.  &  Eq.  9;  Edwards 
corporation,  with  the  consent  of  the  r.  Grand  Junction  Railway  Co.,  1  Myl. 
parties  interested,  or  for  some  other  &  Cr.  674;  Treadwell  r.  Salisbury 
purpose.  And  the  rights  of  strangers  Manufacturing  Co.,  7  Gray,  393.  Es- 
dealing  with  corporations  may  vary  top  pel  to  plead  tiltm  vires :  Pauly  r. 
according  as  the  act  is  ultra  tires  in  Pauly,  (Cal.  1895)  40  Pac.  He  p  -".'. 
one  or  the  other  of  these  senses.  All  Fanners'  Loan  &  Trust  Co.  r.  Toledo. 
these  distinctions  must  be  constantly  A.  A.  &  N.  M.  Ry.  Co.,  (IHU'o  »>?  Fed. 
borne  in  mind  in  considering  a  ques-  Rep.  49;  Roy  &  Co.  r.  Scott.  1  {art Ivy 
tion  arising  out  of  dealings  withacor-  &  Co..  (Wash.  1895)  89  Pac.  Ht-j>.  •:?! 
poration.  When  an  act  is  ultra  ri res  (stockholders  estopped):  Cent  nil  Build 
in  the  first  sense  mentioned  it  is  gen-  ing  &  Loan  A-sodation  /•.  Ijunp-on. 
crally,  if  not  always,  void  in  t»l»,  and  (Minn.  IS'.I.'M  r,-,'  N.  W.  Ut-p.  .Y4-1  cuu 
the  corporation  may  avail  itself  of  thr  receiving  tin-  benefit  of  a  loan  r- 
plea.  But  when  it  is  ultra  tire*  in  tin-  topped.;  Ben-irk  r.  Thomas,  (1895)  66 


492  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.     [§§  280,  281 

§  280.  When  the  doctrine  of  ultra  vires  is  not  applicable. 

—  In  an  action  against  a  corporation  to  recover  money  lost  upon 
wagering  contracts  which  the  plaintiff  had  entered  into  through 
and  with  an  agent  of  the  corporation,  the  latter  objected  to  a 
recovery  against  it  on  the  ground  that  it  was  a  corporation  author- 
ized to  do  a  legitimate  business,  and  that,  as  it  could  not  lawfully 
authorize  its  agents  to  do  an  illegitimate  business,  it  could  not  be 
bound  by  his  acts  in  the  prosecution  of  it ;  that  the  attempt  to 
confer  such  authority  would  be  ultra  vires,  and  the  attempted 
ratification  of  the  agent's  acts  equally  so.  The  Supreme  Court 
of  New  York,  in  General  Term,  through  LANDON,  J.,  to  this  con- 
tention, said :  "  The  position  is  untenable.  A  person,  equally 
with  a  corporation,  has  no  lawful  power  to  do  wrong ;  but  both 
have  the  capacity  to  act,  and  the  capacity  to  act  amiss  inheres  in 
the  capacity  to  act  at  all.  Given  the  power  and  capacity  to  do 
right,  the  actor  may  nevertheless  do  wrong.  Unless  the  actor  is 
wholly  irresponsible,  he  must  answer  for  his  wrong  action,  partly 
in  justice  to  those  injured  thereby,  and  partly  as  a  deterrent  to  its 
like  repetition  by  himself  and  others.  If  the  agents  of  a  railroad 
corporation  take  my  timber  or  iron  against  my  consent,  and  con- 
vert it  into  a  bridge,  to  the  use  of  the  corporation,  the  corpora- 
tion must  either  restore  my  property  or  pay  me  for  it.  Here  the 
defendant  corporation  has  obtained  the  plaintiff's  money.  It  was 
obtained  by  means  of  wager  contracts.  Confessing  that  it  has  the 
money,  the  defendant  practically  argues  that,  because  it  could  not 
thus  obtain  it  within  its  lawful  powers,  it  does  not  really  have  it. 
Pretending  to  disclaim  the  transactions  by  which  it  obtained  the 
money,  it  practically  argues  that  its  pretended  disclaimer  gives  it 
title  to  keep  the  money.  But,  in  truth,  it  cannot  perfect  its  dis- 
claimer of  the  transaction  without  surrendering  its  fruits  ;  it  can- 
not retain  the  money  without  adopting  its  agent's  method  of 
obtaining  it ;  it  cannot  insist  upon  a  defense  so  long  as  it  refuses 
to  qualify  itself  to  interpose  it.  The  doctrine  of  ultra  vires  is  no 
wise  applicable  to  the  case."  * 

§  281.  Rules  declared  by  courts  as  to  estoppel  of  parties 
to  contracts  with  corporations  to  plead  ultra  vires. — One 

Fed.  Rep.  104  (corporation  estopped);       '  Peck  v.  Doran  Wright  Co.   (Lim- 
Miller   r.  Washington    Southern  Ry.    ited),  (1890)  10  N.  Y.  Supp.  401. 
Co.,  (Wash.    1895)  39  Pac.    Rep.   673 
(corporation  estopped). 


§  281]  ULTRA  VIRES  —  PRIVATE  CORPORATIONS. 

who  lias  ivrrivnl  from  a  corporation  the  full  consideration  of  his 
agreement  to  pay  money  cannot  avail  himself  of  the  objection 
that  the  contract  is  ultra  vires.1  As  corporations  are  created  l>y 
public  acts  of  the  legislature,  and  all  their  powers,  duties  and  obli- 
gations are  declared  and  clearly  defined  by  public  law,  parties 
dcnling  with  them  must  take  notice  of  those  powers  and  the  limi- 
tations upon  them  at  their  peril,  and  will  not  be  allowed  to  plead 
ignorance  of  those  powers  and  limitations  in  avoidance  of  the 
defense  of  ultra  vires?  The  defense  that  a  corporation  had  no 
power  under  its  charter  to  discount  notes  is  not  open  in  an  action 
by  the  corporation  against  the  maker  upon  a  note  discounted  by 
the  corporation  for  him  at  his  instance.3  Where  a  corporation 
indorses  notes  for  another,  and  is  compelled  to  pay  them,  in  the 
absence  of  an  express  prohibition  against  such  indorsements  by  the 
corporation,  he  for  whose  benefit  the  indorsement  was  made  tan- 
not  invoke  the  plea  of  ultra  vires  as  a  defense  against  the  enforce- 
ment of  a  chattel  nwrtgage  to  secure  the  corporation  against  its 
liability  upon  the  notes.4  The  defense  cannot  be  made,  in  an 

•Chicago   &    Atlantic    Ry.    Co.  v.  ing  by  the  state  against  the  corporation, 

Derkes,  (1885)  103  Ind.  520.  and  not  in  a  collateral  proceeding  by 

'Franklin     Company    t>.    Lewiston  another,  except  when   the  charter  <>f 

Institution  for  Savings,  (1877)  68  Me.  the  corporation  not  only  specifies,  and, 

48;   citing  Pearce  r.  Madison  &  Ind.  therefore,  limits  it  to  the  business  in 

Railroad,  21    How.  441;    Andrews  T.  which  it  may  engage,  but,  by  express 

Insurance  Co.,  87  Me.    256.     Parties  terms,  or  by  a  fair  implication  from  its 

receiving  benefit  of  contract  cannot  in-  terms,  invalidates  transactions  outside 

sist  that  contract  was  ultra  vires.  Shelby  of  its  legitimate   corporate  business. 

r    Chicago  &  Eastern  Illinois  R.  R.  Mclndoe  t>.    St.    Louis,   10    Mo.   .'.77. 

Co.,  (1892)  143  111.  385;  s.  C..82N.  E.  Chambers  c.  St.  Louis,  29    Mo.    548; 

Rep.  488,  affirming  42  111.  App.  339.  Pacific  R.  R  Co.  t.  Seely,  45  Mo.  -JPJ; 

•St.  Joseph  Fire  &  Marine  Insurance  Land  r.  Coffman,  50  Mo.  243.     Since 

Co.  t?.  Hauck,  (1880)  71  Mo,  465.  Matthews  r.  Skinker,  supra,  was  de- 

4 St.  Louis  Drug  Co.  r.  Robinson,  cided  announcing  a  different  doctrine, 
(1881)  10  Mo.  App.  587 ;  affirmed  in  in  the  following  cases  this  court  re- 
8t.  Louis  Drug  Co.  r.  Robinson,  (1883)  turned  to  the  doctrine  of  the  earlier 
Ml  Mo.  18,  in  which  case  the  Supreme  cases  :  A.  &  P.  R.  R.  Co.  c.  St.  Louis, 
Court  said  :  "  Conceding  that  [the  cor-  66  Mo.  228;  St.  Jog.  Fire  &  M.  Ins. 
poration  had  no  authority  to  indorse  Co.  r.  Hauck,  71  Mo.  465;  Thornton 
notes  for  the  accommodation  of  others]  r.  National  Ex.  Hunk.  71  Mo.  *2'2\ ; 
it  is  sufficient  on  this  point  to  say  that  Union  Nat.  Rank  r.  Hunt.  76  M 
in  a  line  of  decisions  of  this  court  un-  The  judgment  of  this  court  in  Mat- 
broken,  except  in  the  case  of  .Matt  he\vs  thews  F.  Skinker,  titpra,  was  on  ap- 
r.  Skinker,  62  Mo.  329,  it  has  been  peal  reversed  by  the  Supreme  Court 
held  that  the  question  of  ultra  rir<*  of  the  United  States,  and  the  doctrine 
can  only  be  raised  in  a  direct  proceed-  then  announced  by  that  court  is  in 


494  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§281 

action  by  a  corporation  upon  a  contract  made  by  it  with  the 
defendant,  that  the  corporation,  in  making  the  contract,  has 
exceeded  the  power  conferred  by  its  charter  or  the  law  under 
which  it  is  formed.1  The  vendor  to  a  corporation  having  power 
to  purchase  real  estate,  but  prohibited  by  its  charter  from  making 
purchases  for  other  than  a  prescribed  purpose,  having  made  a 
deed  to  the  corporation,  cannot  have  the  conveyance  set  aside 
and  his  contract  rescinded  on  the  ground  that  the  corporation,  in 
taking  the  conveyance,  did  so  for  a  purpose  other  than  that  pre- 
scribed in  its  charter,  and  had  exceeded  its  power.2  The  question 
whether,  in  such  a  case  as  this,  the  corporation  has  exceeded  its 
powers,  is  one  between  the  state  and  the  corporation,  with  which 
a  vendor,  as  a  grantor  simply  of  land  to  the  corporation,  has  no 
concern.3  An  assignee  of  railroad  stock,  who  had  neither  regis- 
tered his  stock  nor  obtained  recognition  as  a  stockholder,  it  has 
been  held  in  a  federal  court,  cannot  bring  suit  in  behalf  of  him- 

harmony  with  that  which  before  had  government  for  that  purpose,  and  it 

been  uniformly,  and  has  since   been  cannot  be  had  in  a  collateral  way  by 

repeatedly,  declared    by  this  court."  individuals.      Grand     Gulf    Bank    v. 

See,   also,    Franklin  Ave.    Ger.    Sav.  Archer,    8   Smedes  &    M.    151,    173; 

Inst.  r.  Board  of  Education,  (1882)  75  Wade    v.  American  Colonization   So- 

Mo.  408;   First  National  Bank  v.  Gil-  ciety,  7  Smedes  &  M.   663;  Nevitt  v. 

lilan,  (1880)  72  Mo.  77.     It  has  been  Bank  of  Port  Gibson,  6  Smedes  &  M. 

held  in  Brown  r.   Donnell,  (1860)  49  513:  Chester  Glass  Co.  v.  Dewey,-16 

Me.  421,  an  action  against  the  maker  Mass.  102;  Moss  V.  Rossie  L.  M.  Co.,  5 

by  the  indorsee  of  a  note  given  to  an  Hill,    140;   The  Banks  t.  Poitiaux,  3 

insurance  company  and  by   the  cor-  Rand.  142, 146;  Vidal  v.  Girard's  Exrs. , 

poration  transferred    in  payment    of  2  How.  191;  Fleckner  v.  U.  S.  Bank,  8 

bank  stock  purchased  by  it,  the  maker  Wheat.  355;  Natoma  W.  &  M.  Co.  t>. 

of  the  note  could  not  controvert  the  Clarkin,  14  Cal.  552. 
rights  of  the  corporation  to  purchase        "Hough  v.   Cook   Land  Co.,  (1874) 

the  stock.  73  111.  23. 

1  Union  Water  Co.  v.  Murphy's  Flat  3  Ibid. :  citing  Banks  v.  Poitiaux,  3 
Fluming  Co.,  (1863)  22  Cal.  621.  It  Rand.  141;  Barrow  v.  N.  &  C.  T. 
was  said  by  the  court :  "In  numerous  Co.,  9  Humph.  304:  Chambers  n.  St. 
cases  it  has  been  held  that  a  contract  Louis,  29  Mo.  576;  Attorney-General 
made  by  a  corporation  which  is  not  u.  Tudor  Ice  Co.,  104  Mass.  239;  Whit- 
authorized  by  its  charter  is  not  to  be  man  Mining  Co.  v.  Baker,  3  Nev.  391; 
held  void,  and  that  a  defendant  sued  Hayward  v.  Davidson,.  41  Ind.  212. 
thereon  cannot  refuse  payment;  but  That  the  state  alone  can  raise  objec- 
the  legislature  may  inquire  into  any  tion  to  an  ultra  vires  act,  see  Alexander 
violation  of  the  charter,  or  the  govern-  v.  Tolleston  Club  of  Chicago,  (1884) 
ment  may  institute  suit  for  that  pur-  110  111.  65;  Barnes  v.  Suddard,  117 
pose.  The  investigation  must  be  in  111.  237;  People's  Gas,  etc.,  Co.  v. 
a  direct  proceeding  instituted  by  the  Chicago  Gas,  etc.,  Co.,  20  Bradw.  473. 


•  -  1  )  ULTRA  VIKES 1'KIVATl.  «  '  >KI'<  >i:.\  1 

self  and  other  .-tockholders  to  restrain  the  action  of  the  officers  of 
tin- corporation  from  acts  alleged  to  be  -ulti-n  /•/'/•<•/*  and  illegal.1 
When-  one  buys  laiul  without  knowledge  of  to  oatetaBdihig  equity, 
and  his  note,  given  for  a  portion  of  the  price,  secured  by  vendor's 
lien,  is  taken  by  a  corporation  to  >ecnre  a  loan,  the  owner  of  this 
out.-tandini:  equity  cannot,  in  an  action  to  enforce  it,  set  up  that 
the  aet  of  the  corporation  in  taking  the  note  was  ultra  vires.9  A 
homestead  loan  association  made  a  loan  of  money  to  two  of  its 
members  for  the  use  of  a  brewing  company,  the  latter  giving  its 
deed  of  trust  to  the  association  to  secure  the  loan.  There  was  no 
fraud  in  the  loan  and  nothing  to  mislead  the  parties  in  whose 
names  the  loan  was  made.  The  Illinois  Supreme  Court  held  that 
as  the  brewing  company  could  not  avoid  its  deed  of  trust  under 
the  plea  of  ultra  vires,  the  parties  to  whom  the  loan  was  made 
were  also  estop jx;d  from  availing  of  the  defense,  and  that  the  deed 
of  trust  might  be  foreclosed  as  against  them  and  other  creditor- 
of  the  brewing  company  having  notice  of  the  rights  of  the  loan 
•iation.8  It  is  no  defense  to  a  note  given  by  one  not  a  mem- 

1  Brown    r.   Duluth,    M.    &  N.   Ry.  other  words,  the  transactions  were  at 

('<>.   (1898)    58    Fed.   Rep.  889.      See  most  ultra  rire*,  in  the  commonly  un 

Heath  r.  Railway  Co.,  8  Blatchf.  347,  derstood  sense  of  these  words,    and 

892,  410;    Ramsey  r.  Erie  Ry.  Co.,  7  nothing  more.      As  said  in  Whitney 

Abb.    Pr.    (N.    S.)    156;     Hersey    r.  Arms  Co.  r.  Barlow,  63  N.  Y.  62,  citeil 

/.ie,  24  Me.  9.  with  approval  by  this  court  in  Darstr. 

'Taylor    c.    Callaway,    (Tex.    Civ.  Gale,  83  111.  141,   '  the  acts  were  not 

App.  1894)  27  S.  W.  Rep.  934.     See,  immoral  in  themselves  or  forbidden  by 

upon  the  question  of  estoppel  to  deny  any  statute,  neither  mnln  in  «e  or  mala 

the  power  of  a  corporation  to  do  an  prohibits,  so  as  to  make  the  contract 

«rt.    IJorol    r.    Manufacturing  Co.,   82  illegal    and    incapable   of    being   the 

Tex.  309;    s.   c.,  18  8.   W.   Rep.  691,  foundation  of  an  action.     Such  a  con- 

and  authorities  there  cited,    Bank   r.  tract  as  the  law  will  not  recognize  or 

Matthews,  98    U.    S.    621;     Smith  r.  enforce,   but  applying  the  maxim  eo 

White,  (Tex.  Civ.  App.)  25  8.W.  Rep.  facto  illicit^  nonorit uraetio,  leaves  the 

809;  Keys  0.  Association,  (Tex.  Civ.  parties  as  it  found  them.'     It  is  also 

App.)  25  8.  W.  Rep.  808.  said  in  that  case:     '  When  acts  of  cor- 

;|  Kadish  r.  Garden  City  Equitable  porations  are  spoken  of  as  nltr,i  (,/-,.« 
Loan  &  Building  Association,  (1894)  it  is  not  intended  that  they  are  unlaw- 
151  111.  581.  The  court  said:  "There  fill  or  even  such  as  the  corporation 
is  *  *  *  no  prohibition  in  the  stat  cannot  perform,  but  merely  those 
ute  against  corporations  becoming  which  are  not  within  the  j>ower  con- 
members  of  homestead  loan  associa-  ferretl  upon  tin-  corporation  by  the  art 
tions  for  the  purpose  of  borrowing  of  its  creation,  and  are  in  violation  of 
money;  neither  is  there  any  prohibi-  the  trust  reposed  in  the  managing 
tion  therein  againat  loaning  money  for  board  by  tin-  stockholders,  that  tho 
other  than  building  purposes.  In  affaire  shall  be  managed  and  the  funds 


496  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  [§  281 

her  of  a  building  association  for  money  loaned  him  that  the  cor- 
poration exceeded  its  powers  in  loaning  the  money  for  which  the 
note  was  given.1  In  a  Michigan  case,  a  manufacturing  corpora- 
tion, outside  of  the  purposes  for  which  it  was  incorporated,  con- 
tracted with  a  party  for  a  stated  quantity  of  a  manufactured 
article  at  a  certain  price,  and  then  made  a  contract  with  another  to 
manufacture  the  same  and  deliver  it  to  him  at  such  a  price  as  left 
a  profit  to  the  corporation.  This  contract  was  deemed  an  ultra 
vires  contract,  as  being  a  contract  purely  for  a  speculative  pur- 
pose, and  the  manufacturer  bringing  an  action  against  the  corpo- 
ration on  a  quantum  meruit  for  goods  delivered  under  the  con- 
tract, the  corporation  sought  to  recoup  for  damages  by  reason  of 
non-performance  of  the  contract.  The  Supreme  Court  held  that 
the  plaintiff  was  not  estopped  from  claiming  that  the  contract 
was  ultra  vires?  The  court  further  held  that  there  being  noth- 

applied  solely  for  carrying  out  the  ob-  ception  was  ultra  vires.  And  the 
ject  for  which  the  corporation  was  power  on  the  part  of  such  a  corpora- 
created.  *  *  *  It  is  now  very  well  tion  to  enter  into  contracts  of  specula- 
settled  that  a  corporation  cannot  avail  tion  being  withheld  on  reasons  of  pub- 
itself  of  the  defense  of  ultra  tires  lie  policy  for  the  protection  of  share- 
when  the  contract  has  been  in  good  holders  and  the  general  good  of  the 
faith  performed  by  the  other  party,  community,  the  act  neither  of  one 
and  the  corporation  has  had  the  full  party  nor  of  both  in  entering  into  it 
benefit  of  the  performance  of  the  con-  can  work  an  estoppel  agiiinst  setting 
tract.  *  *  *  The  same  rule  holds  up  the  invalidity.  A  rule  of  law  es- 
e  converse.  If  the  other  party  has  tablished  for  the  public  good  cannot 
had  the  benefit  of  the  contract  fully  be  thus  defeated.  A  corporation  can- 
performed  by  the  corporation  he  will  not,  by  the  mere  act  of  individuals,  be 
not  be  heard  to  object  that  the  contract  given  a  power  which  the  state,  for 
and  performance  were  not  within  the  general  reasons,  has  withheld  from  it. 
legitimate  powers  of  the  corporation.'"  Pennsylvania,  etc.,  Nav.  Co.  v.  Dan- 
See  Benefit  Association  v.  Blue,  120  111.  dridge,  8  Gill  &  J.  (Md.)  248,  31ft. 
128;  Bradley  v.  Ballard,  55  111.  415;  2  Parties  may  also  be  estopped  in  some 
Beach  on  Priv.  Corp.  §  425  et  seq.,  cases  from  disputing  the  validity  of  a 
for  a  full  discussion  of  the  subject;  corporate  contract  when  it  has  been 
Carson  City  Sav.  Bank?.  Elevator  Co.,  fully  performed  on  one  side,  and  when 
90  Mich.  550;  Holmes  &  Griggs  Co.  v.  nothing  short  of  enforcement  will  do 
Metal  Co.,  127  N.  Y.  252;  8.  c.,  24  Am.  justice.  To  quote  the  language  of 
St.  Rep.  448.  COMSTOCK,  Ch.  J.,  in  Parish  r.  Wheeler, 

1  Poock  v.  Lafayette  Building  Asso-  22  N.  Y.  494,  508,  '  the  executed  deal- 

ciation,  (1880)  71  Ind.  357.  ings  of  corporations  must  be  allowed 

*  Day  v.  Spiral  Springs  Buggy  Co.,  to  stand  for  and  against  both  the  par- 

(1885)  57  Mich.  146.  COOLEY,  Ch.  J.,  ties  when  the  plainest  rules  of  good 

said:  "  [The  parties  to  this  contract]  faith  so  require.'  But  this  is  not  such 

must,  therefore,  be  supposed  to  have  a  case.  The  contract  has  only  been 

understood  that  the  contract  in  its  in-  performed  in  part.  The  defendant 


§  282]  ULTRA  VIRES  —  PRIVATE  CORPORATIONS.  497 

ing  of  mi  immoral  nature  in  this  contract,  flu-  plaintif*  was  entitled 
to  recover  the  value  of  her  goods  delivered  on  the  contract  to  tin- 
corporation  upon  a  quantum  merit / 't .'  If  a  corporation  had  no 
power  to  purchase  a  note  and  mortgage  upon  which  it  brings 
suit  that  fact  should  be  pleaded  as  a  defense.2  Where  one  lias 
made  a  contract  with  a  corporation  which  is  ultra  /•/'/•/ •*,  and  has 
received  the  benefit  of  it,  neither  he  nor  those  claiming  under 
him  are  estopped  from  setting  up  the  invalidity  of  the  contract  in 
defense  of  a  suit  to  enforce  it.8 

§  282.  Financial  arrangements  contrary  to  public  policy  - 
rules  governing  proceedings  on  the  part  of  the  state,  etc. 
—In  proceedings  on  the  part  of  the  state  to  dissolve  a  corpora- 
tion on  account  of  its  illegal  or  unwarranted  acts,  the  state,  as 
prosecutor,  must  show  on  the  part  of  the  corporation  accused 
some  sin  against  the  law  of  its  being  which  has  produced  or  (ends 
to  produce  injury  to  the  public.  The  transgression  must  not  be 
merely  formal  or  incidental,  but  material  and  serious,  and  such  as 
to  harm  and  menace  the  public  welfare.  When  the  transgression 
threatens  the  welfare  of  the  people,  they  may  summon  the 

lias  received  a  portion  of  the  property  Thomas  P.  Railroad  Co.,  101  U.  S.  71; 
bargained  for,  and  we  may  justly  as-  In  re  Cork  &  Y.  Ky.  Co.,  L.  H.,  4  Ch. 
sume  that  what  has  been  received  has  App.  748;  In  re  National,  etc. ,  Society, 
passed  into  the  hands  of  [the  vendee  L.  R.,  5  Ch.  App.  309. 
of  the  corporation]  and  been  paid  for.  *  Thomson  r.  Madison  Building  & 
so  that  the  defendant  will  lose  nothing  Aid  Association,  (1885)  103  Ind. 
but  the  anticipated  profits  on  the  re-  *  Chambers  r.  Falkncr,  (1880)  65 
mainder  if  the  contract  is  not  enforced  Ala.  448.  In  Marion  Savings  Bank  r. 
in  its  favor.  Those  profits  it  had  no  Dunkin,  54  Ala.  471,  Justice  > 
right  at  any  time  to  count  upon,  and  of  the  Alabama  Supreme  Court  has 
in  contemplation  of  law  there  can  be  said:  "A  party  dealing  with  a  cor- 
no  injustice  in  depriving  it  of  profits  poratiou,  in  a  matter  not  within  the 
which  the  law  would  not  permit  it  to  purview  of  its  delegated  powers,  does 
bargain  for.  No  valid  ground  for  es-  not  estop  himself  from  setting  up  in 
toppel  is,  therefore,  found  to  exist  in  defense  the  want  of  authority  in  the 
the  case."  corporation  to  make  the  contract  *  *  *. 
1  Day  v.  Spiral  Springs  Buggy  Co.,  In  such  case  the  doctrine  of  estoppel 
(1885)57  Mich.  146.  The  ruling  the  cannot  be  held  to  apply  without  cloth- 
court  considered  sustained  by  Pratt  r.  ing  cor|K>rutions  with  the  ability  to  in- 
Short,  79  N.  Y.  487;  Northwestern  crease  their  powers  indefinitely  by 
Union  Packet  Co.  r.  Shaw,  87  WIs.  sheer  usurpation.  Such  contracts  on 
655,  and  Harriman  r.  Baptist  Church,  the  part  of  a  corporation  are  nHrarirex 
63  Oa.  186,  and  cited  as  cases  < -..nMder-  and  void,  and  no  right  of  action  can 
ing  the  principle  involved.  Whitney  spring  out  of  them." 
Arms  Co.  v.  Barlow,  63  N.  Y.  62; 
63 


498  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  282 

offender  to  answer  for  the  abuse  of  its  franchise  or  the  violation 
of  its  corporate  duty.  These  are  the  rules  declared  by  the 
Court  of  Appeals  of  New  York  when  considering  the  people's 
case  against  a  corporation  organized  under  the  statutes  of  that 
state  for  the  formation  of  manufacturing  corporations  which  had 
surrendered  its  stock  under  an  agreement  with  other  similar  cor- 
porations for  the  purpose  of  forming  a  "  trust."1  By  the  agree- 
ment entered  into  by  the  corporation  immediately  involved  in  the 
case  with  the  others  concerned,  a  "  board,"  as  it  was  called,  was 
formed.  The  signers  agreed  to  transfer  all  their  shares  of  stock 
"  to  the  names  of  the  board  as  trustees,  to  be  held  by  them  and 
their  successors  as  members  of  the  board  strictly  as  private 
tenants."  This  board,  it  was  declared,  "  shall  hold  the  stock  trans- 
ferred to  it  with  all  the  rights  and  powers  incident  to  stockhold- 
ers in  the  several  corporations."  It  was  also  authorized  to  trans- 
fer "  to  such  persons  as  it  may  be  desired  to  constitute  trustees  or 
directors  or  other  officers  of  corporations  so  many  of  the  shares 
as  may  be  necessary  for  that  purpose."  The  agreement  provided 
that  certificates  should  be  issued  by  the  "  board  "  to  the  contract- 
ing parties  in  specified  proportions  in  lieu  of  the  capital  stock  ; 
that  each  of  the  parties  should  maintain  a  separate  organization 
and  carry  on  and  conduct  its  own  business,  paying  over  the  profits 
to  the  board,  "  the  aggregate  or  such  amount  as  shall  be  desig- 
nated for  dividends."  to  be  pronortionally  distributed  by  the 
board  to  the  holders  of  the  certificates.  The  board  was  prohib- 
ited from  taking  any  action  "  which  shall  create  liability  by  it  or 
by  its  members,"  but  there  was  a  provision  that  the  funds  neces- 
sary to  enable  the  board  to  make  payments  as  specified  "  may  be 
raised  by  mortgage  to  be  made  by  the  corporations,  or  any,  either 
or  all  of  them,  upon  their  property."  The  number  and  amount 
of  shares  to  be  issued  by  the  board  was  fixed  with  a  proviso  that 
they  "  may  from  time  to  time  be  increased  or  diminished  by 
deeds  executed  by  a  majority  in  value  of  the  certificate  holders." 
Defendant's  stock  was  transferred  and  certificates  issued  to  its 
stockholders  as  provided  for.  The  board  elected  officers  and 
board  of  trustees  of  defendant,  having  transferred  to  each  of 
them  a  share  of  the  stock  to  enable  him  to  hold  the  office.  The 
effect  of  this  transaction,  as  far  as  concerned  defendant,  was 
stated  by  the  court  to  be  "  to  divest  it  of  the  essential  and  vital 

1  People  r.  North  River  Sugar  Refining  Conipauj',  (1890)  121  N.  Y.  583. 


•-2]  ULTRA  VIBES —  PRIVATE  CORPORATIONS.  499 

clement.-  of  its  f ran cl list?  by  placing  them  in  trust;  to  accept 
from  the  state  the  gift  of  corporate  life  only  to  disregard  the 
conditions  upon  which  it  was  given  ;  to  receive  its  powers  and 
privileges  merely  to  put  them  in  pawn,  and  to  give  away  to  an 
:.oiisible  "board  its  entire  independence  and  self-control. 
Wlien  it  had  passed  into  the  hands  of  the  trust  only  a  shell  of  a 
corporation  was  left  standing,  as  a  seeming  obedience  to  the  law, 
but  with  its  internal  structure  destroyed  or  removed.  Its  stock- 
holders, retaining  their  benefici:il  interest,  have  separated  from  it 
their  voting  power  and  so  parted  with  the  contract  which  the 
charter  gave  them  and  the  state  required  them  to  exercise.  It 
has  a  board  of  directors  nominally  and  formally  in  office,  but 
qualified  by  shares  which  they  do  not  own,  and  owing  their  offi- 
cial life  to  the  board  which  can  end  their  power  at  any  moment 
of  disobedience.  It  can  make  no  dividends,  whatever  may  be  its 
net  earnings,  and  must  incumber  its  property  at  the  command  of 
its  master  and  for  purposes  wholly  foreign  to  its  own  corporate 
interests  and  duties."  "  In  all  these  respects,"  said  the  court,  "  it 
has  wasted  and  perverted  the  privileges  conferred  by  the  charter, 
abused  its  powers  and  proved  unfaithful  to  its  duties.  But 
graver  still  is  the  illegal  action  substituted  for  the  conduct  which 
the  state  had  a  right  to  expect  and  require.  It  has  helped  to 
create  an  anomalous  trust,  which  is,  in  substance  and  effect,  a 
partnership  of  twenty  separate  corporations.  The  state  permits 
in  many  ways  an  aggregation  of  capital,  but,  mindful  of  the  pos- 
sible dangers  to  the  people  overbalancing  the  benefits,  keeps 
upon  it  a  restraining  hand,  and  maintains  over  it  a  prudent 
supervision  where  such  aggregation  depends  upon  its  permission 
and  grows  out  of  its  corporate  grants.  It  is  a  violation  of  law 
for  corporations  to  enter  into  a  partnership."1  Referring  later  in 
their  opinion  to  this  trust  formed  by  the  several  corporations, 
having  a  capital  stock  double  the  value  of  the  fair  aggregate 
value  of  the  rights  and  franchises  of  the  companies  absorbed  at 
the  outset  and  capable  of  an  elastic  and  irresponsible  increase,  the 
court  said :  "And  here,  I  think,  we  gain  a  definite  view  of  the 
injurious  tendencies  developed  by  its  organization  and  operation 
and  of  the  public  interests  which  are  menaced  by  its  action.  As 
corporate  grants' are  always  assumed  to  have  been  made  for  the 

1  Ibid. ;   citing  N.  Y.  &  8.  C.  Co.  t.    Meredith,    1     Wall.    29;    Whittenton 
F.  Bank,  7  Wend.  412;   Clearwater  r.    Mills  r.  Upton.  10  Gray,  596. 


500  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  282 

public  benefit,  and  conduct  which  destroys  their  normal  func- 
tions and  maims  and  cripples  their  separate  activity  and  takes 
away  their  free  and  independent  action,  must  so  far  disappoint 
the  purpose  of  their  creation-  as  to  affect  unfavorably  the  public 
interest,  and  that  to  a  much  greater  extent  when  beyond  their 
own  several  aggregations  of  capital  they  compact  them  all  into 
one  combination,  which  stands  outside  of  the  hand  of  the  state, 
which  dominates  the  range  of  an  entire  industry  and  puts  upon 
the  market  a  capital  stock,  proudly  defiant  of  actual  values,  and 
capable  of  an  unlimited  expansion."  1  If  the  business  of  a  cor- 
poration is  threatened  with  competition,  it  is  not  illegal  or 
immoral  if  it  can  persuade  its  competitor  to  abandon  an  enter- 
prise in  which  both  cannot  succeed  upon  the  basis  of  some  proper 
consideration  therefor.3  In  an  Ohio  case  the  Supreme  Court 
said  :  "  Where  all  or  a  majority  of  the  stockholders  comprising 
a  corporation  do  an  act  which  is  designed  to  affect  the  property 
and  business  of  the  company,  and  which,  through  the  control 
their  numbers  give  them  over  the  selection  and  conduct  of  the 
corporate  agencies,  does  affect  the  property  and  business  of  the 
company  in  the  same  manner  as  if  it  had  been  a  formal  resolution 

1  People  V.  North  River  Sugar  Re-  fore,  the  provisions  of  agreements  in. 
fining  Co.,  (1890),  121  N.  Y.  582,  restraint  of  competition  tend  beyond 
holding  that  the  corporation  had  vio-  measures  for  self-protection  and 
lated  its  charter  and  failed  in  the  per-  threaten  the  public  good  in  a  dis- 
formance  of  ito  corporate  duties,  tinctly  appreciable  manner,  they 
and  in  respects  so  material  and  im-  should  not  be  sustained.  The  appre- 
portant  as  to  justify  a  judgment  of  hension  of  danger  to  the  public  inter- 
dissolution.  In  Leslie  v.  Lorillard,  ests,  however,  should  rest  on  evident 
(1888)  110  N.  Y.  519,  533,  the  New  grounds,  and  courts  should  refrain 
York  Court  of  Appeals  said:  "  Corpo-  from  the  exercise  of  their  equitable 
rations  are  great  engines  for  the  pro-  powers  in  interfering  with  and  re- 
motion  of  the  public  convenience  and  straining  the  conduct  of  the  affairs  of 
for  the  development  of  public  wealth,  individuals  or  of  corporations,  unless 
and  so  long  as  they  are  conducted  for  their  conduct,  in  some  tangible  form, 
the  purposes  for  which  organized,  threatens  the  welfare  of  the  public." 
they  are  a  public  benefit;  but  if  all  See  on  this  subject  Shepaug  Voting 
were  to  engage  without  supervision  in  Trust  Cases,  (1890)  60  Conn.  553;  s.  c., 
subjects  of  enterprise  foreign  to  their  24  Atl.  Rep.  32. 

charters,  or  if  permitted  unrestrainedly  8Oakes  T.  Cattaraugus  "Water  Com- 
to  control  and  monopolize  the  avenues  pany,  (1894)  143  N.  Y.  430;  s.  c.,  38 
tc  that  industry  in  which  they  are  N.  E.  Rep.  461;  62  N.  Y.  St.  Rcpr. 
engaged,  they  become  a  public  menace,  445.  See,  also,  Leslie  v.  Lorillard, 
against  which  public  policy  and  stat-  (1888)  110  N.  Y.  519. 
utes  design  protection.  When,  there- 


§282]  ULTRA  VIBES  —  PRIVATE  CORPORATIONS.  501 

of  its  board  of  directors;  and  the  act  so  done  is  ultra  ran 
the  corporation  and  against  public  policy,  and  was  done  by  them 
in  their  individual  rapacity  for  the  purpose  of  concealing  their 
real  purpose  and  object,  the  act  should  be  regarded  as  the  act  of 
the  corporation,  and,  to  prevent  the  alm.-e  •  •!'  corporate  power, 
may  be  challenged  as  such  by  the  state  in  a  proceeding  in  quo 
warranto."1  THAYKR,  J.,  in  the  United  Starrs  Circuit  Court  for 
the  eastern  district  of  Missouri,  refused  an  injunction  to  restrain 
a  Missouri  corporation  from  violating  an  agreement  it  had  entered 
into  not  to  engage  in  the  business  for  which  it  was  organ i/ed  for 
a  period  of  twenty-five  years  upon  the  ground  that  the  agree- 
ment was  void.  He  referred  to  the  trust  agreement  which  had 
been  signed  by  this  and  other  corporations  in  the  same  line  of 
Im.Miiess,  its  various  provisions,  and  held  that  this  corporation 
•ded  its  powers  in  signing  and  becoming  a  party  tj  the  trust 
agreement.2  These  are  rules  declared  by  the  New  Jersey  Court 
of  Chancery  :  The  corporate  acts  of  directors,  if  they  are  within 
the  powers  of  the  corporation,  and  in  furtherance  of  its  purposes 
are  not  unlawful  or  against  good  morals  and  are  done  in  good 
faith  and  in  the  exercise  of  an  honest  judgment,  cannot  be 
questioned  by  individual  stockholders  in  judicial  proceed- 
ings. Contracts  made  by  corporations,  which  appear  to  be 
designed  to  promote  their  legitimate  and  profitable  operation, 
will  be  presumed  by  the  courts,  as  a  general  rule,  to  lie  within 

'State  ex  rel.  r.  Standard  Oil  Cora-  issue    negotiable    securities    without 

pany,  (1892)  49  Ohio  St.  187.  limit,  and  to  declare  dividends  thereon. 

'In  American  Preservers'   Trust  ».  In  all  these  respects,  I  must  conclude 

Taylor  Munufir.   Co.,  (1891)  46  Fed.  that    the    defendant    corporation,   by 

Rep.   152,  it  WHS  said  by  the  court:  executing  the  trust  agreement,  under- 

"  By  [signing  and  becoming  a  party  took  to  exercise  powers  to  which  it 

to  this  agreement  defendant]  united,  could    lay    no    reasonable    claim    by 

with  the  other  corporations  and  indi-  virtue  of  the  law   under  which   it  is 

viduuLs  who  signed  the  agreement,  in  organized,  and  from  which  all  of  it- 

creating  a  partnership  or  joint-stock  powers  are  derived."    Citing  People  r. 

concern,  and  in   furtherance  of  that  North  River  Sugar  Refining  Co.,  (1890) 

enterprise    it    undertook    to   appoint  121  N.  Y.  582;   B,  c.,  24  N    K.   Hi  p. 

agents  to  manage  the  concern  in  its  834;    Mallory  r.   Hanaur  Oil  Works, 

In-half,  and  to  vest  such  agents  with  (1888)  86  Tenn.  598;  8.  c.,  8  8.  W.  K«  p 

authority  to  buy  and  lease  property  in  896;  State  r.  Nebraska  Distilling  Co., 

all    parts   of    the    United    States,    to  (1890)  29  Neb.  700;   8.  c..  46  N.  W. 

obtain    and     exercise     control    over  Ifc -p.  I'M;    Whittenton  Mills  P.  Upton, 

other  corporations  by  arquirinir  their  10  Gray,  596. 
stock,    and    with    power    like\\;^.     r. 


502  ULTRA  VIRES PRIVATE  CORPORATIONS.  [§  282 

the  limits  of  their  power,  and  if  the  validity  of  the  contracts  be 
assailed,  the  assailant  will  be  required  to  assume  the  burden  of 
demonstrating  their  invalidity.  Corporations  organized  under  the 
general  law  of  New  Jersey  are  vested  with  the  powers  conferred 
by  the  general  act,  and  those  contemplated  by  the  certificate,  and 
such  incidental  powers,  with  respect  of  the  general  and  special 
powers,  as  are  necessary  in  the  sense  of  convenient,  reasonable 
and  proper.  While  the  general  act  permits  incorporation  for 
"  any  lawful  business  or  purpose  whatsoever,"  and  the  law  gives 
all  necessary  powers  thereto,  it  does  not  recognize  as  embraced 
therein  powers  to  do  those  things  which  would  deprive  the  cor- 
poration of  its  ability  to  carry  out  the  objects  for  which  it  was 
formed,  or  discharge  any  duties  which  it  might  under  its  charter 
owe  to  the  public,  or  which  are  contrary  to  the  policy  of  the  law.1 
The  doctrine  of  ultra  vires  ought  to  be  reasonably,  and  not 
unreasonably,  understood  and  upheld,  and  whatever  may  be  fairly 
regarded  as  incidental  to  and  consequential  upon  those  things 
which  are  authorized  by  the  charter  of  a  corporation  ought  not, 
unless  expressly  prohibited,  to  be  held  by  judicial  construction  to 
be  ultra  vires?  Contracts  by  a  corporation  which  impose  an 
unreasonable  restraint  upon  the  exercise  of  its  business  are  void, 
but  contracts  in  reasonable  restraint  of  its  business  are  valid.  The 
test  to  be  applied  in  determining  the  reasonableness  of  the  restraint 
imposed  by  the  contract  is  to  consider  whether  it  is  only  such  as 
is  necessary  to  afford  a  fair  protection  to  the  interest  of  the  cor- 
poration in  favor  of  which  it  is  given,  and  not  so  large  as  to 
interfere  with  the  interest  of  the  public.3  The  Illinois  Supreme 
Court,  in  the  Chicago  Gas  Trust  case,  declared  these  rules  as  to 
corporations :  Corporations  can  only  exercise  such  powers  as  may 
be  conferred  by  the  legislative  body  creating  them,  either  in  > 
express  terms  or  by  necessary  implication,  and  the  implied  powers 
are  presumed  to  exist  to  enable  such  bodies  to  carry  out  the 
express  powers  granted,  and  to  accomplish  the  purposes  of  their 

1  Ellerman  v.  Chicago  Junction  Rail-  number    of    years,    nor   in  the  place 
ways  &  Union  Stock  Yards  Company,  where  they  were  located  or  within  200 
(1891)  49  N.  J.  Eq.  2-17.  miles  thereof,  was  not  unreasonable, 

2  Ibid.  and  not  an  illegal  restraint  of  trade. 

3  Ibid. ;  in  which  case,  under  the  test  For  illustration  of  contract  between 
stated  in  the  text,  the  chancellor  held  corporations  not   contrary  to    public 
that  a  covenant  by  parties  selling  the  policy,  see  Live  Stock  Assn.  of  New 
plant  and  business  of  stock  yards,  not  York  ».  Levy,  (1886)  54  N.  Y.  Super, 
to  engage  iu  the  business  for  a  certain  Ct.  32. 


§282]  ULTRA   VI KKS  —  PRIVATE  CORPORATIONS. 

creation.'  An  incidental  j»o\ver  I.-.  ..m-  tljat  is  directly  and 
immediately  appropriate  to  the  execution  of  tin-  .-pecitir  jN.wers 
granted,  ami  not  one  that  has  a  slight  or  remote  relation  to  it.3 
The-  court  held  that  the  (Mi  Tru-t  Company,  U'ing  a 

Corporation  formed  under  tin-  (Jcneral  Incorporation  Law  of  that 
state  for  the  purpose'  of  erecting  and  o|M-ratinggas  works  and  the 
manufacture  and  sale  of  gas,  had  no  power  to  purchase  and  hold 
i  shares  of  stock  in  other  gas  companies  a-  incident  to  the 
purpose  for  which  it  was  formed,  even  though  such  power  was 
specified  ilk  its  articles  of  incorporation.  This  corporation  was 
incorporated  under  the  general  law  for  two  purpo-e,.  The>c. 
were  expressed  in  its  articles  of  association  in  the-e  word- : 
First,  for  the  purpose  of  erecting  and  operating  -ji-  work-  for 
the  manufacture  and  sale  of  gas  in  Chicago  and  other  places  in 
this  state;  and,  second,  "to  purchase  and  hold  or  >ell  tin-  capital 
stock,  or  purchase  or  lease,  or  operate  the  property,  plant,  good 
will,  rights  and  franchises  of  any  gas  works  or  gas  company  or 
companies,  or  any  electric  company  or  companies,  in  Chicago  ..r 
elsewhere,  etc."  It  sought  to  exercise  the  powers  claimed  tinder 
the  second  clause  only,  and  for  that  purpose  bought  a  majority  of 
the  shares  of  all  the  gas  companies  in  Chicago,  In-ing  four  in 
number,  whereby  it  might  have  the  control  of  all  the  gas  com- 
panies in  the.  city  and  thus  destroy  competition  and  monopolize 
the  gas  business.  The  Supreme  Court  held  that  the  corporation 
so  formed  was  not  for  a  lawful  purpose  and  that  all  acts  done  by 
it  toward  the  accomplishment  of  such  object  were  illegal  and 
void.3  A  stockholder,  in  a  suit  which  he  is  only  permitted  to 
prosecute  in  behalf  of  the  corporation  and  for  its  benefit,  cannot 
raise  the  question  whether  or  not  the  defendant  corporation  in 
the  suit  could  acquire  and  lawfully  exercise  all  the  powers 
declared  in  its  certificate  of  incorporation,  especially  whether  it 
could  lawfully  own  the  stock  of  another  corporation.  Such  a 
question  can  only  be  presented  for  judicial  determination  by  the 
attorney-genera]  on  behalf  of  the  state.4 

1  Citing  C..  P.  &  8.  W.  R.  R  Co.  r.  Co.,  22  Conn.  1;  Franklin  Co.  r.  Lewis- 

Marseilles,   84  111.   643;   Chicago  Gas  ton  Savings  Institution,  68  Me.  43. 
Uirht  Co.  t.  People's  Gas  Light  Co.,       'People  rx  rd.  I'mtoly  r.  Chi<ai:>> 

121  111    530.  Gas  Trust  (  ,.  .  ,issi»i  ,;{,,  \\\  o^.  ,.  , 

'People  ex  rel.  Peabody  r.  Cliiciu">  -'v!  N    K    It. -p    : 

Gus  Trust  Co.,  (1889)180  111.  2«W:  s.  r..       MVillou-l.by    9.    t  lii<-:»ir<>  Junction 

2-J   N.  E.  Rep.  798;  citing  on  the  lust  Railways  &  t'nion  St<K  k  Yards  Co., 

point  Uood  c.  N.  Y.  &  X.  H.  K.  K.  (1892)  50  N.  J.  Eq.  656. 


CHAPTEE  IX. 


BANKS  AND  BANKING. 


§  283.  Powers  of  banks  generally 
384.  The  guaranty  of    commercial 
paper  by  a  bank. 

285.  Acts  ultra  vires  a  bank. 

286.  Taking  mortgage  on  and  pur- 

chase of  real  estate. 

287.  Purchasing  notes. 

288.  Purchasing  stock  of  corpora- 

tions. 

289.  Increase  of  capital  stock. 

290.  Loans. 

291.  Dividends  on  bank  shares. 

292.  Lien  of  a  bank  on  moneys  and 

securities  of  its  customers. 


§  293.  Lien  of  a  bank  on  shares  of 
stockholders  for  their  debts 
to  the  bunk. 

294.  Interest  received  by  banks. 

295.  A  bank's  duty  as  to  securities 

deposited  with  it. 

296.  The  rights  of  a  bank  as  to  se- 

curities pledged  to  it. 

297.  Personal  guaranty  of  a  bank  by 

stockholders  and  directors. 

298.  Misrepresentations  by  a  bank 

as  to  solvency  of  a  customer. 


§  283.  Powers  of  banks  generally. —  A  bank,  upon  which 
general  banking  powers  have  been  conferred,  may  borrow  money 
without  any  more  specific  authority.1  A  national  bamc  has 
power  to  borrow  money  on  negotiable  paper,  made  and  indorsed 
for  its  accommodation.2  As  incident  to  its  power  to  loan  money, 


1  Ringling  o.  Kohn,  (1878)6  Mo.  App. 
333;    Donnell   v.   Lewis  Co.    Savings 
Bank,  80  Mo.  165. 

2  Bank  v.  Sullivan,  11 W.  N.  C.  (Pa.) 
362.     In  a  leading   New  York    case 
(Curtis  v.  Leavitt,  (1857)  15  N.  Y.  9, 
255,  256),  SELDEN,  J.,  states  the  con- 
tention of    the  receiver's   counsel  as 
follows:     "  [They]    take    the    broad 
ground  that  banking  corporations  can- 
not borrow  money,  or,  at  least,  that 
they  cannot    borrow    to    supply   the 
place  of  capital.     They  contend  that 
it  is  the  business  of  banks  to  lend 
money,  not  to  borrow;  that  borrowing 
does  not  come   within  the  scope  of 
legitimate  banking,  and  is  in  its  na- 
ture a  power  which  corporations  cre- 
ated   for    banking    purposes    cannot 
properly    exercise."     He    then    said: 
"  This  position  is  not  supported  by 


any  direct  authority,  and  a  careful 
consideration  of  the  nature  of  bank- 
ing, together  with  an  examination  of 
its  history,  has  satisfied  me  that  it  can- 
not be  sustained.  It  is  not  in  harmony 
with  the  present  practice  or  the  past 
history  of  banks.  Banking  for  profit 
is  based  primarily  upon  the  idea  of 
borrowing,  without  interest,  the 
various  sums  which  the  individuals  of 
a  commercial  community  must  neces- 
sarily keep  on  hand  unemployed,  to 
meet  any  sudden  emergency,  and  re- 
loaning  the  money,  or  the  greater  part 
of  it,  upon  interest.  It  may  be  said 
that  banks  may  borrow,  that  is,  receive 
deposits  without  interest,  but  cannot 
borrow  upon  interest.  This,  too,  is 
untenable.  One  of  the  soundest  bank- 
ing systems  known  to  the  age,  viz., 
the  Scotch,  is  sustained  to  a  great  ex- 


-  :>\  BANKS  A  J»'D  BANKING.  505 

a  bank  may  take  as  security  a  crop  of  cotton,  and  ship  the  same 
to  a  factor,  t«»  In-  sold  to  reimburse  the  loan.1  A  liank,  author- 
ized by  its  charter  to  deal  in  bills  of  e.vbanp-  and  discount  notes, 
made  negotiable,  and  payable  at  the  bank,  with  two  or  more  good 
and  sufficient  Miretio,  may,  under  this  power,  undertake  to  col- 
lect bills  of  exchange  in  other  places.3  Under  the  National 
J 'an  king  Association  Act,  the  powers  which  national  banks  may 
e\< -ivi.-e  are  limited  to  those  expressly  granted  and  those  neces- 
sarily incidental.8  They  would  have  no  absolute  right  to  retain 
bonds  coming  into  their  possession  by  purchase,  under  contracts 
which  they  were  without  legal  authority  to  make.4  National 
banks  may  exercise  all  such  incidental  powers  as  may  be  neces- 
sary for  discounting  and  negotiating  promissory  notes,  drafts, 
bills  (if  exchange,  etc.,  which  they  are  authorized  to  do.5  It  is 
not  beyond  the  powers  of  a  national  bank  to  purchase  a  draft 

tent  by  sums  borrowed  at  a  rate  of  in-  rows  and  those  at  which  he  lends  is 

i«-iv>t  below  that  charged  by  the  banks,  the  source  of  his  profit.'     Gilbert  on 

Edin.  Ktn-y.  224,  tit.  Banks;  Lawson's  Banking.  52.     It  can  scarcely  be  said, 

Jli-t.  of  Banking,  419.     The  commit-  in  view  of  these  precedents  and  authori- 

tee  appointed  by  the  House  of  Lords  ties,  that  borrowing  money,  even  to  be 

in  England,  in  182(5,  to  inquire  into  the  used  as  capital,  is  not  within  the  range 

Irish  and  Scotch  systems  of  banking,  of    the    business    of    banking.     The 

reported  that  it  was  'proved  by  evi-  position,  therefore,  that  the  acts  of  the 

dence  and  by  the  documents  that  the  banking  company  in  issuing  the  paper 

bunks  of  Scotland,  whether  chartered  in  question  were  ultra  vire*  cannot  be 

joint-stock  companies  or  private  estab-  sustained  on  the  ground  that  borrow  - 

lisluiicnts,  have,  for  more  than  a  cen-  ing  is  no  part  of  legitimate  banking, 

tury,  exhibited  a  stability  which  the  but  must  rest  on  that  branch  of  the 

committee  believe  unexampled  in  the  argument   which   is  drawn   from  the 

history  of  banking.'     Lawson's  Hist,  terms  of  the   General    Blinking   Law 

of  liank  ing,  434.     The  country  bank-  itself.     It  is  a  question,  not  of  appro- 

ers  of  England  also  allow  interest  on  priatc    bankfng,     but    of     corporate 

the  balances  of  money  in  their  hands,  power." 

McCulloch's  Notes  to  Smith's  Wealth  '  Deloach  r.  Jones.  18  La.  447. 

of  Nations,  489,   title,  Money,  Edin.  '  Branch    Bank    at    Montgomery  v. 

ed.;  Lawson's  Hist,  of  Banking,  273.  Knox,  (1840)  1   Ala.   148.     As  to  the 

Another  writer,  speaking  of  the  prac-  power  of  banks  to  issue  post  notes, 

tice  of  borrowing  by  the  Scotch  hanks,  see    Campbell    P.    Mississippi    Union 

says:    'This  is  in  fart  a  part  of  the  Bank,  6  How.  (Miss.)  625. 

proper  business  of  a  bank.     A  blinker  *  Logan  Bank  r.  Townscnd,  139  U. 

is  a  dealer  in  capital,  an  intermediate  S.  67. 

party  between  the  borrower  and  the  *  Ibid. 

lender;  he  borrows  of  one  party  and  'Shinkle  r.  First  National  Bank  of 

lends  to  another,  and  the  difference  Ripley,  (1872)  22  Ohio  SL  516. 
between  the  terms  at  which  he  bor- 
64 


506  BANKS  AND  BANKING.  [ 

with  a  bill  of  lading  attached.1  The  discount  of  notes  by  a  cor- 
poration authorized  by  statute  to  invest  its  capital  in  notes  and 
to  purchase  and  hold  securities  in  payment  of  the  debts  due  to  it 
is  not  ultra  vires?  A  banking  institution,  having  power  to  lend 
deposits  on  the  public  stock  of  the  state  or  the  United  States  on 
bond  and  mortgages,  or  "  upon  any  other  securities  which  should 
be  deemed,  by  the  board  of  directors,  ample,"  has  been  held  in  >t 
to  be  limited  to  the  securities  mentioned,  and  empowered  to  dis- 
count commercial  paper.3  A  national  bank,  having  coin  in 
pledge,  may  sell  and  assign  its  special  property  therein.*  A  bank, 
to  save  itself  from  loss,  under  its  general  powers,  may  take  an 
assignment  of  an  account  due  its  debtor.5  A  national  bank  is 
authorized  to  buy  the  checks  of  individuals  or  other  banks,  when 
payable  to  bearer  or  to  order.6  A  bank  may  transfer  a  good 
title  to  checks  received,  as  cash,  from  a  depositor,  and  so  credited 
to  his  account,  in  payment  of  a  debt,  and  the  transferee  may 
recover  upon  them  against  the  drawers.7  A  bank,  with  which 
an  owner  of  a  bond  and  mortgage  had  agreed  to  convert  it  into 
money  for  the  benefit  of  the  bank,  and  upon  its  assignment  for 
that  purpose,  had  guaranteed  its  collection,  was  held  bound  by 
the  guaranty,  although  the  bond  was  not  assigned  to  the  bank, 
and  reassigned  by  it.8  A  national  bank  may  take,  hold  and 
enforce  a  chattel  mortgage  for  a  previously  contracted  debt.9  It 
is  within  the  powers  conferred  by  congress  upon  national  bank- 
ing associations  to  receive  from  its  customers  United  States  bonds 
of  one  class  to  be  converted  into  bonds  of  another  class.10  A 
bank,  without  an  express  undertaking  on  its  part,  will  not  be 
bound,  by  law,  to  protect  from  forfeiture,  stock  deposited  with  it 
as  security  for  a  debt,  by  payment  of  installments  in  arrear.11 
The  Minnesota  Supreme  Court  has  held  that  there  is  no  reason 

1  Union  National  Bank  v.  Rowan,  23  7  Metropolitan  National  Bank  >\ 

8.  C.  342.  Loyd,  (1881)  25  Hun,  101. 

8  Bright  v.  Banking  Co.,  3  Penny-  8Talman  r.  Rochester  City  Bank, 

packer  (Pa.),  478.  (1854)  18  Barb.  123. 

'Detroit  Savings  Bank  v.  Truesdail,  'Spafford  v.  First  National  Bank 

38  Mich.  430.  of  Tama  City,  37  Iowa,  181. 

4  Merchants'  Bank  v.  State  Bank,  10  w  Leach  v.   Hale,    (1870)   31   Iowa, 
Wall.  604.  69. 

5  Bank  of  North  America    r.  Tarn-  "  Railroad  Bank  v.  Douglas,  2  Speer 
blyn,  (1879)  7  Mo.  App.  571.  (S.  C.),  329. 

6  Rochester  Bank  r.  Harris,   (1871) 
108  Mass.  514. 


§284]  BANKS  AND  liANKINO.  ."."7 

why  :i  national  bank  may  not,  for  convenience  and  a  proper  pur- 
pose, hold  and  own  notes  and  mortgagee  through  the  medium  of 
a  trustee.1 

§  284.  The  guaranty  of  commercial  paper  by  a  bank.— 
The  Supreme  Court  of  Nebraska  has  lately  held  tliut  while  a 
national  bank  may  not  lend  its  credit  for  the  accommodation  of 
others,  still  it  may  guarantee  the  payment  of  commercial  jtajM-r  as 
incidental  to  the  exercise  of  its  power  to  buy  and  sell  the  same.* 
The  Nebraska  court  accepted  as  the  proper  statement  of  the 
law  upon  this  subject  the  following  declaration  by  Mr.  Justice 
SWAYNE,  speaking  for  the  United  States  Supreme  Court,  in  a 
leading  case  before  that  court :  "  The  National  Bank  Act,8  gives 
every  bank  created  under  it  the  riirht  to  exercise  by  its  board  of 
directors,  or  duly  authorized  agents,  all  such  incidental  power*  aa 
shall  be  necessary  to  carry  on  the  business  of  banking,  by  dis- 
counting and  negotiating  promissory  notes,  drafts,  bills  of 
exchange  and  other  evidences  of  debt,  by  receiving  deposits,  etc. 
Nothing  in  the  act  explains  or  qualifies  the  terms  italicized.  To 
hand  over  with  an  indorsement  and  guaranty  is  one  of  the  com- 
monest modes  of  transferring  the  securities  named.  Undoubt- 
edly a  bank  might  indorse  '  waiving  demand  and  notice,'  and 
would  be  bound  accordingly.  A  guaranty  is  a  less  onerous  and 
stringent  contract  than  that  created  by  such  an  indorsement. 
We  see  no  reason  to  doubt  that,  under  the  circumstances  of  this 
case,  it  was  competent  for  the  defendant  to  give  the  guaranty 
here  in  question.  It  is  to  be  presumed  the  vice-president  had 
rightfully  the  power  he  assumed  to  exercise,  and  the  defendant 
is  estopped  to  deny  it.  Where  one  of  two  innocent  parties  must 
suffer  by  the  wrongful  act  of  a  third,  he  who  gave  the  power  to 
do  the  wrong  must  bear  the  burden  of  the  consequence.  The 
doctrine  of  ultra  vires  has  no  application  in  cases  like  this. 
Merchants'  Bank  v.  State  Bank,  10  Wall.  604.  All  the  parties 
engaged  in  the  transaction,  and  the  privies,  were  agents  of  the 
defendant.  If  there  were  any  defects  of  authority  on  their  part, 
the  retention  and  enjoyment  of  the  proceeds  of  the  transaction 
by  their  principal  constituted  an  acquiescence  as  effectual  as 

•First   National  Bank  of   Memphis    Hastings.  (1S94)40  Nek  .VI    ft.  c..  5S 
«.  Kidd,  20  Minn.  284.  N    \V.  i;,  p 

•Thomas  P.  City  National  liunk  of       '  Kev.  St.  U.  S.  $5186. 


508  BANKS  AND  BANKING.  [§  285 

would  have  been  the  most  formal  words.  These  facts  conclude 
the  defendant  from  resisting  the  demand  of  the  plaintiff. 
*  *  *  A  different  result  would  be  a  reproach  to  our 
jurisprudence."1 

§  285.  Acts  ultra  vires  a  bank. —  A  bank  discounting  a  note, 
knowing  the  intention  of  the  party  offering  it  to  be  that  the  pro- 
ceeds of  the  discounting  should  be  applied  to  the  discharge  of  a 
particular  note  held  by  the  bank,  cannot  apply  the  proceeds  to 
the  discharge  of  any  other  note.2  A  bank  cannot  bind  itself  by 
an  accommodation  indorsement.8  National  banks  have  no  legal 
power  to  guarantee  a  contract  between  other  persons  for  the 
delivery  of  building  materials.4  The  power  of  a  national  bank 
to  give  a  guaranty  against  liability  or  loss  to  sureties  on  paper 
discounted  by  it,  when  the  effect  of  such  guaranty  would  be  to 
make  the  paper  that  ot  one  party  only,  secured  by  mortgages  on 
real  estate,  has  been  questioned  in  a  Michigan  case.5  A  national 
bank  cannot  act  as  broker  for  the  sale  of  state  bonds  on  commis- 
sion.6 A  national  bank  has.  no  power  to  sell  railroad  bonds  for 
a  customer  on  commission.7  A  bank  has  no  authority  to  become 
surety  on  the  bond  of  a  public  officer.8  A  bank  will  not  be  jus- 
tified in  refusing  to  reassign  collateral  which  it  holds  for  the 
payment  of  certain  notes,  because  the  pledgee  may  be  indebted 
to  it  upon  an  entirely  distinct  cause  of  action.9  A  bank  cannot 
apply  the  proceeds  of  a  note  tendered  to  it  for  discount  to  the* 

1  People's   Bank   v.  Manufacturers'   paper  held  by  the  defendant  was  can- 
National    Bank,    101    U.   S.   181,    in   celed  to  the  same  amount, 
which  case  the   facts  were  that  one       2  Bank  of  Alexandria  t>.  Saunders,  2 
Pickett  made  his  notes   for    §50,000,    Cranch  Cir.  Ct.  183. 
payable    to  his   own  order,  indorsed       8  Bank  of  Genesee  v.  Patchin  Bank, 
them,     and     delivered    them    to    the    13  N.  Y.  309. 

national  bank  to  be  negotiated  to  the       4  Norton  v.  Deny  National  Bank,  61 
plaintiff.      The  vice-president  of  the    N.  H.  589. 

national  bank,   with    the    knowledge       *  First  National  Bank  v.  Bennett,  33 
and     consent    of    the    president    and   Mich.  520. 

cashier,  but  without    any    authority       6  Smith  n.  Bank,  1  Walk.  (Pa.)  318. 
from  the  board  of  directors,  or  from       7  Weckler  v.  First  National  Bank  of 
a  majority  of  them    as    individuals,    Hagerstown,  42  Md.  581. 
transmitted  the  notes  to  the  plaintiff,        8  Miners' Bank  Estate,  13  W.    N.  C. 
with  a  written    guaranty  signed   by    (Pa.)  370. 

himself.     The  plaintiffs  account  was       9McIntiret>.  Blakeley,  (Pa.)  12  Atl. 
debited   with  §50,000    on  account  of    Rep.  325. 
the  notes.     At  the  same  time  Pickett's  * 


§286]  BANKS  AND  BANK 

payment  of  the  maker's  indorsement  on  another  note  without  his 
consent.1  In  an  action  of  the  owner  of  a  lot  which  had  U-en 
assessed  by  a  city  for  benefits  and  afterwards  sold  upon  a  judg- 
ment, and  a  certificate  of  sale  given  to  the  city,  which  it  a-.-ii:ii«-'l 
to  another  party,  who  in  turn  assigned  it  to  a  national  hunk, 
against  the  city  and  bank  to  determine  their  adverse  claim*,  the 
plaintiff  made  the  point  that  the  hank,  being  a  national  bank,  had 
no  authority  to  purchase  the  certificate.  The  Supreme  Court  of 
Minnesota  considered  it  well  settled  that  no  one  but  the  govern- 
ment .could  raise  that  question.*  The  United  States  Circuit 
Court  for  the  eastern  district  of  Washington,  in  an  action  upon  a 
note  against  a  national  bank  as  guarantor,  has  held  that  United 
States  Revised  Statutes,  section  5202,  providing  that  national  banks 
shall  not  contract  liabilities  in  excess  of  their  paid-up  capital  stock, 
except  upon  notes  of  circulation,  accounts  for  deposits,  etc.,  did  n»t 
intend  that  such  items  of  liability  should  be  excluded  in  determin- 
ing whether  the  indebtedness  of  a  bank  exceeded  its  paid-up  capital 
stock  at  the  time  it  incurred  a  liability  as  guarantor.  And  that  in 
an  action  against  the  bank  and  its  receiver  on  such  a  note  as  here- 
sued  on,  the  defendants  might  avail  themselves  of  the  defen.-e 
that  the  note  was  executed  in  violation  of  the  section  of  the 
Revised  Statutes  above  mentioned,  as  the  note  being  void  as  to 
the  bank,  it  was  not  estopped  to  set  up  the  defense  in  question.* 

§  286.  Taking  mortgage  on  and  purchase  of  real  estate. 
—  A  national  bank  cannot  take  a  mortgage  upon  real  estate  as  a 
security  for  a  debt  concurrently  created,  or  for  future  advances.4 
It  is  competent  for  a  national  bank  to  purchase  a  note  in  favor  of 
a  third  party,  and  thereby  acquire  incidentally  a  mortgage  on 

1  Parry  r.  Highley,  8  Pa.  Co.  Ct.  4  Kansas  Valley  National  Bunk  r. 

Rep.  584.  Rowell,  (1873)  2  Dill.  871.  As  to  the 

*  Ilennessy  t>.  City  of  St.  Paul,  (1893)  lack  of  power  of  a  national  bank  to 
51  Minn.  219;  s.  c.,  55  N.  W.  Rep.  loan  its  money  on  real  estate  security, 
1123;  citing  Merchants'  National  Bank  see  Matthews  c.  Skinkcr.  d^M  r,_>  M,,. 
r.  Hanson,  83  Minn.  40;  8.  c.,  21  N.  829;  Warner  r.  iVWitt  County 
W.  Rep.  849;  National  Bank  r.  Mat-  National  Bank,  4  Brail w.  (111.)  305; 
thews,  98  U.  8.  621;  National  Bank  ».  Winton  r.  Little,  94  Pa.  St.  64,  over- 
Whitney,  103  U.  8.  99;  Fortier  P.  New  ruling  Foul.-r  r.  Scully.  72  Pa.  St. 
Origins  Bank,  112  U.  8.  451;  s.  c.,  5  456,  and  Woods  r.  People's  Bank,  sj 
Sup.  Ct.  Rep.  234.  Pa.  St.  57:  National  Hank  r.  Matthews, 

1  Weber  r.  Spokane  Nat.  Bank,  98  U.  8.  621;  National  Bank  r. 

(1892)  50  Fed.  Rep.  735.  Whitney,  103 U.  8.  99;  Fortier  .  New 


510  BANKS  AND  BANKING.  [§  286 

land  which  may  have  been  given  to  secure  it.1  Where  several  debts 
due  a  national  bank  are  consolidated  into  one,  and  a  new  note 
given,  the  bank  would  not  be  acting  ultra  vires  in  taking  a  mort- 
gage on  real  estate  to  secure  the  consolidated  note.2  A  national 
bank  extended  the  time  of  payment  of  indebtedness  secured  by  a 
mortgage  on  real  estate  at  a  usurious  rate  of  interest,  and  took 
for  it  notes  and  a  mortgage,  made  by  the  debtor  to  a  third  per- 
son, the  notes  being  indorsed  by  the  latter.  The  Supreme  Court 
of  Ohio  held  that  the  usury  only  avoided  the  interest,  and  that 
to  the  extent  the  debt  was  valid,  the  mortgage  was  on  bona  fide 
security,  and  that  the  bank,  by  becoming  the  owner  of  the  notes, 
acquired  the  equity  in  the  mortgage.3  A  mortgage  upon  real 
estate  given  to  an  officer  of  a  national  bank,  at  the  time  of  a  loan 
by  the  bank,  to  secure  its  payment,  being,  in  effect,  the  same  as 
if  made  to  the  bank,  has  been  held  to  be  void  and  not  enforceable 
by  the  courts,  under  the  prohibition  in  the  National  Banking  Law, 
of  loans  of  money  on  real  estate  security.4  The  prohibition  in 
the  law  against  national  banks  taking  security  for  loans  on  real 
estate,  does  not,  however,  extend  to  mortgages  made  in  good 
faith  by  way  of  security  for  debts  previously  contracted,  and 
banks  may  take  the  assignment  of  notes,  secured  by  trust  deed 
on  real  estate,  as  collateral  security  for  pre-existing  debts  due  the 
banks.5  A  national  banking  association  may  avail  itself  of  a 
security  on  real  estate  given  to  one  personally  liable  on  a  loan 
made  by  the  association.'  The  Minnesota  Supreme  Court  has 

Orleans  National  Bank,  112  U.  S.  439.  gage  shall  be  taken  on  real  estate  ex- 

For  an  illustration  of  a  note  and  mort-  cept  by  way    of  security    for    debts 

gage  on  real  property  which  it  was  in  previously  contracted,  must  be  under- 

the    power    of    a    national     banking  stood     to     forbid      absolutely     such 

association    to     take,     see     Ornn    «.  associations      making      loans      upon 

Merchants'  National  Bank,  (1876)  16  security  afforded  by  mortgages  on  real 

Kans.  341.  estate."     The  court  cited  as  sanction- 

1  Oldham  v.  Bank,  85  N.  C.  240.  ing  its  views :    Fowler  v.   Scully,  72 

'Ibid.  Pa.  St.  456;    First  National  Bank  v. 

3  Allen     t>.     First     National     Bank  National  Bank,  92  U.  S.  122;  Matthews 

Xenia,  (1872)  23  Ohio  St.  97.  v.  Skinker,  62  Mo.  329. 

4Fridley    v.  Bowen.    (1877)  87  111.  s  Worcester       National      Bank      v. 

151.     The  court  said :  "  The  provision  Cheeney,   (1878)  87  111.   602;    Gaar  v. 

[of  the  National  Banking  Law]  declar-  First  National  Bank  of  Centralia,  20 

ing  upon  what  security  such  associa-  Bradw.  (111.)  611. 

tions  may  make  current  loans,  viz.  :  6  First   National  Bank  v.   Haire,  36 

Upon  '  personal     security,'     and    the  Iowa,  443.      As  to  a  national  bank's 

subsequent   inhibition    that  no  mort-  right  to  take  title  to  real  estate  in  dis- 


"'VJ  BANKS  AXI)  IIANKIM..  511 


held  that,  in  tla-  absence  of  ailirmativc  evidence  of  some  contra- 
vention of  tin-  National  I  Jan  king  A—  <.<-iat  ion  Act,  a  national 
hank  mi<jht  lawfully  pureha.M-,  hold  and  convey  real  estate.1  The 
New  .Jersey  Supreme  Court  has  held  that  a  national  bank 
empowered  by  its  charter  "to  provide  the  real  estate"  Decenary 
for  its  immediate  accommodation  in  the  transaction  of  it*  busi- 
ness, cannot  interpose  the  defense  of  "///•</  /•//>  *  to  a  contract 
made  by  it  to  secure  free  entrance  of  light  and  air  into  its  l>ank- 
itig  house.2  Where  a  national  bank  discounts  a  note  secured  by 
I  ot  mi-t  on  real  estate,  the  security  passes  to  the  bank  and 
may  be  enforced  by  it.8  Speculation  in  real  estate,  by  national 
banks,  under  the  pretense  of  obtaining  satisfaction  of  a  previous 
debt,  is  forbidden  by  law.  Such  a  bank,  however,  may  acquire 
title  to  real  estate,  even  though  incumlicred,  if  it  is  honestly 
done,  for  the  purpose  of  securing  a  debt  due  to  it.  This  may  be 
done  by  taking  a  conveyance  directly  or  by  sale  under  process  of 
law.'  Thus,  where  a  firm  of  merchants  were  indebted  to  a  bank 
upon  drafts  drawn  upon  them  and  accepted,  discounted  by  the 
bank,  in  its  regular  course  of  business,  to  a  certain  amount,  and 
secured  by  the  transfer  of  a  note  of  a  third  party  for  a  1 
sum,  this  note  secured  by  a  deed  of  trust  upon  real  estate  sub- 
ject to  other  liens,  and  the  third  party  made  a  deed  of  the  proj>- 
erty  to  the  bank  in  payment  of  the  sum  due  from  him,  the  Iwnk 
••ing  to  discharge  the  other  liens  upon  the  same,  the  transac- 
tion was  held  not  to  be  forbidden  by  the  law  regulating  such 
banks.5  A  mortgage  upon  real  property  taken  by  a  national 
banking  association  as  security  will  not  l>e  void.  A  judgment  of 
ouster  and  dissolution  in  a  proper  proceeding  is  the  punishment 
for  taking  such  a  mortgage.  Private  j>ersons  cannot  question 
the  validity  of  the  act.8  A  national  bank  may  purchase  rait 

charge.     of    indebtedness     previously  'Trustees    of     First     Preabyterian 

contracted  to  it,  see   Turner  r.  First  Church  in  Newark  r.    National  State 

National  Bank,  (1H81)  78  Ind.  19.     As  Hank  of  Newark,  (X.  J.    18M)  29  All. 

to  a    mortgage    given    to  a  national  Hep.  320. 

ttaiik  and   assigned  to  a  third  party  'Thornton    r.     National    Exchange 

being    good,    BCP    I^acey     r.    Central  Hank.  (1879)  71  Mo.  221. 

National    Bank.   4   Neb.   179.     As  to  «  Mapea  *.  Soott.  <!*>    -*s  111.  Btt. 

foreclosure     of     a     mortgage     by     a  'Ibid. 

national    bank,   see  Scofleld    r.    State  *  First  National  Hank  r.  Klmore.  59 

National  Bank.  9  Neb.  828.  Iowa,  Ml;   StreeU-r  r.   First  National 

'First    National   Bank  of  Memphis  Bank.  &S  Iowa.  177.     A*  to  the  power 

r.  K  ii  lil,  20  Minn.  284.  of  a  national   bank  to  purchase  real 


512  BANKS  AND  BANKING.  [§  287 

estate  at  a  judicial  sale  to  satisfy  a  judgment  and  decree  rendered 
in  a  proceeding  to  foreclose  a  mortgage  on  land  on  which  the 
hank  held  a  second  mortgage  lien,  and  to  which  foreclosure  pro- 
ceeding it  was  made  a  party.1  These  hanks  have  authority  to 
hold  and  convey  such  real  estate  as  they  may  purchase  at  sales 
under  judgments,  decrees  or  mortgages  held  by  them  to  secure 
debts  due  them.2  The  title  of  a  national  bank  to  land  which 
was  mortgaged  to  it,  and  purchased  at  judgment  sale,  would  not 
be  invalidated  as  to  the  mortgaged  property,  by  the  fact  that  at 
the  sale  it  purchased  other  property  which  it  may  not  have  been 
authorized  to  acquire.3 

§  287.  Purchasing  notes. — The  Court  of  Appeals  of  Mary- 
land has  held  that  under  the  National  Banking  Association  Act 
a  bank  formed  under  it  has  no  authority  to  use  its  funds  in  pur- 
chasing notes  and  can  acquire  no  title  to  notes  by  the  purchase  of 
them.4  The  ruling  of  the  Minnesota  Supreme  Court  on  this 
subject  has  been  that  the  purchase  of  promissory  notes  by  a  bank 
authorized  simply  to  discount  notes  was  ultra  vires  and  that  the 
purchase  would  confer  no  title.5  In  a  later  case  this  same  court 
held  that  national  banks  have  no  power  to  deal  in  promissory 
notes,  as  choses  in  action,  for  the  purpose  of  private  gain  and 
profit  alone,  and  limited  their  power  to  acquire  title  to  such  notes 

estate  necessary  to  secure  a  debt  to  it,  8  Farmers  &  Mechanics'  Bank  v. 

although  in  excess  of  the  debt,  see  Baldwin,  23  Minn.  198.  The  court 

Upton  n.  South  Reading  Bank,  (1876)  said:  "The  power  to  carry  on  the 

120  Mass.  153.  business  of  banking  by  discounting 

1  Heath  ».  Second  National  Bank,  notes,  bills  and  other  evidences  of 

(1880)  70  Ind.  106.  debt,  is  only  an  authority  to  loan 

1  Wherry  v.  Hale,  (1882)  77  Mo.  20.  money  thereon,  with  the  right  to  de- 
As  to  a  national  bank  purchasing  real  duct  the  legal  rate  of  interest  in  ad- 
estate  in  satisfaction  of  a  debt  due  it,  vance.  This  right  can  be  fully 
see  Libby  v.  Union  National  Bank,  99  enjoyed  without  the  possession  of  the 
111.  622.  unrestricted  power  of  buying  and 

3  Reynolds  r.  Crawfordsville  Bank,  dealing  in  such  securities  as  choses  in 
112  U.  S.  405.     As  to  a  national  bank,  action       and       personal       property, 
lawfully  holding  a  mortgage  on  real  Though,  as  argued  by  plaintiff,  the 
estate,   purchasing  a  prior  mortgage  bank  acquires  a  title  to  discount  paper, 
on  the  same  land  to  protect  its  inter-  and,  hence,  may,  in  a  certain  sense,  be 
est,  see  Holmes  t.  Boyd,  (1883)  90  Ind.  said  to  have  purchased  it,  yet  it  is  a 
332.  purchase  by   discount,   which  is  per- 

4  Lazear  •».  National  Union  Bank  of  mitted,  and  does  not  involve  the  exer- 
Maryland,  at  Baltimore,  (1879)  52  Md.  cise  of  a  power  of  purchase  in  any 
78.  other  way  than  by  discount." 


§287] 


l:\NKs    AM)    |;.\.NK1N... 


513 


to  discounting  them.1  In  an  Ohio  ea>e  it  was  held  that  the 
power  -riven  to  the  corporation  hy  a  ftutute  of  the  t*tate  of  New 
York  ''to  carry  on  the  business  of  banking  by  di>eounting  bill>, 
notes  and  other  evidences  of  debt,"  was  not  a  power  to  Imv 
promi.-sory  notes  but  to  loan  money  upon  the  paper  dr-.  riU-.j. 
and  that  a  transaction  of  that  character  was  within  the  usury  laws 
of  that  state.2  Under  the  power  given  savings  in>titution.->  to  dis- 
count negotiable  notes  in  Kansas,  they  have  been  held  to  have 
the  power  of  purchasing  such  notes.8  In  a  comparatively  late 


'First  National  Bunk  of  Rochester 
e.  Pierson,  24  Minn.  140. 

»Bank  r.  Baker,  15  Ohio  St.  68.  In 
Fleckner  r.  Bank,  8  Wheat.  888,  it 
appeared  that  the  plaintiff  purchased 
from  another  bank  a  note  which  had 
been  passed  to  it  through  several 
parties  from  the  original  holder.  The 
bank  was  forbidden  to  deal  in  any 
thinir,  except  bills  of  exchange,  gold 
or  silver,  or  take  more  than  six  per 
cent  upon  its  loans  or  discounts.  It 
was  claimed  by  defendant  that  the 
purchase  of  the  note  was  ultra  rirt-s, 
but  the  court  held  that  it  was  not,  and 
that  such  purchase  was  but  a  dis- 
count. STOHY,  J.,  speaking  for  the 
court,  says:  "  But  in  what  manner  is 
the  hank  to  loan?  What  is  it  to  dis- 
count? Has  it  not  a  right  t->  take  an 
evidence  of  debt  which  arises  from 
the  loan?  If  it  is  to  discount,  must 
there  not  be  some  chose  in  action,  t  r 
written  evidence  of  a  debt,  payable  at 
a  future  time,  which  is  to  be  the  sub- 
ject of  the  discount?  Nothing  can  be 
clearer  than  that  by  the  language  of 
the  commercial  world,  and  the  settled 
practice  of  banks,  a  discount  by  a 
bank  means  ex  «'  termini,  a  deduction 
or  drawback  made  upon  its  advances 
or  loans  of  money  upon  negotiable 
paper  or  other  evidence  of  debt,  pay- 
able at  a  future  day,  which  are  trans- 
ferred to  the  bank."  In  the  case  of 
Smith  r.  Bank.  20  Ohio  St.  Ml.  tin- 
defense  was  that  the  bank  (a  national 
bank)  purchased  the  paper  of  the 
65 


payees,  and  that  it  had  no  authority 
to  make  such  purchase.  L*iK>n  this 
question,  the  court  says:  "  It  doe* 
not  state  that  the  purchnse  wan  made 
at  a  usurious  rate  of  discount,  but  it 
avers  that  under  the  act  of  congress 
to  provide  a  national  currency,  under 
which  the  bank  was  incorporate  1.  it 
had  no  authority  to  purchase  the  bill. 
It  seems  to  be  the  idea  of  counsel  mak 
ing  the  objection  thnt  negotiable 
paper,  perfect  and  available  in  the 
hands  of  the  holder,  is  not  the  suhjeet 
of  purchase  by  a  national  bank  ut  any 
rate  of  di-scount.  This  view  we  think 
entirely  erroneous.  We  see  nothing 
in  the  act  of  congress,  nor  in  reason, 
why  a  borrower  may  not  obtain  the 
discount,  by  a  bank,  of  one  of  the  ex- 
isting notes  and  bills  of  othcre.  of 
which  he  is  the  holder,  as  well  as  of 
his  own  paper,  made  directly  to  the 
bank.  It  is  true  that  as  between  nat- 
ural persons,  the  purchase  of  such 
paper,  when  made  in  g<xxl  faith,  and 
not  as  a  disguise  for  a  K>au,  is  not  sub- 
ject to  the  usury  laws,  but  it  is  other- 
wise as  to  a  bank.  In  the  business  of 
banking,  the  purchasing  and  discount- 
ing of  paper  is  only  'a  mode  of  loan- 
ing money.' " 

*  I 'ape  r.  Capitol  Bank  of  Topeka. 
(1378)   ',><>    Kans.   -tin       Hi 
speaking  for  the  court,  said:     "The 
power  granted  is  the  naked  \»  • 
discounting,  and  the  term  'discount 
ing*  includes  purchase  a*  well  an  loan. 
*  To  discount'  signifies  the  act  of  buy- 


514  BANKS  AND  BANKING.  [§ 

case  an  action  by  a  bank  organized  under  the  laws  of  New  Hamp- 
shire, engaged  in  doing  a  general  banking  business,  upon  a  note, 
the  Supreme  Court  of  Missouri  sustained  the  power  of  the  bank 
under  its  charter,  nothing  appearing  to  the  contrary  therefrom,  to 
buy  outright  the  notes  sued  on  ;  at  the  same  time  they  held  that 
it  had  no  right  to  purchase  them  at  a  greater  rate  of  discount 
than  the  rate  of  interest  it  might  lawfully  charge  for  the  loan  of 
that  money.1  In  a  recent  Massachusetts  case,  an  action  by  a 
national  bank  against  the  indorser  of  a  promissory  note,  to  whose 
order  the  note  was  payable,  its  right  to  recover  was  denied  on  the 
ground  that  it  had  no  title  to  the  note.  It  was  argued  that  under 
the  statutes  of  the  United  States  national  banks  could  not  buy  or 
sell  promissory  notes,  and  that,  inasmuch  as  the  bank  obtained 
the  note  by  purchase,  it  had  no  right  to  hold  or  collect  it. 
KNOWLTON,  J.,  speaking  for  the  Supreme  Court  of  Judicature, 
declared  the  law,  as  they  considered  it  upon  these  contentions,  as 
follows :  *'  On  the  question  whether  a  national  bank  can  buy 
promissory  notes  in  the  market  as  a  natural  person  can,  there  is  a 
conflict  of  authority.  Its  power  to  do  so,  if  it  has  any,  is  con- 
ferred by  the  United  States  Revised  Statutes,  section  1536  (13 

ing  a  bill  of  exchange  or  promissory  could  not  under  its  charter  «o  deal  in 

note  for  a  less  sum  than  that  which,  promissory    notes  as  to  become  the 

upon  its  face,  is  payable.     It  is,  also,  purchaser    thereof.     But  its  charter, 

undeniably  clear  that  the  term  'dis-  the    court  says,  'restrains  the   bank 

count,'  when  used  in  a  general  sense,  generally    from    dealing    or    trading 

is  equally  applicable  to  either  business  except  in  bills  of  exchange,  gold  or 

or  accommodation  paper,  and  is  appro-  silver,  or  in  the  sale  of  goods  pledged 

priately  applied,   either  to    loans    or  for  money  lent  or  which  shall  be  the 

sales  by  way  of  discount,  when  a  sum  proceed  of  laud.'     It  will  be  observed 

is  counted  off  or  taken  from  the  face  that  the  decision  in  this  case  is  based 

or  amount  of  the  paper  at  the  time  altogether    upon    the    restrictions    in 

the    money    is     advanced     upon    it,  plaintiff's     charter,    which    was    be- 

whether  that  sum  is  taken  for  interest  fore  the  court,  and    incorporated    in 

upon  a  loan,  or  as  the  price  agreed  the  bill  of  exceptions.     No  such  re- 

upon  a  sale."     See,  also,  Tracy  v.  Tal-  strictions    are    shown    to    have  been 

mage,   18  Barb.   462;    Bank  v.    Sher-  placed   upon   plaintiff's  powers  as   a 

burne,  14  111.  App.  566.  banking  institution."     That  a  national 

1  Salmon  Falls  Bank  v.  Leyser,  (Mo.  bank  cannot  rescind  a  contract  of  pur- 

1893)  22  S.  W.  Rep.  504.     The  court  chase  of  a  note  on  the  ground  that  it 

distinguished  Bank  v.  Simpson,  1  Mo.  had  no  power  to  purchase  and  recover 

184,  in  these  words:  "  It  is  true  that  it  back  the  money  paid  for  it,  see  Attle- 

is  held  by  this  court  in  [that  case]  that  borough   Bank   v.  Rogers,    (1878)   125 

the  plaintiff,  a  corporation  created  un-  Mass.  339. 
der  the  laws  of  the  st:it?  of  Illinois, 


§2S7|  MA.NKS    AM.    I5ANKIN...  515 

IT.  S.  Sts.  at  Large,  101),  \vhich  authorizes  national  banks  to  dis- 
count ami  negotiate  •  i»romi»ory  notes,  draft*,  lulls  of  •  \<-liange 
and  other  evidences  of  debt,'  etc.  It  has  sometimes  been  held 
that  the  right  to  discount  and  negotiate  notes,  etc.,  goes  no 
further  than  to  authorize  the  taking  of  them  in  return  for  a  loan 
of  money  made  on  the  strength  of  the  promises  contained  in 
tin-in.1  By  other  courts  it  has  been  held  that  the  right  to  'dis- 
count and  negotiate'  includes  the  right  to  buy.*  If  we  assume, 
in  favor  of  the  defendant,  that  national  banks  are  not  authorized 
under  the  law  to  go  into  the  market  and  buy  promissory  notes 
from  those  who  are  selling  them  only  as  a  commodity,  tlu-re  are 
several  reasons  why  this  defense  cannot  prevail.  In  the  lir-t 
place,  if  such  a  purchase  is  ultra  vires,  it  is  an  ordinary  contract ; 
it  is  not  made  penal  nor  expressly  forbidden,  and  the  maker  or 
indorser  cannot  defend  on  the  ground  that  the  bank  has  obtained 
no  title.  The  violation  of  law  can  be  availed  of  only  in  proceed- 
ings against  a  national  bank  in  the  interest  of  the  public  to 
deprive  it  of  its  charter.  This  has  been  decided  by  the  Supreme 
Court  of  the  United  States.3  Secondly,  the  evidence  in  this  case 
would  well  warrant,  if  not  require,  a  finding  by  the  court  that 
the  transaction  was  a  discounting  of  a  note  for  the  defendant 
within  the  meaning  of  the  statute.  The  note  was  in  the  hands 
of  the  indorser's  agent,  who  consulted  the  indorser  al>out  the  rate 
of  interest  to  be  allowed  before  giving  the  note  to  the  plaintiff. 
The  plaintiffs  money  was  paid  to  indorser,  less  the  agent's  com- 
mission. The  transaction  would  have  been  no  different  in  sub- 
stance if  the  defendant,  who  held  the  note  as  indorser,  had  carried 
it  to  the  plaintiffs  [plaintiff  ?]  bank  and  had  there  made  in  per- 
son the  contract  which  he  made  through  the  agent.  If  ho  had 
done  that  the  transaction  clearly  would  have  been  a  negotiation 
of  a  loan  and  a  discounting  of  a  promissory  note.4  Thirdly,  it 

1  Lazear  r.  National  Union  Bank,  52  Porter,  125  Mass.  333;  Atlas  National 

Md.  78,   124;  Farmers  &  Mechanics'  Bank  r.  Savery,  127  Maw.  75,  77. 

Bank  r.  Baldwin,  28  Minn.  198;  First  'Citing  National  Bank  r  Matthews. 

National   Bank   r.   Piereon,  24  Minn.  98  U.  S.  621.  and  cases  cited;  National 

140;  Niagara  County  Bank  r.  Baker,  Bank  r.  Whitney.  108  U.  8.  99;  Mer- 

15  Ohio  St.  69.  chants'   National   Bunk  r.  Hanson,  88 

1  Citing  Smith  r.  Exchange  Bank,  26  Minn.  40;  Slater  Woolen  Co.  e  Lamb. 

Ohio  St.  141;  Pape  r.  Capitol  Bank  of  143  Mass.  420. 

Topeka,  20  Runs.  440.  See,  also,  First  *  Citing  Lazear  v.  National    Union 

National   Bank   r.   Harris,   108  Mass.  Bank,   52  Md.  124;    Farmers  A  Mr 

514,  516;  National  Pemberton  Bank  r.  chanics'   Bank   r.  Baldwin,  88  Minn. 


516  BANKS  AND  BANKING.  [§  28S 

lias  been  held  in  this  commonwealth,  in  analogy  with  the  above- 
cited  decisions  of  the  Supreme  Court  of  the  United  States,  but 
on  somewhat  different  grounds,  that,  even  if  a  national  bank  does 
not  get  the  legal  title  to  a  promissory  note  bought  in  the  market, 
it  may  maintain  a  suit  as  the  holder,  and  the  maker  and  indorsers 
cannot  be  relieved  from  their  contracts  to  pay  the  amount 
promised  in  the  writing."  l 

§  288.  Purchasing  stock  of  corporations. —  A  national  bank, 
by  way  of  compromising  a  claim  alleged  to  be  due,  and  for  the 
purpose  of  averting  an  apprehended  loss  on  account  of  such 
claim,  has  the  right  to  acquire  stock  to  be  again  turned  into 
money,  but  has  no  right  to  purchase  or  acquire  such  stock  either 
for  speculation  or  investment.2  Such  a  bank  not  being  expressly 
prohibited  from  becoming  a  stockholder  in  another  corporation, 
may  take  shares  in  another  corporation  as  collateral  security  for 
a  loan  made  by  it,  or  in  satisfaction  for  a  loan  for  which  the  stock 
may  have  been  pledged  to  it  as  security.3  The  United  States 
Supreme  Court  has  also  held  that  stocks  of  other  corporations 
may  be  taken  by  a  national  bank  with  a  view  to  sell  them  at  a 
profit  in  adjusting  and  compromising  claims  growing  out  of  legit- 
imate banking  transactions.4  The  Nebraska  Supreme  Court,  in  a 
recent  case  involving  the  power  of  a  bank  to  purchase  the  stock 
of  an  insurance  corporation  through  its  cashier,  has,  after  a 
review  of  leading  cases  bearing  upon  the  subject  of  corporations 
purchasing  or  acquiring  stock  in  others,  summed  up  the  law  as 
follows :  "  It  is  doubtless  true  that  the  bank  could  legally  take 
the  stock  of  another  corporation  as  security  for  a  debt  previously 
contracted.  Possibly  it  might  make  a  loan  on  the  strength  of  the 
stock  as  security  at  the  time.  On  this  point  the  authorities  are 
not  in  harmony,  and  as  it  is  not  material  here  we  do  not  decide 
it.  An  emergency  might  arise  when  a  bank's  board  of  directors 
would  be  justified  in  taking  stock  of  another  corporation  in  settle- 
ment, or  adjustment,  or  compromise  of  a  doubtful  claim  or  debt, 

198;  First  National  Bank  ®.  Pierson,  *  First  National  Bank  of  Charlotte 

24  Minn.  140.  v.  National  Exchange  Bank  of  Balti- 

1  Prescott  National  Bank  v.  Butler,  more,  39  Md.  600. 

(1893)  157  Mass.  548,  549,  550;  citing  3  Kennedy    v.     California     Savings 

Atlas  National    Bank  v.  Savery,   127  Bank,  (1894)  101  Cal.  495. 

Mass.    75,    77 ;    National    Pemberton  4  First   National   Bank  ».    National 

Bank  v.  Porter,  125  Mass.  333.  Exchange  Bank,  92  U.  8.  122. 


288]  HANKS  AND  UANKIN',.  517 


acting  in  the  honest  belief  that  only  by  so  doing  could  a 
loss  to  the  bank  be  averted.  N.un-  of  these  reasons,  how. 
existed  in  the  case  at  bar,  or  if  they  did  the  record  In-fore  us  does 
not  disclose  them.  The  cashier  had  no  authority  to  bind  the 
hank  by  buying  the  insurance  company's  stock.  The  board  of 
directors  had  no  authority  to  authorize  him  to  do  so;  and  if  the 
cashier  bought  such  stock  in  behalf  of  the  bank  the  directors  had 
no  authority  to  ratify  the  purchase  and  thus  bind  the  lank. 
*  *  *  We  conclude,  then,  that  the  powers  of  a  directory  of  a 
bank  in  dealing  with  and  in  investing  the  funds  of  the  stockhold- 
ers are  limited  to  the  purposes  for  which  the  bank  was  incor- 
porated and  the  purposes  necessarily  incidental  thereto  in  the  suc- 
cessful conduct  of  its  legitimate  business."1  Unless  necessary  to 
prevent  loss  on  a  debt  previously  contracted  in  good  faith,  a 
national  bank  can  make  no  valid  loan  or  discount  in  security  of 
its  own  stock.2  And  the  placing  by  one  bank  of  its  funds  on 
permanent  deposit  with  another  would  be  a  loan  within  that  pro- 
vision of  the  National  Banking  Association  Act  which  prohibit* 
such  loans.3  A  national  bank,  purchasing  its  own  stock  to  pro- 
tect itself  against  loss  upon  a  debt,  being  bound  to  sell  the  stock 
within  six  months,  may  sell  on  credit  and  take  the  purchaser's 
note,  with  the  stock  sold  as  collateral,  to  secure  it,  provided  it  be 
done  in  good  faith.4  Where  money  has  been  borrowed  of  a  bank, 
and  the  borrower  has  given  as  security  certificates  of  his  shares  of 
the  bank's  stock,  he  would  not  be  entitled  to  recover,  when,  on 
non-payment  of  this  loan,  the  bank  had  sold  the  stock  and  applied 
the  proceeds  to  his  credit.5  The  opinion  of  the  court,  a  brief  one, 
rendered  by  Mr.  Justice  FIELD,  stated  the  law  in  such  case  to  be 

1  Bank  of   Commerce  r.  Hart,  (1898)  Central  R.  R.  Co.  r.  Pennsylvania  R. 

87  Neb.    197,   205.    206.     The    cases  R.  Co..  81  N.  J.   Eq.  475;  Sumnerr. 

referred  to  by  the  Nebraska  court  were  Marcy.  8  Woodb.  &  M.  105;  Ccntiml 

Mechanics   &  Workingmen's  Mutual  R.  R.  Co.  r.  Collins,  40  Oa.  582;  Haiel 

Savings  Bank  &  Building  Association  hurst  r.  Savannah.  O.  &  N.  A.  R.  II. 

«.     Meriden     Agency    Company,    24  Co..  43  Oa.  18  :  People  r  Chicago  Ota 

Conn.  159;  Franklin  Co.  t>.  Lewiston  Trust  Co.,  ISO  III.  268. 

Institution    for  Savings,  68  Me.  48;  »  Bank  r.  Uuier,  11  Wall.  869. 

Nassau  Bank  r.  Jones.  95  N.  Y.  115.  •  Ibid. 

As  to  the  luck  of  power  in  one  corpora  *  Union    National    Bank    ».    Hunt, 

tion  to  buy  stock  of  another,  see  Mil-  (1882)  76  Mo.  4!». 

bank  v  .  New  York,  L.  E.  &  W.  R.  R.  »  National  Bank  of  Xcnia  t.  Stewart, 

Co.,  64  How.  Pr.  20-29;  Franklin  Bank  107  U.  8.  676. 
«.  Commercial  Bank,  86  Ohio  St.  855; 


518  BANKS  AND  BANKING.  [§  288 

as  follows :  "  Section  5201  of  the  Revised  Statutes  declares  that 
'  no  association  shall  make  any  loan  or  discount  on  the  security  of 
the  shares  of  its  own  capital  stock,  nor  be  the  purchaser  or  holder 
of  any  such  shares,  unless  such  security  or  purchase  shall  be  neces- 
sary to  prevent  loss  upon  a  debt  previously  contracted  in  good 
faith ;  and  stock  so  purchased  or  acquired  shall,  within  six  months 
from  the  time  of  its  purchase,  be  sold  or  disposed  of  at  public  or 
private  sale ;  or,  in  default  thereof,  a  receiver  may  be  appointed 
to  close  up  the  business  of  the  association.'  While  this  section, 
in  terms,  prohibits  a  banking  association  from  making  a  loan  upon 
the  security  of  shares  of  its  own  stock,  it  imposes  no  penalty 
either  upon  the  bank  or  borrower,  if  a  loan  upon  such  security  be 
made.  If,  therefore,  the  prohibition  can  be  urged  against  the 
validity  of  the  transaction  by  any  one  except  the  government,  it 
can  only  be  done  before  the  contract  is  executed,  while  the 
security  is  still  subsisting  in  the  hands  of  the  bank.  It  can  then, 
if  at  all,  be  invoked  to  restrain  or  defeat  the  enforcement  of  the 
security.  When  the  contract  has  been  executed,  the  security  sold, 
and  the  proceeds  applied  to  the  payment  of  the  debt,  the  courts 
will  not  interfere  with  the  matter.  Both  bank  and  borrower  are 
in  such  case  equally  the  subjects  of  legal  censure,  and  they  will  be 
left  by  the  courts  where  they  have  placed  themselves.  There  is 
another  view  of  this  case.  The  deceased  authorized  the  bank,  in 
a  certain  contingency,  to  sell  the  shares.  Supposing  it  was  unlaw- 
ful for  the  bank  to  take  those  shares  as  security  for  a  loan,  it  was 
not  unlawful  to  authorize  the  bank  to  sell  them  when  the  contin- 
gency occurred.  The  shares  being  sold  pursuant  to  the  authority, 
the  proceeds  would  be  in  the  bank  as  his  property.  The  admin- 
istrators, indeed,  affirm  the  validity  of  that  sale  by  suing  for  the 
proceeds.  As  against  the  deceased,  however,  the  money  loaned 
was  an  offset  to  the  proceeding.  In  either  view  the  administra- 
tors cannot  recover."  1  The  Illinois  Supreme  Court  has  held,  in  a 
late  case,  that  it  was  no  defense  in  an  action  to  recover  a  loan 
from  a  national  bank  that  the  bank  had  purchased  shares  of  its 
stock  which  were  pledged  for  the  loan  in  violation  of  the  law 
relating  to  national  banking  associations,  where  the  purchase  of 
the  stock  was  consummated  before  the  loan  was  obtained,  and  the 
lender  had  no  knowledge  of  how  the  stock  was  acquired  by  the 

1  Ibid. 


."-9,  290]  BANKS  AM.  HANK: 

bank.1  A  national  hank  which  had  received  the  stock  of  u 
saving  hank,  and  still  retained  it,  and  lia«l  received  dividend-  <.n 
the  stock,  has  been  held  t..  he  t>t,.p|.ed  fr,,m  denying  its  liability 
for  its  proportion  of  tin-  indebtedness  of  tin-  >a\  ings  hank  con- 
tracted during  the  time  of  its  ownership  of  stock  therein.1 

§289.  Increase  of  capital  stock. —  The  comptroller  of  cur 
rency  is  clothed  with  power  to  assent  to  an  increase  of  the  capital 
stock  of  a  national  hank  less  than  that  originally  voted  l.y  its 
directors  but  eqnal  to  the  amount  actually  suh-crilK-d  and  paid  for 
by  the  stockholden  under  the  original  vote.8  The  capital  of  a 
national  banking  association  having  become  impaired  hv  reason  of 
past  due  and  suspended  claims,  should  its  stockholder!,  to  avoid  a 
threatened  assessment  by  the  comptroller  of  currency  upon  the 
stock  to  make  good  the  deficiency,  lawfully  reduce  the  capital 
stock  in  an  amount  equal  to  the  deficiency,  a  stockholder  cannot, 
in  case  the  suspended  claims  he  subsequently  realized  \\\»n\  and 
carried  into  the  account  as  assets,  compel  the  bank  to  distribute  a 
share  of  the  money  so  realized  in  proportion  to  the  amount  of  -lock 
surrendered  by  him.4  The  validity  of  the  proceedings  for  an 
increase  of  the  stock  of  a  national  bank  cannot  be  questioned  hy 
a  stockholder  who,  with  the  knowledge  of  ite  insolvent  condition 
and  of  all  material  facts,  may  have  subscribed  for  increased  stock 
to  same  amount  as  his  original  stock,  and  amount  of  proposed 
increase  was  afterwards  reduced,  in  an  action  to  annul  his  sub- 
scription and  payment.5 

§  290.  Loans. —  "Where  a  state  bank  has  been  organized  into  a 
national  bank  under  the  national  law,  and  the  national  Iwink  had 
taken  from  the  state  bank,  among  the  discounted  note*,  one  for  a 
larger  amount  than  the  national  bank  was  authorized  to  loan  t"  ;i 
single  borrower,  the  Supreme  Court  of  Ohio  held  that  such  note 
or  any  note  subsequently  given  in  renewal  of  it  was  not  to  IN 
regarded  within  the  meaning  of  the  national  act  as  given  for 

1  Chemical  Nat.  Bank  of  Chicago  P.        4  McCann  r.    Kiret    National   Bank. 

City  Bank  of  Portage.  (111.  1885)40  N.  (18H7)  113  Intl.  3.VI. 
K.  Hep.  328.  •  Delano  r.  Butler.    11*   I      S    «W 

*  Kennedy    r.    California     Savings  Pacific  National    Bank    r.    Kiiion.    141 

Bank,  (1894)  101  Cal.  I'.c..  U.  S.  327  ;  Thayer  r.  Butl«-r.  141  U.S. 

•Aspinwall  r.    Butler,    138   U.   S.  234;  Butler  c.  Eaton.  141  I    S.  140. 
595. 


520  BANKS  AND  BANKING.  [§  290 

money  borrowed  of  the  national  bank.1  In  an  action  by  a 
national  bank  for  money  loaned,  the  defendant  cannot  set  up  as  a 
bar  that  the  loans  exceeded  in  amount  one-tenth  part  of  the  capi- 
tal stock  of  the  bank.2  The  security  taken  by  a  national  bank  for 
loans  will  not  be  invalidated  by  the  fact  that  the  loans  may  be  in 
violation  of  the  act  of  congress  which  prohibits  the  lending  of 
more  than  one-tenth  of  its  paid-up  capital  to  one  person.3  Should 
a  bank  accept  a  renewal  note  from  the  agent  of  the  principal  for 
an  amount  greater  than  is  actually  due,  with  fraudulent  intent,  it 
will  vitiate  the  whole,  and  the  bank  cannot  recover  upon  it.  If 
it  be  a  mistake,  the  bank  may  recover  the  amount  actually  due.4 
Should  the  maker  of  a  note  conspire  with  the  president  or  other 
officer  of  a  bank  to  defraud  it,  and  on  the  faith  of  the  note  the 
bank  parts  with  its  money,  the  bank  can  recover  it  from  the 

1  Allen  v.  First  National  Bank,  Xe-  the  benefit  of  either  party  to  the  illegal 

nia,  (1872)  23  Ohio  St.  97.  contract,  but  altogether  upon  grounds 

8  Gold  Mining  Co.  ».  National  Bank,  of  public  policy.  In  O'Hare  P.  The 
(1877)  96  U.  8.  640.  Mr.  Justice  Second  National  Bank  of  Titusville,  77 
HUNT,  speaking  for  the  court,  said:  Pa.  St.  96,  the  question  was  made 
"  After  obtaining  and  holding  to  upon  the  statute  we  are  considering, 
its  own  use  the  money,  can  the  and  it  was  objected  that  the  bank 
mining  company  be  allowed  to  inter-  could  not  recover  the  amount  of  the 
pose  the  plea  that  the  bank  had  no  loan  in  excess  of  the  proportion  spec- 
right  to  loan  the  money  ?  In  Harris  r.  ified.  The  court  held  that  the  section 
Runnels,  12  How.  79,  where  the  de-  of  the  statute  referred  to  was  intended 
fendant  sued  upon  a  note  set  up  the  as  a  rule  for  the  government  of  the 
illegality  of  its  consideration,  it  was  bank,  and  that  the  loan  was  not  void, 
held  that  the  whole  statute  then  in  See,  also,  Pangborn  v.  Westlake,  36 
question  must  be  examined  to  discover  Iowa,  546;  Viniug  et  al.  v.  Bricker,  14 
whether  it  intended  to  prevent  courts  Ohio  St.  331.  We  do  not  think  that 
of  justice  from  enforcing  contracts  in  public  policy  requires,  or  that  congress 
relation  to  the  act  prohibited;  and  that  intended,  that  an  excess  of  loans  be- 
when  a  statute  prohibited  an  act  or  yond  the  proportion  specified,  should 
annexes  a  penalty  for  its  commission,  enable  the  borrower  to  avoid  the  pay- 
it  does  not  follow  that  the  unlawful-  ment  of  the  money  actually  received 
ness  of  the  act  was  meant  to  avoid  a  by  him.  This  would  be  to  injure  the 
contract  made  in  contravention  of  it.  interest  of  creditors,  stockholders,  and 
A  statute  provided  that  slaves  should  all  who  have  an  interest  in  the  safety 
not  be  brought  into  the  state  without  and  prosperity  of  the  bank."  See, 
a  previous  certificate  signed  by  two  also,  Farmers'  Bank  v.  Burchard,  33 
freeholders.  Slaves  were  brought  in  Vt.  346. 

without  such  certificate  and  sold,  and  3  Stephens  v.  Bank,  88  Pa.  St.  157. 
the  purchaser  was  held  liable  for  the  4  Bates  v.  Short,  3  Pennypacker  (Pa), 

purchase  money.     Mr.  Justice  WAYNE  495. 
said  that  the  rule  v.-as  allowed  not  for 


•'1  I  HANKS   AND   liA.NKINo.  521 

maker.1  Where  money  is  paid  <in  fi.rged  paper  by  discounting  or 
cashing  it  by  a  bank,  it  can  be  recovered  hack  provided  tin-  bank 
has  not  materially  contributed  to  tin-  mi-take  it-elf,  and  ha*  L 
a  sufficiently  early  notice  of  the  m^take  to  tin-  otlu-r  party  after 
discovering  it.2  In  a  Vermont  case,  it  appeared  that  the  defend 
ant  signed  a  writing  addressed  to  the  person  who  was  the  ca-hi.  r 
of  the  bank  by  name  only,  saying:  "I  \vi>h  yon  to  di-count  u 
note,"  etc.,  and  guaranteeing  its  goodness  and  payment.  On  the 
credit  of  this  guaranty  the  bank  discounted  the  note.  The 
Supreme  Court  held  that  an  action  on  the  guaranty  lay  in  the, 
name  of  the  bank  counting  upon  a  promise  to  the  bank.* 

§291.  Dividends  on  bank  shares. —  The  board  of  director* 
of  a  hank  have  discretionary  power  to  declare  dividends  and  the 
amount  of  same,  and  a  very  strong  case  must  l>e  presented  to 
induce  a  court  to  interfere.4  Where  the  articles  of  association  of  u 
bank  provided  that  there  should  be  a  semi-annual  dividend,  and 
vested  all  the  powers  and  privileges  of  the  mcml>crs  of  the  asso- 
ciation in  a  board  of  directors,  the  Court  of  Chancery  of  New- 
York  held  that  it  was  competent  for  the  board  to  determine  in 
any  year  not  to  declare  a  dividend,  and  that  a  shareholder  could 
not  maintain  a  bill  to  restrain  the  collection  of  the  securities  ho 
had  given  the  association  in  consideration  of  his  shares,  because 
they  had  determined  to  forego  a  dividend  in  that  year.3  A  divi- 
dend declared  and  paid,  and  credited  on  a  call  for  payment  of  tho 
stock  subscriptions  by  a  banking  association,  having  nearly  a  third 
of  its  capital  locked  up  in  a  suspended  and  uncertain  debt,  though 
it  was  believed  there  would  be  no  ultimate  loss,  has  been  held  to 
be  illegal  as  against  the  creditors  of  the  association.*  It  has  IHHJII 
held  that  a  dividend  declared  by  a  bank  could  not  be  made  pay- 
able in  bills  of  county  banks,  solvent,  but  quoted  IHJ!OW  |>ar  in 
the  city  of  New  York.7  A  stockholder  in  a  bank  is  not  entitled 
to  interest  from  the  bank,  either  on  ordinary  dividends  declared 

1  Tagg  r.  Tennessee  National  Bank,       *  Ely    r.    Sprague.    (1840)    Clark.-. 
(1872)  9  Heisk.  (Tenn.)  479.  851. 

«  Thin!     National    Bank    r.    Allen,       «  Sagory  r.  Duhoi*.  (1848)  8  8»mlf. 
(1875)  59  Mo.  810.  Ch.  466. 

1  Woodstock   Bank   r.    Downer,   27       '  Eule  r.  Chittenango  Bank,  (1881) 
Vt.  482.  34  N.  Y.  548. 

4  State  r.  Bank  of  I/ouisiana,  6  I*a. 
746. 

66 


522  BANKS  AND  BANKING.  [§  L'iM 

on  his  shares  or  on  money  due  him  from  a  reduction  by  the  bank 
of  its  capital  stock,  for  a  period  during  which  the  bank  may  U- 
prevented  from  paying  him  the  same  by  attachments  of  his  stock- 
in  suits  pending  in  court  between  him  and  other  parties,  although 
the  money  thus  belonging  to  him  may  be  during  such  time 
mingled  by  the  bank  with  its  general  assets,  the  bank  being  ready 
and  willing  to  pay  over  the  same  but  for  the  attachments,  and 
having  on  hand  all  the  time  a  balance  of  money  sufficient  for  the 
purpose.1  A  national  bank  in  Texas  having  declared  a  dividend, 
providing  in  its  resolution  that  the  cashier  should  not  pay  such 
dividend  to  the  stockholders  until  the  respective  indebtedness  of 
each  stockholder  should  first  be  paid  out  of  his  portion  of  such 
dividend,  and  one  of  its  stockholders  being  indebted  as  guaran- 
tor and  otherwise  of  certain  notes  held  by  the  bank,  his  dividend 
was  applied  to  the  payment  of  the  same.  He  brought  his  action 
against  the  bank  for  his  dividend.  The  court  specially  held  that 
the  bank  could  not  set  off  against  such  dividend  the  amount  of 
notes  guaranteed  by  such  stockholder,  where  the  original  makers 
had  not  been  exhausted,  and  no  effort  had  been  made  by  the 

1  Mustard  v.  Unio*1  Nat.  Bank,  (Me.  for  the  owner  of  them  than  ordinary 
1893)  29  Atl.  Rep.  977.  PETERS,  Ch.  deposits  or  dividends.  All  uncalled- 
J.,  said:  "  The  [stockholder]  contends  for  deposits  and  dividends  held  by  any 
that  the  bank,  as  to  these  funds,  did  bank,  or  at  any  rate  the  bulk  of  them, 
not  stand  in  the  condition  of  an  ordi-  become  mingled  in  the  moneys  and  in- 
nary  debtor,  but  became  a  stockholder  vestments  of  the  bank,  and  that  is  one 
or  trustee  for  the  owner  of  them;  and  source  of  its  legitimate  business  profits, 
that,  having  received  the  profits  and  *  *  *  The  cases  in  Massachusetts, 
benefits  of  the  funds,  it  is  liable  for  in-  where  this  same  question  has  repeat- 
terest  on  the  same.  We  do  not  feel  edly  arisen,  are  adverse  to  the  plaintiff's 
satisfied  to  apply  the  rule  invoked  by  claim.  Oriental  Bank  v.  Tremont 
the  plaintiff.  There  was  no  promise  Ins.  Co.,  4  Met.  1;  Huntress  r.  Bur- 
of  interest  in  any  way,  and  no  disposi-  bank,  111  Mass.  213;  Smith  r.  Flan- 
tiou  to  withhold  the  funds,  except  for  ders,  129  Mass.  322.  And  we  do  not. 
self -protect!  on.  There  was  more  perceive  that  our  own  cases  favor  the 
money  at  all  times  on  hand  and  unem-  claim.  In  Norris  r.  Hall,  18  Me.  332, 
ployed  than  the  sum  due  the  plaintiff  the  debt  in  the  trustees'  hands  was  on 
in  readiness  for  appropriation  on  the  its  face  running  upon  interest.  Blod- 
debt.  It  would  be  an  unheard  of  gett  T.  Gardiner,  45  Me.  542,  w;is  a 
claim  to  charge  a  bank  with  a  liability  similar  case.  And  in  Abbott  r.  Stinch- 
to  pay  interest  on  deposits  or  declared  field,  71  Me.  213,  the  trustee,  an  nttor- 
dividends  when  there  is  no  promise  to  ney  at  law,  had  collected  funds  for  his 
do  so  nor  any  fault  on  the  part  of  the  client,  and  deposited  them  in  a  savings 
bank.  And  the  funds  in  question  bank  upon  interest  for  his  client's 
were  in  no  more  favorable  condition  benefit." 


§  2'.'  iini  A.M.  i. ASKING. 

bunk  to  collect  the  notes  fnmi  them,  ati«l  they  were  riot  hhown  t.. 
l>e  iiiM.lvent  or  beyond  tlio  jurisdiction  of  tin-  court  ;  and  in  owe 
tin-  maker  <>f  a  note  was  insolvent  and  in  tin-  jn-nitcntiary  or  non- 
roident,  protest  and  notice  or  suit  at  the  first  term  were  not 
necessary  to  hold  the  indorser,  but  the  debts  became  an  original 
liability  of  the  indorser.1 

§  292.  Lien  of  banks  on  moneys  and  securities  of  its 
customers. —  A  bank  has  a  lien  on  all  moneys  and  securities  of 
a  customer  corning  into  its  possession  in  the  regular  course  of 
business  for  any  balance  due  it  on  general  account.2  A  linker's 
lien  does  not  extend  to  all  securities  happening  to  l>e  in  his  hand-  f-  .r 
any  purpose.3  A  bank  has  no  general  lien  on  securities  deposited 
with  it  by  a  customer  as  collateral  fora  particular  debt.4  The  lien 
of  a  bank  resting  upon  the  presumption  of  credit  extended  on  faith 
of  securities  in  possession  or  expectancy,  will  not  arise  in  reference 
to  securities  in  possession  of  the  bank  under  circurnstanc. 
where  there  is  a  particular  mode  of  dealing,  inconsistent  with 
such  lien.5  By  the  law  merchant  a  banker  has  a  general  lien  on 
all  securities  deposited  with  him  by  a  customer  for  his  general 

1  First  Nat.  Bank  of  Texarkana  r.  Tex.   489;  a.  c.,  6  8.  \V.  Rep.  802;  1 

De  Morse,  (Tex.   1894)  26  S.  W.  Rep.  Morse  ou  Banks,  §324;  Id.  $$327;  jfcw- 

417.     The  Texas  Civil  Court  of  Ap-  mark  on  Bank  Dep.  §§  22,  117;  Hank  r. 

peals,  upon  the  general  principles  of  Hughes,    17    Wend.    94;     Fegley    r. 

law  involved  in  the  ease,  said:    "A  McDonald,  89  Pa.    St.   128;    Bnnk  r. 

bank,  in  its  dealings  with  its  custom-  Henninger,    105    Pa.    St.    498;    Bank 

ers,  has  a  right  to  pay  a  debt  due  to  it  r.  Peck,  127  Mass.  800.     Mr.   Mora^ 

out  of  money  in  tin?  possession  of  such  in  his  excellent  work  on  Bunks  and 

bank  to  the  general  credit  of  such  cus-  Banking  (Vol.   2.   §  699e),  say*:  '  But 

tomers,   whether  derived    from   divi-  the  bank  has  a  lien  upon  dividends; 

dends  or  any  other  source.     Traders'  or,  more  properly,  it  may  set  off  divi- 

Nat.  Bank  of  San  Antonio  r.  Cresson,  dcnds  ace-ruing  upon  the  shares  of  a 

75  Tex.  298;  8.  c.,  12  8.  W.  Rep.  819,  stockholder  against  indebtedness  of  a 

and  authorities  there  cited;  Nashville  stockholder  to  the  bunk,  forthedlri- 

Trust    Co.    9.    Fourth    Nat.    Bank,  dend  is  a  simple  debt  owing  from  the 

(Trim.)  18  S.  W.   Rep.  822;  Hagar  t>.  corporation  to  the  stockholder.     HifMT 

Bank,  68  Me.  509;   Morse  on  Banks,  r.  Bank.  «8  Me.  509.'" 

84;    New-mark  on   Bank   Dep,    §  22;  *  In  re  TallasseeManufacturii 

Id.  §  117.     There  is  a  general  rule,  64  Ala.  567. 

subject  to  some    exceptions,   that  a  *  Petric   r.  Myers.  (Sup.   (X   N.   Y. 

bank   has  a   lien  on  all   moneys  and  Spl.  Term.  1«77)  54  How.  Pr.    • 

funds  of  a  depositor  in  its  possession  4  (irunt  r.  Taylor.  35  N.  Y.  Super 

to  secure  any  balance  due  the  luink  by  ft.  888. 

such  depositor.     Bank  r.  Weems.  69  4  Revues  r.  Dumont.  180  t*.  S.  JW. 


;">24  BANKS  AND  BANKING.  [§  292 

balance,  unless  there  be  an  express  contract,  or  circumstances  that 
show  an  implied  contract  inconsistent  with  such  lien,  and  of  this 
courts  will  take  judicial  notice.1  The  doctrine  of  hankers'  liens  is 
not  the  law  of  Pennsylvania.2  A  banker's  lien  does  not  extend 
to  trust  funds  which  his  debtor,  acting  as  an  agent,  has  deposited 
in  the  name  of  a  third  person.3  A  banker  has,  upon  a  security 
pledged  for  a  specific  sum,  a  lien  for  that  amount  only,  and  he 
cannot,  by  reason  of  a  banker's  general  lien  on  securities  in  his 
hands,  extend  it  to  cover  other  advances,  unless  by  special  agree- 
ment.4 If  there  have  been  for  a  long  time  mutual  dealings  and 
an  account  current  between  two  banks,  in  which  they  have  mutu- 
ally credited  each  other  with  proceeds  of  all  paper  remitted  for 
collection  when  received,  and  charged  all  costs  of  protests,  post- 
age, etc.,  and  transmitted  their  respective  accounts  regularly  from 
one  to  the  other,  and  settled  them  as  the  accounts  of  the  respective 
banks ;  and  upon  the  face  of  the  paper  transmitted  it  has  always 
appeared  to  be  the  property  of  the  banks  respectively  remitted  on 
their  own  account,  and  balances  have  been  generally  allowed  to 
remain  until  reduced  by  proceeds  of  such  bills  so  transmitted 
from  one  to  the  other,  in  usual  course  of  business,  either  of  the 
banks  would  have  a  lien  upon  paper  thus  transmitted  for  a  general 
balance  of  account,  no  matter  who  might  be  the  real  owner  of 
the  paper.5  Where  a  bank  paid  an  insolvent  depositor's  note, 
which  it  had  indorsed,  and  which  had  been  dnly  protested  for  non- 
payment, and  was  afterwards  garnished  for  deposits  in  its  hands 
belonging  to  such  depositor,  the  Texas  Civil  Court  of  Appeals 
held  that  the  bank  had  the  right  to  retain  out  of  the  deposit  due 
the  maker  sufficient  to  secure  it  against  loss,  and  was  responsible 
only  for  the  balance  remaining  in  its  hands  after  the  payment  by 
it  of  the  depositor's  note  for  which  it  had  obligated  itself  by  its 
indorsement.6  It  was  held  in  a  case  in  a  federal  court  that  the 
United  States  Revised  Statutes,  section  5242,  which  invalidates 

1  Wyman  v.  Colorado  National  Bank,  !  Falkland  r.  St.  Nicholas  National 

(1879)  5  Colo.    30;   citing  Brandao  v.  Bank  of  New  York,  (1881)  84  N.  Y. 

Barnett,  3  Man.,  G.  &  S.  530.     As  to  145. 

banker's  lien  upon  securities  belong-  *  Duncan  r.  Brennan,  (1881)  83  N.  Y 

ing  to  his  customers  for  balances  due  487. 

from  them,  see  Cornwell  v.  Kinney,  1  6  Rathbone  T.  Sanders,  (1857)  9  Ind. 

Handy  (Ohio),  496.  217. 

'Spring  &  Axle  Co.'s  Appeal,  111  6  Rosenberg  T.   First  Nat.  Bank  of 

Pa.  St.  291.  Texarkana,  (Tex.   Civ.  App.  1894)  27 


§  293]  HANK-    AM.    IIVVKIN... 


all  transfers  of  the  notes,  lx>nds  or  bilU  <>f  exchange  of  a  national 
bank,  after  the  commission  of  an  act  of  insolvency,  with  a  view  to 
the  preference  of  one  creditor  over  another,  does  not  prohibit  ;i 
hunk  which  has  in  good  faith  accepted  the  draft  of  a  national  bank 
the  day  before  the  tatter's  insolvency,  and  afterwards  paid  the.  -aim  -. 
from  applying  the  proceeds  of  collections  made  by  it  on  pajn-r  in 
its  hands  belonging  to  the  insolvent  bank  to  the  payment  of  tin- 
draft  since  its  lien  on  such  collections  runs  from  the  date  of  accept 
ance.1  The  United  States  Circuit  Court  for  the  southern  di-triet 
of  New  York  has  held  that  the  same  statute  did  not  prevent  the 
retention  of  a  balance  standing  to  the  credit  of  an  insolvent 
national  bank  with  a  correspondent  bank  on  the  day  of  ite  failure, 
which  balance  had  been  pledged  for  the  purpose  of  securing 
loans  made  to  the  insolvent  bank  by  the  correspondent  bank.1 

§  293.  Lien  of  a  bank  on  shares  of  stockholders  for  their 
debts  to  the  bank.  —  The  Delaware  court  has  sustained  the 
validity  of  a  by-law  made  by  the  directors  of  a  l>ank  that  no 
stockholder  should  have  the  right  to  transfer  his  stock  while 
indebted  to  the  bank,  and  such  by-law  held  to  give  the  bank  a 
lien  on  the  stock  for  the  debts  of  the  holder  thereof.8  "NVh. 
bank  issues  stock  transferable  on  its  face  there  is  no  lien  upon  it 

8.   W.   Rep.   897;    citing  Burrow    r.  Conant  t.  Seneca  County  Bank,  1  Ohio 

Zapp,     69  Tex.  474;  s.   c.,  6  S.  W.  St.  298.     As  to  whether  a  by-law  of  a 

llcp.  788;  Traders'  Nat.  Bank  of  Stin  bank  can  create  a  general  lien  on  the 

Antonio  t.  Cresson,  75  Tex.  298;  8.  c.,  shares  of  a  stockholder  for  any  debt  due 

12  8.  W.  Rep.  819.  the  bank  from  the  stockholder,  so  as  to 

1  In   re  Armstrong,  (1890)  41   Fed.  affect  the  creditors  of  the  stockhoKN  r. 

Rep.  881.  see    Nesmith    r.    Washington    Bunk. 

»Bell  P.    Hanover  National  Bank,  (1828)  0  Pick.  (Mass.)  824.     As 

(1893)  57  Fed.  Rep.  821  ;  citing  Bank  r.  bank  having  a  lien  upon  the  sto.  ; 

Colby,    21     WalL     618.       LACOMBE,  stockholder  who  inay  have  die«l 

Circuit  Judge,  said  further  :  "  Neither  ing  notes  due  and  to  become  du< 

the  subsequent  insolvency  of  the  bank  able  to  the  bunk,  for  the  amount  i.f  the 

nor  the  appointment  of  the  receiver  indebtedness,  see  Downer  r.  Zancavillc 

destroyed    the    lien     of    defendant,  Bank.  (1*88)  Wright  (Ohio.    HI      &• 

nor  its  right  to  dispose  of  tin-  pledge  to  the  lien,  given  by  it»  «  I 

to   satisfy  the  debt     thus    secured."  bank  on  the  stork  held  \>\  • 

Scott  P.  Armstrong,  146  U.  8.  499;  s.  having  a  priority  over  a  c-laim  of  the 

C.,  18  Sup.  Ct.  Rep.  1  is  United  State*,  see  Brent   r.  Bank   <.f 

*  McDowell  r.  Bank  of  W.  &  B.,  1  Washington.  10  Pet.  596.     A*  U.  th« 

Htirr.  (Del.)  27.     As  to  lien  on  stock  effect  of  a  charter  or  by-laws  of  a  bank 

for  debt  of  the  stockholder,  see  I5:mk  prohibiting  the  transfer  of  shares  of  iti 

of  Holly  Springs  P.  Pinson,  58  Miss.  421;  stock  until  all  the  debu  of  the  rtock- 


520  BANKS  AND  BANKING.  [§  29f> 

for  any  debt  the  stockholders  owe  the  bank.1  A  bank  may  hold 
a  cash  dividend  as  pledged  for  the  debt  of  its  shareholders  to  the 
bank.2  A  bank  has  been  held  not  to  have  a  specific  lien  upon 
the  dividends  of  one  of  its  stockholders  in  consequence  of  its  right 
to  prevent  the  transfer  of  his  stock  until  his  debt  to  the  bank 
should  be  paid.8  A  bank  has  no  lien  on  the  stock  of  one  indebted 
to  it  in  preference  to  other  creditors.  A  Us  pendens  would  give 
preference  to  such  creditors.4  A  bank  may  waive  the  privilege 
given  it  by  its  charter  of  preventing  the  transfer  of  its  stock  by 
any  stockholder  whose  debt  to  the  bank  is  actually  due,  until  pay- 
ment of  the  debt.5  The  provision  in  such  articles  of  incorpora- 
tion that  "  no  shares  shall  be  transferable  unless  the  shareholder 
previously  discharge  all  debts  due  him  by  the  association,"  has 
been  held  to  include  not  only  matured  debts  but  also  liabilities 
miniatured.6  This  lien  attaches  when  the  bank  is  asked  to  trans- 
fer the  legal  title.  Where  one  becomes  the  owner  of  stock  sub- 
ject to  this  provision  in  the  articles  of  which  he  has  knowledge, 
and  has  omitted  to  give  the  bank  notice  of  his  ownership,  thus 
enabling  it  to  have  credit  on  the  faith  of  the  assignor  of  the  stock 
being  a  stockholder,  he  will  have  no  superior  equity  to  that  of  the 
bank.7  A  provision  in  the  articles  of  association  of  a  bank  that 
no  shareholder  should  transfer  his  shares,  or  receive  a  dividend 
thereon,  who  should  owe  the  bank  a  debt  then  due,  unless  by  con- 
sent, etc. ;  and  another  giving  authority  whenever  such  a  debt 
should  be  past  due  to  sell  the  stock  and  apply  the  proceeds  to  pay 
the  debt,  have  been  held  to  create  a  lien  upon  the  stock  in  favor 
of  the  bank  for  the  debts  of  the  stockholder.  The  court  also 
held  that  the  debts  of  a  partnership  of  which  the  stockholder  was 
a  member,  were  his  debts  within  the  rule.8  In  case  a  bank 
release  for  a  time  its  lien  given  it  by  its  charter,  upon  the  stock 
of  a  shareholder  for  debts  due  by  the  latter  to  the  bank,  and 

holder  to  the  bank  are  paid,  see  Union  4  Dana    v.    Brown,    (1829)  1    J.    J. 

Bank  v.  Laird,  2  Wheat.  390.     That  a  Marsh.  (Ky.)  304. 

bank  may  waive  its  right,  under  the  6  Hodges  r.  Planters'  Bank,  7  G.  & 

last  provision,  see  National  Bank  r.  J.  (Md.)  306. 

Watsontown  Bank,  105  U.  S.  217.  *  Leggett    v.    Bank    of    Sing   Sing, 

1  Fitzhugh  v.   Bank  of  Shepherds-  (1862)  24  N.  Y.  283. 

ville.  (1825)  3  Mon.  (Ky.)  128.  7  Ibid. 

»  Hagar  r.  Union  National  Bank,  63  8  Arnold  v.  Suffolk  Bank,  (1857)  27 

Me.  509.  Barb.  424. 

3  Brent  r.   Bank  of  Washington,   2 
Cranch  Cir.  Ct.  517. 


.     294]  HANK-    AND    IIANKIN.,.  .",-_', 

<luring  that  interval  of  time  the  .-lock  be  pledged  by  ite owner  f.-r 
debt  to  a  third  party,  the  rights  of  the  bank  will  lie  MiWdinate 
to  the  rights  of  the  pledgee  until  hi-,  debt  i-  paid  or  the  gtock 
released  by  the  pledger.1  The  lien  that  a  bank  lia»  IIJNMI  tin- 
stock  of  it-  debtor  will  not  be  affected  by  the  fact  that  the  debt  U 
barred  by  the  Statute  of  Limitation.-..3 

§294.  Interest  reserved  by  banks.  —  Legal  interest,  on 
Mini-  discounted  by  banks,  is  that  established  by  their  chartesr.* 
They  can,  in  no  ca>c.  take  more  interest  than  that  fixed  by  their 
charters.4  Banking  laws  limit  the  right  of  a  bank  to  take  inter- 
est. Reserving  or  taking  interest  in  excels  of  that  limit,  make* 
the  transaction  usurious,  and  the  general  usury  law  applie-  to  it.1 
The  taking  of  interest  in  advance  upon  loans  made  by  a  bank  is 
within  the  well-established  rules  of  banking.  Hut  after  a  note 
given  to  it  has  become  payable,  and  in  no  manner  taken  up  and 
renewed,  a  bank  cannot  lawfully  take  upon  it  a  rate  of  interest 
ev-cding  the  rate  allowed  by  law.6  Where  a  bank  discount-  ;t 
note  payable  directly  to  itself,  it  will  not  be  usury  to  take  the  inter 
est  in  advance  for  the  time  the  note  has  to  run,  this  l>eing  the 
11 -a ire  of  banks.7  Discount  means,  ejf  m  termini,  a  deduction 
or  drawback  made  upon  advances  or  loans  of  money  upon  negoti- 
able paper  or  other  evidences  of  debt  payable  at  a  future  time, 
which  are  transferred  to  a  bank.8  The  rate  of  interest  on  loans 

1  Bank  of  America  r.  McNeil,  (1877)  «  Ticonic  Bank  r.  Johnson.  31   Me. 

10  Bush  (Ky.),  56.  414. 

*  Farmers'  Bank     rif     Maryland    r.  '  Union  Bank  r.  Corcoran,  5  Cranch 
lull- hart,  6  (Jill  (Md.).  55.     That  a  na-  Cir.  Ct.  513. 

tionnl  bank  cannot  create  or  hold,  by       *  First  National   Bank  r.  Sherburnc. 

its  articles  of  association  or  by-laws,  a  14  Bradw.  (III.)  566.     As  to  what  la  a 

lien  on  its  stock  to  secure  the  indebt-  discount,    see    Fleckm-r    r.    Bank.    8 

cducss  of  stockholders  to  it,  see  Sec-  Wheat.  338;  Bank  r.  Johnson.  104  I", 

ond    National    Bank  of  Louisville  r.  8.  271;   Tracy  r.  Talmagc.  18  Barb. 

National  State   Bank  of  New  Jersey,  456;  Niagara  County  Bank  r.  Baker. 

<  1M74)  10  Bush  (Ky.),  875.  15  Ohio  St.  68;  I^JH-  r.  Bank.  30  Kaon. 

1  Bank   of  J/juisiana  r.  Sterling,  2  440;  Bank  r.  Shcrbunie,  14  III.  App. 

La.  62;  Clinton  County  r.  Kernan.  10  566;  First  Nat.  Bank  r.  National    K\ 

K«'l)    (La.)  174.  change  Bank.  02  t*.  S.  122.     A«  to  in 

4  Bank  of  Louisiana  r.  Stansbury,  8  terest,  see  (tiithrie  r.  Rdd.  107  IV  St. 

La.  261.  251;  Barnet  r.  Bank.  96  U.  S.  555;  Naali 

*  Rock  River  liank  r.  Sherwood.  10  r.  Bnnk.  68  N.  Y.  896;  Bank  r  Car|*-n 
Wfe.    280;    Durkee   r.   City  Bank.   18  ter.  52  N.  J.  Law.  185;  *.  r  .  19  All 
Wis.   216;  Brower  r.  Haight,  18  Wls.  Rep.    181:    Bank  r.   SUuftYr.    I 
102.  Rep    1K7;  Bank  r.  Child*.   188 


528  BANKS  AND  BANKING.  [§  294 

or  discounts  being  limited  in  the  charter  of  a  bank,  it  cannot 
stipulate  for  a  higher  rate  in  consideration  of  its  forbearance  to 
sue.1  It  is  not  usurious  in  a  bank  to  receive  interest  in  advance 
on  notes  discounted  by  it.2  Requiring  and  taking  exchange  in 
New  York  by  a  bank  upon  a  note  intended  to  be,  and  actually 
paid,  in  Wisconsin,  in  addition  to  ten  per  cent  interest,  has 
been  held  to  be  usury.8  The  taking  of  exchange,  in  addition  to 
ten  per  cent  in  discounting  a  draft,  was,  however,  held  to  be  law- 
ful, if  not  intended  to  evade  the  usury  laws.4  A  national  bank 
may  take  the  rate  of  interest  allowed  to  natural  persons  generally 
by  the  law  of  the  state  where  it  is  located,  and  a  higher  rate 
where  state  banks  of  issue  can  take  it.5  National  banks  are  sub- 
ject to  the  penalty  against  usury  imposed  by  the  federal  law  and  not 
to  that  imposed  by  state  law.6  Usurious  interest  paid  a  national 
bank  on  renewing  a  series  of  notes  cannot,  in  an  action  by  the 
bank  on  the  last  of  the  notes,  be  pleaded  as  a  satisfaction  of  the 
debt.7  The  rule  in  Yermont  is  to  treat  the  receiving  by  a  bank 
of  interest  upon  loans  or  discounts  exceeding  the  rate  prescribed 
by  the  laws  of  that  state,  as  having  the  effect  only  to  render  the 
contracts  void  as  to  the  excess  of  interest  taken.8  Interest  alleged 
to  be  usurious,  having  been  paid  to  a  national  bank,  the  usurious 
interest  cannot  afterwards  be  pleaded  as  a  payment  in  an  action 

248;  Alves  v.   Bank,  3  Browne  Nat.  being  a  violation  of  its  charter,  see 

Bank  Cas.  452;  c.  f.,  Smith  v.  Bank,  State  v.  Boatmen's  Savings  Institution, 

26  Ohio  St.  141;  Bank  v.  Littell,  47  N.  (1871)  48  Mo.  189. 

J.  Law,  233.     In  N.  Y.  State  Loan  &  *  Duncan  v.  Maryland  Savings  Insti- 

Trust  Co.  v.  Helmer,  77  K  Y.  64,  68,  tution,  10  G.  &  J.  (Md.)  299. 

buying   notes    or    advancing    money  3  Durkee  v.  City  Bank,  13  Wis.  216. 

on  notes  is  distinguished  from  "  dis-  4  Central  Bank  v.   St.  John,  17  Wis. 

counting."     Lester   v.    Bank  of    Mo-  157. 

bile,  7  Ala.  490;  Branch  Bank  at  6  Tiffany  v.  National  Bank  of  Mis- 
Mobile  v.  Strother,  15  Ala.  51 ;  Kitchen  souri,  18  Wall.  409.  See.  also,  Na- 
r.  Branch  Bank  at  Mobile,  14  Ala.  233;  tional  Bank  v.  Johnson,  104  U.  8.  271. 
Branch  Bank  at  Montgomery  v.  Har-  6  Barker  v.  Rochester  National 
rison,  1  Ala.  9.  As  to  interest  and  Bank,  59  N.  H.  310. 
usury  on  the  part  of  a  bank,  and  the  7  Dricsbach  v.  National  Bank,  104 
effect  of  penalties,  see  Atlantic  State  U.  S.  52;  Barnet  v.  National  Bank,  98 
Bank  of  Brooklyn  v.  Savery,  (1880)  82  U.  S.  555.  See,  also,  as  to  the  rem- 
N.  Y.  291 ;  Nash  n .  White's  Bank  of  edy  under  the  national  law  being  ex- 
Buffalo,  (1877)  68  N.  Y.  396.  .  elusive,  Stephens  v.  Monongahela 

1  Exchange   Co.  «.   Boyce,   3  Rob.  Bank,  111  U.  S.  197. 

(La.)  307.     As  to  the  reservation  of  in-  8  Bank  of  Middlebury  v.  Bingham, 

terest  in  the  way  of  discounts  exceed-  33  Vt.  621. 
ing  the  rate  of  interest  allowed  a  bank 


§  294]  BANKS  AND  HAN  KOTO.  H8 

by  the  assignee  of  the  hank.1  Tin-  demand  and  receipt  h\  • 
national  hank  of  usurious  interest  from  indorxer*  u]xiii  not. 
counted  by  it,  the  payments  of  which  notes  may  lie  guaranteed 
to  the  hank  by  a  third  party  in  a  written  guaranty,  will  not  avoid 
the  contract  of  guaranty  between  such  third  party  and  the  hank. ' 
In  Pennsylvania  a  national  bank  cannot  take  nmn-  than  six  per 
cent  upon  the  discount  of  a  note,  without  showing  that  the  state 
banks  of  issue  are  allowed  to  do  so.8  Where  a  charter  of  a  bank 
provided  "  that  said  corporation  shall  not  take  more  tlian  at  the 
rate  of  six  per  centum  on  its  loans  or  discounts,"  a  note  on  which 
in  discounting  the  bank  had  reserved  a  rate  of  interest  greater 
than  six  per  cent,  was  held  to  be  void  for  want  of  jwwer  in 
the  bank  to  make  such  a  contract.4  National  hanks  are  Mihjcct 
oniy  to  the  penalties  prescribed  by  the  United  S  king 

Association  Act  for  taking  usury.5  Where  usurious  interest  has 
been  previously  received  by  a  national  bank  in  the  course  of 
renewals  of  a  series  of  notes,  terminating  in  a  note  on  which  an 
action  may  be  brought,  the  usurious  interest  cannot  be  pl« 
by  way  of  set-off  or  payment.  The  only  remedy  open  to  the 
party  aggrieved  is  that  prescribed  by  the  act  of  congress  —  a 
separate  action  for  double  the  interest  paid  by  him.6  A  national 
bank  located  in  Kansas,  charging  and  receiving  interest  at  the  rate 
of  eighteen  per  cent  per  annum,  was  held  liable  under  the 
National  Banking  Act  to  pay  back  twice  the  amount  of 
interest  thus  received.7  The  person  paying  such  interest  having 

1  Child*     t.     Alexander,    22    8.    C.  *  Lazear  r.  National  Union  Bank  of 

185.   That  the  laws  of  the  state  irapos-  Maryland.at  Baltimore.*  1N?9).W  Md.?8. 

ing  penalties  for  taking  usury  do  not  *  Rank  r.   Gruber.  91   Pa.    St.    877; 

apply  to  national  banks,  see  Central  Bank  r.  Blrt/..  2  Ponnypacki-r(Pa.).170. 

Bank  t>.  Pratt,  (1874)  115  Mass.  589;  *  Bank  of    Chillicothe    r.   Swaynr, 

Davis    r.    Randall,    (1874)    115   Mass.  (1838)  8  Ohio,  257. 

547.     As  to  the  provisions  of  the  Na-  *  Merchant*    &    Farnu-nt1    National 

tional  Banking  Act  with  reference  t«  Bank  of  Charlotte  r.  Myrra.  74  N.  01 

forfeiture  for  taking  usurious  Interest,  514.     As  to  a  staU-  court  not  having 

see  Central  Bank  r.  Pratt,  (1874)  115  jurisdiction  of  a  bill  to  recover  usury 

Mass.    539;    Davis   r.    Randall,    (1874)  paid  to  a  national  bank,  set?  Hani! 

115  Mass.   547.     As  to  the  power  to  ».  Cleveland  National   Bank.  (1801)  8 

deduct  interest  from  the  amount  of  Lea  (Tenn.).  40;  Farmer*  &  Mechanics' 

the  loan  and  in  advance,  see    Maine  Bank  r.  Dm  ring.  91  U.  8.  It. 

Brink  v.  Butts,  (1812)0  UjUft.  40;  Agri-  •  Oldhain  r  Brink.                     .'•<) 

cultural    Bank    t>.    Bissell,    (1882)  13  '  Crocker  r.  National  Bank  of  Cfc* 

Pick.  (Mass.)  586.  topa,  (1878)  4  DHL  868. 
67 


530  BANKS  AND  BANKING.  [§  29-i 

gone  into  bankruptcy,  the  court  held  that  the  right  of  action  for 
recovery  of  the  penalty  imposed  by  the  act  of  congress  passed  to 
his  assignee  in  bankruptcy.1  The  amount  of  the  recovery  was 
twice  the  full  amount  of  interest  paid,  and  was  not  limited  to 
twice  the  excess  of  interest  paid  over  the  legal  rate.2  The 
Indiana  Supreme  Court  has  held  that  a  note  given  to  a  national 
bank  was  not  void,  either  as  to  the  maker  or  surety,  from  the  fact 
that  the  bank  knowingly  reserved  and  received  usurious  interest.3 
They  also  held  that  where  an  illegal  rate  of  interest  had  been  paid 
in  advance,  in  an  action  on  the  debt  by  a  national  bank,  the  illegal 
interest  could  not  be  recouped.4  In  Indiana  a  national  bank  is 
entitled  to  charge  and  receive  interest  at  the  rate  of  ten  per  cent, 
to  which  may  be  added  current  rate  of  exchange  for  sight  drafts, 
when  bona  fide  made.  In  an  action  by  a  national  bank  on  an 
evidence  of  debt,  payable  to  it  or  its  use,  where  it  has  unlawfully 
received  illegal  interest,  the  entire  interest  that  the  debt  carries 
with  it,  or  which  has  been  agreed  to  be  paid,  will  be  forfeited, 
and  no  recovery  can  be  had  for  interest  unpaid.6  The  one  who 
has  paid  the  illegal  interest  may  recover  back  double  the  illegal 
amount  of  interest  he  may  have  paid  in  an  action  for  debt.7  Where 
the  assignment  of  error  is  the  admission  of  certain  evidence 
touching  the  consideration  of  a  note  discounted  by  a  bank,  the 
question  whether  the  bank  exceeded  its  powers  by  taking  more 
than  legal  interest  cannot  be  raised  on  error.8  The  Supreme 
Court  of  Colorado,  in  a  very  recent  case,  have  accepted  the  con- 

i  Ibid.  Nolan,    7  How.    (Miss.)  508  ;    Grand 

5  Ibid.  Gulf  v.   Archer,  8  Smedes  &  Marsh. 

8  Wiley  T.  Starbuck,  (1878)  44  Ind.  (Miss.)  151;  Chambliss  r.   Robertson, 

298.  1    Cushman    (Miss.),     302;    Planters' 

4  Ibid.  Bank  v.    Snodgrass,   4    How.    (Miss.) 

s  Ibid.  573;  Forniquet  v.  West  Feliciana  R. 

"Ibid.  R.  Co.,  6  How.   (Miss.)  116;  Killings- 

7  Ibid.     In   La  Dow   r>.    First  Nat.  worth  v.  Commercial  Bank  of  Rodney, 

Bank  of  New   London,  51   Ohio  St.  9  Smedes  &  Marsh.  (Miss.)  628;  Knox 

234,  it  was  held  that  a  national  bank  r.  Bank  of  United  States,  4  Cushman 

located  in  that  state  might,  since  the  (Miss.),  655;  State  v.  Commercial  Bank 

repeal  of  the  statutes  fixing  the  rate  of  Manchester,  4  George  (Miss.).  474; 

of  interest  for  banks  of  issue,  reserve  Bailey    r.    Murphy,    Walker  (Mich.). 

and    charge    interest  at  the  rate  of  424 ;    Farmers    &   Traders'   Bank    r. 

eight  per  cent.     Shunk  T.  Bank,  22  Harrison,  57  Mo.  503;  Lyon  v.   State 

Ohio  St.  508,  distinguished.      As   to  Bank,  1  Stew.  (Ala.)  442. 

interest  and  usury  taken  by  banks,  see  8  Murmh  r.  Branch   Bank  at  Deca- 

Commercial    Bank  of    Manchester   t.  tur,  20  Ala.  392. 


§  294]  BANKS  AM.  HANKING.  581 

elusions  of  the  courts  of  certain  states  that  national  banks  may 
charge  as  high  a  rate  of  interest  as  is  allowed  to  either  individual",, 
or  lianks  of  issue  in  the  various  states  of  their  organization  ;  that 
in  all  states  where  there  is  a  statute  fixing  a  rate  of  interest,  the 
only  limitation  upon  this  right  must  be  found  in  the  statute  it.^-lf. 
The  restriction  contained  in  the  National  Hanking  Act,  which  for- 
bade national  banks  to  charge  more  than  seven  per  cent  interest 
only,  l>ecarne  operative  in  the  absence  of  state  legislation  on  the 
subject.  Wherever  the  state  legislature  has  acted,  the  general  grant 
of  power  to  banks  to  charge  whatever  rate  might  be  reserved  bv 
either  citizens  or  banks  of  issue  became  operative.  Under  thin 
construction  thay  said :  "  Banks  in  Colorado  are  placed  on  pre- 
cisely the  same  footing  as  individuals.  The  legislative  act  on  the 
subject  fixed  a  rate,  to  wit,  eight  per  cent,  and  further  provided 
another  rate  of  interest,  which  is  determined  by  the  agreement  of 
the  parties.  That  the  legislature  has  failed  to  say  the  rate  shall 
not  exceed  twelve  per  cent  per  annum,  or  five  per  cent  per 
month,  does  'not  destroy  the  legal  effect  of  the  enactment,  nor 
restrict  its  operations  to  other  banks  or  citizens  generally,  nor 
make  the  case  one  where  no  rate  of  interest  is  named,  whereby 
the  federal  limitation  becomes  operative.  In  common  with  these 
other  courts,  which  have  reached  a  similar  conclusion,  we  hold  that 
national  banks  in  Colorado  stand  on  the  same  footing  in  the 
matter  of  interest  that  other  banks  and  individuals  occupy."1 

1  Rockwell   r.  Farmers'    Nat.    Bank  tional    Banking    Act,   adjudged    this 

of    Longmont,   (Colo.    1894)   30    Puc.  admissible  where  a  counterclaim  was 

Rep.  905.     The  argument  and  reason-  a  proper  method  of  defense,  the  ques- 

ing  of   the  court,    speaking  through  tion  was  settled  adversely  to  the  claim 

BISSJOM,.  P.  J.,  so  fully  explains  the  by  the  Supreme  Court  of  the  United 

leading  decisions  of   the   courts,  fed-  States.     That  court  decided  that,  in 

eral  and  state,  and  is  so  exhaustive  of  suits  upon  notes  where  illegal  interval 

the   whole  subject  that  it  is  deemed  was  reserved,   u  defense  baaed   upon 

•worthy    of   a  place  in    these    notes,  the  reservation  of  the  illegal  interest 

It  was  said:  "In  reality  the  only  ques-  would  simply  limit  the  recovery  to  the 

tion  involved  is  as  to  the  right  of  a  principal  sum  duo.    Btirnet  r.  Bank.  9H 

national   hank  in  Colorado  to  reserve  U.  S.  555;  Priesbach  r.  Bank.  104  U. 

and  receive,  whether  by  way  of  loan  8.  53.     The    sole    remaining  inquiry 

or  discount,  a  greater  rate  of  interest  concerns  the  recover)*  of   the  thirty 

than    seven    por  cent.     In  no  event  one  dollars  included  in  the  judgment 

could  the  sums  paid  by  way  of  inter-  by  way  of   interest,  according  to  the 

est,  even  though  illegal,  be  applied  to  tenor  of  the  note.     The    statute*  in 

the  reduction  of   the   principal  sum  Colorado  concerning  interest  have  been 

due  on  the  note.     Though  some  states,  in  force  ever  since  it  was  a  state.    The 

in  the  litigations  arising  on  the  Na-  act  has  always  provided  a  specific  rale 


532 


BANKS  AND  BANKING. 


[§294 


The  United  States  Circuit  Court  of  Appeals  for  the  third  circuit 
has  held  that  the  purchase  of  accepted  drafts  by  a  national  bank 
from  the  holder  without  his  indorsement  at  a  greater  reduction 
than  lawful  interest  on  their  face  value,  was  a  discounting  of 
those  drafts,  within  the  meaning  of  Revised  Statutes  United 


of  interest,  which  is  now  eight  per 
cent,  but  the  act  regulating  the  mat- 
ter has  likewise  contained  a  section 
permitting  parties  to  stipulate  for  any 
rate  of  interest  and  authorizing  the 
recovery  of  the  stipulated  interest. 
The  National  Banking  Act,  as  amended 
in  1864  (§§  5197,  5198,  U.  S.  Stats.), 
in  general  provides  that  such  bank- 
ing associations  may  reserve  and 
receive  any  rate  of  interest  allowed  by 
the  law  of  the  state  wherein  the  bank 
is  organized.  There  was  some  con- 
trariety of  opinion  among  the  state 
courts  as  to  the  extent  of  the  power 
conferred  by  these  two  sections  and 
concerning  the  proper  construction  of 
the  clause  granting  the  banks  the  right 
to  charge  interest  in  those  states  where 
one  rate  was  prescribed  for  banks  of 
issue  and  another  for  persons  gen- 
erally. This  matter  has  likewise  been 
settled  by  the  Supreme  Court  of  the 
United  States,  which  has  held  that  the 
banks  may  charge  either  rate  at  their 
pleasure,  selecting,  if  they  choose,  the 
maximum.  Tiffany  v.  Bank,  18  Wall. 
409.  None  of  these  Supreme  Court 
decisions,  however,  touch  the  matter 
in  issue,  which  is,  are  national  banks 
in  states  having  a  statute  upon  the 
subject  of  interest  which  fixes  a  rate, 
but  likewise  contains  a  provision  au- 
thorizing parties  to  stipulate  as  they 
may  choose  respecting  this  matter, 
authorized  to  contract  like  other  citi- 
zens living  within  the  sovereignty? 
This  question  has  not  been  settled. 
The  statute  respecting  national  banks 
has  been  in  force  for  upwards  of 
thirty  years,  and  considerable  litiga- 
tion has  arisen  on  this  particular  ques- 
tion. The  suits  have  taken  various 


forms,  and  the  query  has  been  pre- 
sented by  way  of  defense  to  prevent 
the  recovery  of  the  stipulated  interest, 
and  likewise  in  actions  brought  to 
recover  the  penalty  of  twice  the  inter- 
est where  the  rate  has  been  manifestly 
illegal.  Nevertheless,  it  remains  true 
that  the  question  as  here  presented 
has  never  reached  the  Supreme  Court 
of  the  United  States.  The  case  relied 
on  by  the  appellant,  and  which  at  first 
blush  would  seem  to  sustain  his  con- 
tention, is  Bank  c.  Johnson,  104  U.  S. 
271.  This  case  went  up  on  writ  of 
error  to  the  Court  of 'Appeals  of  the 
state  of  New  York,  and  the  federal 
tribunal  took  jurisdiction  because  of 
the  question  involved.  In  support  of 
our  position  that  this  case  is  not  decis- 
ive of  the  present  controversy,  and  in 
reality  does  not  touch  the  principles 
under  discussion,  it  is  needful  to  state 
what  that  case  is,  the  point  at  issue, 
and  other  questions  determined.  This 
was  a  penal  action  against  the  bank, 
brought  originally  by  Johnson  in  the 
Supreme  Court  of  New  York  to  re- 
cover twice  the  interest  alleged  to 
have  been  reserved  and  received  by 
the  corporation  in  the  business  done 
by  the  parties.  Johnson  insisted  that 
the  bank  was  subject  to  the  penalties 
and  liable  to  the  provisions  of  the  stat- 
ute respecting  usury  and  interest  in 
the  state  of  New  York,  which,  in  gen- 
eral, provided  that  all  usurious  loans 
should  be  absolutely  void  and  the 
lender  could  recover  neither  principal 
nor  interest.  On  the  other  hand,  the 
bank  insisted  that,  according  to  the 
terms  of  the  transaction,  it  was  one 
entirely  analogous  to  the  discount  of 
paper  by  the  bank  where  the  note  waa 


§294] 


BANKS  AND  BANKING. 


States,  section  5197,  which  prohibit-  national  hanks  from  taking 
intrivst  on  any  loan  or  di>count  made  hy  them  at  a  greater  rate 
than  is  allowed  l.y  tin-  laws  of  the  >tat»-  when-  they  are  Mtuated; 
also,  that  the  acceptor  of  drafts  so  purchased  mii;ht  defend 
tin-  recovery  of  intetv-t  thereon  l.y  the  hank,  under 


made  by  A.  to  the  order  of  1J..  who 
indorsed  and  sold  it  to  the  bunk.  It 
must  be  remembered  that  these  two 
propositions  are  dependent  upon  two 
considerations.  That  respecting  usury 
is  dependent  upon  positive  statute; 
that  respecting  the  law  of  discount  is 
a  judicial  declaration  of  the  law,  and 
is  not  a  creature  of  legislative  enact- 
ment. For  more  than  half  a  century  it 
has  been  the  law  of  New  York  that,  in 
the  matter  of  discount,  bauks  were  not 
amenable  to  the  usury  statute.  It  may 
seem  like  a  judicial  evasion  of  the  law, 
but  in  that  mercantile  community  it 
has  never  been  changed,  the  courts 
holding  in  a  case  of  that  description 
there  lire  two  contracts  resulting  from 
the  facts  —  the  first,  an  executed  con- 
tract concluded  by  the  indorsement 
and  delivery  of  the  paper,  whereby 
the  title  passes  to  the  holder;  the 
other,  an  executory  agreement  be- 
tween the  indorser  and  the  indorsee, 
operative  on  the  default  of  the  maker. 
Of  course  the  two  contracts  are  some- 
what different  in  their  limitations, 
since  in  the  one  case  the  bank  recovers 
from  the  maker  the  amount  of  the  note 
and  the  interest,  and,  in  the  other,  the 
sum  loaned,  which  is  treated  as  the 
consideration  of  the  executory  agree- 
ment. Both  these  questions  were 
resolved  by  the  Court  of  Appeals  in 
the  negative,  and  their  conclusion  was 
affirmed  by  the  Supreme  Court.  It 
was  decided  that  state  statutes  respect- 
ing  usury  were  not  applicable  to  the 
national  banks,  excepting  in  so  far  as 
they  might  be  examined  to  ascertain 
what  rate  of  interest  the  national 
banks  were  entitled  to  reserve.  The 
scope  of  the  Banking  Act  and  the 


ri.irlu  of  the  general  government  to 
establish  the  system,  delegate  the 
power  granted  and  impose  restrictions 
on  the  bunks  organized  under  it  were 
fully  considered  in  the  case  of  Bank  ». 
Deariug,  91  U.  S.  «9.  It  was  there 
decided  that  these  banks  were  part  of 
the  instruments  adopted  to  aid  in  the 
administration  of  the  govern  im-nt  in 
one  of  its  most  important  depart- 
ments. The  corollary  was  that  the 
states  could  exercise  no  control  over 
them,  nor  in  any  wise  a  ffeet  their  oper- 
ations, except  in  so  far  as  power 
might  be  granted  by  the  act  itself. 
This  principle  compelled  the  court  to 
conclude  that  the  usury  laws  in  New 
York,  save  in  the  particular  referred 
to,  neither  controlled  nor  in  any  wise 
affected  Johnson's  right  of  recovery. 
It  was  equally  plain  and  so  held  by 
the  court  that  the  law  declared  in 
New  York  respecting  the  discount  of 
paper  had  neither  force  nor  applica- 
tion to  the  question  at  issue.  In  the 
first  place  it  was  not  a  matter  of  posi- 
tive statute  respecting  the  subject  of 
interest,  but  was  simply  a  judicial 
determination  by  the  courts  of  New 
York  that  the  discount  of  paper  un- 
der the  circumstances  suggested  did 
not  come  within  the  pun-Jew  of  the 
usury  statute.  Since  the  statute*  of 
the  state  could  only  be  resorted 
to  for  the  purpose  of  ascertain- 
ing what  rate  of  interest  national 
banks  might  charge,  manifestly  the 
decisions  of  the  appellate  courts  of 
that  state  respecting  the  matter  of  <li- 
counts  were  of  no  consequence,  and 
afforded  no  possible  solution  of  the 
query.  There  was  another  equally 
cogent  reason,  and  one  possibly  more 


534 


BANKS  AND  BANKING. 


[§294 


Revised  Statutes  United  States,  section  5198,  which  provides 
that  the  taking  of  an  unlawful  rate  of  interest  shall  be  deemed  a 
forfeiture  of  the  entire  interest  which  the  "  bill  or  other  evidence 
of  debt  carries  with  it,"  as  this  provision  destroys  the  interest- 
bearing  power  of  the  instrument.  Further,  where  the  acceptor 


conclusive  of  the  subject.  The  fed- 
eral statute  itself,  in  section  5197,  in- 
hibited national  banks  from  reserving 
other  than  the  permissible  interest, 
whether  it  was  done  by  way  of  loan 
or  by  way  of  discount.  The  positive 
limitation  of  the  section  puts  loans  and 
discounts  on  the  same  identical  basis. 
This  of  itself  would  prevent  the  ap- 
plication of  the  New  York  doctrine, 
and  the  negative- answer  to  the  inquiry 
given  by  the  Court  of  Appeals  was  of 
necessity  affirmed  by  the  other  tribu- 
nal. These  were  the  only  questions  in 
that  litigation.  It  is  true  that,  in  the 
course  of  the  discussion  concerning 
this  matter,  the  court  suggested  that, 
when  no  rate  of  interest  was  fixed  by 
the  laws  of  the  state,  a  bank  could 
only  charge  seven  per  cent  per  annum. 
There  are  two  reasons  why  that  decla- 
ration by  tke  court  could  not  be  taken 
as  decisive  of  the  present  inquiry. 
As  demonstrated,  the  case  under  con- 
sideration did  not  come  up  from  a  state 
where  there  was  no  statute  fixing  a 
rate,  nor  from  one  where  the  law  fixed 
the  rate,  but  permitted  any  rate  to  be 
charged  which  might  be  agreed  upon 
between  the  parties.  It  came  from 
a  state  having  one  fixed  rate  of  inter- 
est, which,  of  course,  under  the  fed- 
eral statute,  would  be  conclusive  upon 
the  rights  of  a  national  bank.  In  the 
next  place,  it  was  a  statement  argu- 
endo,  and  could  only  be  held  to  refer 
to  a  case  where  the  laws  of  the  state 
were  silent. "  The  court  then  discussed 
the  state  cases  as  follows:  "  Three  of 
the  cases  presented  the  question  iu  a 
somewhat  different  aspect  from  the 
one  at  bar,  but  one  very  illustrative 
of  this  theory  of  construction.  They 


were  actions  upon  notes  reserving  ten 
and  twelve  per  cent  interest,  where  the 
general  rate  was  six,  though  the  parties 
by  contract  were  authorized  to  charge 
at  the  rate  of  ten  and  twelve  per  cent 
per  annum.  It  was  conceded  that  six 
was  the  general  rate  fixed  by  the 
statute,  and  that  the  other  was  totally 
dependent  upon  agreement  of  the 
parties;  yet,  the  courts  held  that  the 
national  banks  might  reserve  and  re- 
ceive whatever  interest  was  allowed 
by  the  law  of  the  state  regulating  the 
matter.  Wiley  v.  Starbuck,  44  Ind. 
298;  Newell  v.  Bank,  12  Bush,  57; 
Crocker  v.  Bank,  1  Thomp.  Nat.  Bank 
Gas.  317  ;  s.  c.,  Fed.  Cas.  No.  3,397. 
It  will  be  observed  that  in  these  cases 
the  rate  was  established  by  the  law  of 
the  state,  and  there  was  a  limit  put  by 
the  same  laws,  beyond  which  neither 
individuals  nor  banks  could  go. 
Within  the  limit,  interest  might  be  re- 
served. The  courts,  in  reaching  their 
conclusion,  proceeded  upon  the  hy- 
pothesis that,  under  the  National  Bank- 
ing Act,  the  bank  might  charge  any 
interest  allowed  by  the  laws  of 
the  state  in  which  it  was  organized, 
even  though  the  rate  above  six  must  be 
the  subject  of  convention,  and,  unless 
the  limit  were  reached,  the  rate  as  a 
rate  would  not  be  stated.  This  was 
regarded  as  of  no  moment  in  the  inter- 
pretation of  the  statute.  It  is  very 
plain  that  if  the  bank  had  reserved 
nine  per  cent,  while  the  respective 
limits  were  six  and  ten.  an  amount 
would  have  been  charged  in  a  case 
where  there  was  no  definite  legislation 
directly  authorizing  either  the  indi- 
vidual or  the  bank  to  charge  nine  per 
cent,  other  than  that  flowing  from  the 


•  394 


BANKS  AND  BANKING. 


of  such  drafts  make-  a  payment  t..  the-  dank  without  any  din 
as  to  its  application,  the  payment  winnot  l>e  applied  to  the  for- 
feited   interest,    hut    must    IK-   credited    ,,n    the    fa<-e    vuli. 
tin-    drafts.1      The    limitation    of    two    year*,    within   which    an 
action,   under  the   provisions  of  section    .M'."\    K-  tute- 

United  States,  may  Ixvcommenced  for  the  recovery  from  a  national 
bank  of  twice  the  amount  of  money  paid  to  it,  dates  from 
the  actual  payment  of  interest,  and  not  from  the 
reservation  of  it  from  the  original  loan  by  way  of  di.-e.mnt.1 


legislation  which  made  the  matter  uf 
interest  between  two  definite  limits  a 
subject  of  convention.  This  distinc- 
tion does  not  seem  of  very  much  con- 
sequence in  the  solution  of  the  in 
quiry."  "  If  it  be  true  that,  in  a  state 
where  interest  may  be  the  subject  of 
an  agreeemeut,  the  bank  may  reserve- 
whatever  the  parties  agree  upon  up  to 
a  maximum,  then  all  statutes  reserv- 
ing the  right  of  agreement  of  parties, 
whether  they  name  a  maximum  or  not, 
must  be  equally  effectual  for  the  pur- 
poses of  a  grant  of  power.  The  defi- 
nite question  under  consideration  has 
been  expressly  settled  against  the  ap- 
pellant in  three  different  states.  Na- 
tional Bank  of  Jefferson  r.  Bruhn,  64 
Tex.  571;  Hinds  r.  Marmolejo,  GO  Cal. 
229;  Bank  P.  Stover,  60  Cal.  387;  Guild 
v.  Bank,  (8.  D.)  57  N.  W.  Hep.  499." 

1  Danforth  t.  National  State  Bank 
of  Elizabeth,  (1891)48  Fed.  Rep.  271. 

1  Smith  r.  First  Nat.  Bank  of  Crete, 
(Neb.  1894)  60  N.  W.  Rep.  866,  fol- 
lowing Bank  r.  Smith.  86  Neb.  199; 
8.  c.,  54  N.  W.  Rep.  254;  followed  in 
Lanhuin  v.  First  Nat.  Bank  of  Crete, 
(Neb.  1894)  GO  N.  W.  Rep.  1041.  The 
court  referred  to  the  few  ruses  bearing 
upon  the  subject  in  these  words:  "In 
Duncan  r.  Bank,  1  Thorn  p.  Nat.  Bank 
Coses,  860;  H.  c.,  Fed.  Cas.  No.  4,135. 
KBTCHAM.  J..  instructed  the  jury  as 
follows:  "From  the  origin  of  the 
loan  —  from  the  retaining  of  the  first 
discount,  through  all  the  renewals,  up 
to  the  time  of  final  payment  of  the 


principal,  or  up  to  the  time  of  mt<r 
ing  judgments  —  there  U  a  locui  pent- 
ttntia  for  the  party  taking  the  excess- 
ive  interest.  Any  time  till  then  he 
may  consider  the  excessive  interest 
paid  on  account  of  the  loan,  and  so 
apply  it,  and  lessen  the  prim -ipnl  \'\> 
to  that  lime  he  may  make  this  election. 
When  payment  is  actually  made,  and 
if,  as  in  these  cases,  judgment  is  en- 
tered for  the  face  amount  of  the  notes 
or  full  amount  of  the  loan,  or  payment 
is  taken  in  full  without  any  reduction 
by  taking  out  the  excessive  interest, 
the  cause  of  action  is  complete.  The 
original  loans  in  these  cases  were  more 
than  two  years  before  these  actions 
were  brought,  but  the  payment  of  one 
of  the  Millingcr  notes  was  made,  and 
the  judgments  on  all  the  Duncan 
&  Bros.'  notes  were  entered,  nenr  the 
time  of  bringing  the  suits,  less  than 
two  years  before.  The  payment  and 
the  judgment  concluded  the  transac- 
tion,  and  determined  their  character  to 
be  usurious.  Till  that  time  it  was  un- 
determined, and  the  statute  did  not 
begin  to  run." "  In  the  case  of  Bank  r 
Davin,  reported  in  Fed.  Ca» 
10,088.  is  found  the  opinion  <>f 
<H;I  -HAM.  J..  in  which  he  quoted  the 
section  of  the  National  Bankii 
with  which  we  Imve  to  deal.  •  '  * 
Having  quoted  this  language.  Judge 
(iKKMlAU  commented  mi  it  as  follows: 
••  If  a  national  bunk  discount  a  note  at 
a  usurious  rate  of  interest,  paying  lite 
borrower  the  proceeds  less  the  int.  r 


536 


BANKS  AND  BANKING. 


[§295 


§  2Q5-  A  bank's  duty  as  to  securities  deposited  with  it.— 
The  findings  of  the  court  in  this  case  were  that  the  owners  of  cer- 
tain bonds  first  placed  them  for  safe-keeping  with  a  firm  of  bank- 
ers. Afterwards  they  repeatedly  asked  for  discounts  of  their 
notes  by  the  bankers,  offering  them  the  bonds  deposited  with 
them  as  collateral,  and  the  discounts  were  made.  "When  the  notes 
thus  secured  were  paid  the  bankers  called  upon  the  owners  of  the 
bonds  to  know  what  they  should  do  with  them ;  they  were 
informed  that  they  were  to  hold  them  for  the  owners  as  pre- 
viously. The  owners  had  already  written  to  the  bankers  that 
they  desired  to  keep  the  bonds  for  an  emergency,  and  also  that 
they  wished  at  times  to  overdraw  their  accounts,  and  that  they 


est,  and  suit  be  brought  to  recover  the 
loan,  and  the  borrower  plead  the 
usury,  the  bank  will  recover  the  face 
of  the  note,  less  the  entire  interest 
taken  out,  received,  or  reserved,  and 
no  more.  It  will  thus  collect  the 
sum  of  money  it  actually  paid  out, 
being  punished  for  receiving  inter- 
est in  excess  of  the  legal  rate  by 
forfeiting  all  interest.  But  if  the 
note  thus  discounted  be  renewed  for 
the  same  amount,  the  borrower  paying 
usurious  interest  out  of  his  pocket  in 
advance,  and  suit  be  brought  on  the 
renewed  note,  the  defendant  may  re- 
coup double  the  amount  of  the  entire 
interest  actually  paid  on  renewal,  or, 
in  an  independent  action  of  debt,  he 
may  recover  from  the  bank  double  the 
amount  of  the  entire  interest  thus 
paid."  In  Higley  v.  First  National 
Bank  of  Beverly,  26  Ohio  St.  75,  Mc- 
ILVAINE,  J.,  on  page  79  et  scg.,  made 
use  of  the  following  language,  in 
reference  to  that  part  of  the  section 
above  referred  to:  "  By  the  first  pro- 
vision in  that  part  of  the  section  above 
quoted,  if  the  contract  or  promise  to 
pay  usurious  interest  be  unexecuted, 
it  cannot  be  enforced,  and  in  such  case 
the  debtor  is  released  from  the  pay- 
ment, not  only  of  the  interest  in  ex- 
cess of  the  lawful  rate,  but  '  the  entire 
interest  which  the  note,  bill  or  other 


evidence  of  debt  carries  with  it,  or 
which  has  been  agreed  to  be  paid 
thereon,"  must  be  held  and  adjudged 
to  be  forfeited.  By  the  latter  pro- 
vision, if  usurious  interest  '  has  been 
paid,'  twice  the  amount  of  interest 
may  be  recovered  back  from  the  asso- 
ciation '  taking  or  receiving  '  it,  pro- 
vided the  action  therefor  be  com- 
menced within  two  years  from  the 
time  the  usurious  transaction  occurred. 
And,  by  construing  the  whole  section 
together,  we  are  inclined  to  believe 
that,  in  case  usurious  interest  has  been 
received  at  the  time  of  the  loan  or  dis- 
count, there  is  left  to  the  bank  a  locus 
penitential.  In  such  case,  the  bank 
may,  upon  receiving  payment  of  the 
debt,  discharge  itself  from  all  liability 
to  the  debtor  by  giving  credit  for  the 
amount  of  interest  received ;  otherwise, 
the  debtor  may  insist  upon  a  reduc- 
tion of  his  indebtedness  to  the  amount 
actually  loaned  or  advanced,  or  he  may 
pay  the  whole  claim,  and  afterwards, 
within  two  years,  recover  back  twice 
the  amount  of  interest  paid."  See 
Shinkle  v.  First  National  Bank  of  Rip- 
ley,  22  Ohio  St.  516,  which  supports 
the  above  views.  Other  cases  referred 
to  are  Hall  r.  Bank,  30  Neb.  103;  s.  c., 
46  N.  W.  Rep.  150;  Brown  v.  Bank, 
72  Pa.  St.  209. 


g  295] 


BANKS  AND  HANK; 


537 


would  consider  the  bonds  as  security  for  such  overdraft*.  The 
court  was  of  opinion  from  these  facts  that  the  bonds  were  held 
by  the  bankers  as  collateral  security  to  meet  any  sums  which  the 
owners  of  the  bonds  might  overdraw,  and  the  accounts  showed 
that  they  did  subsequently  overdraw  in  numerous  instances. 
These  lx>nds  were  originally  sold  by  the  bunkers  to  the  owner- 
and  left .with  them  for  safe-keeping.  An  uh.-conding  cashier  »\ 
the  bankers  had  stolen  the  bonds,  and  the  owners  brought  this 
action  to  recover  the  value  of  the  bonds  of  the  bunker-.  The 
Tinted  States  Supreme  Court  held  that  when  bond-,  originally 
deposited  with  the  bankers  for  safe-keeping,  were,  by  agreement 
of  the  bailors  and  bailees,  made  a  standing  security  for  the  pay- 
ment of  loans  to  be  made  by  the  bank  to  the  owners  of  the  bonds, 
the  bailees  became  bound  to  give  such  care  to  them  as  a  prudent 
owner  would  extend  to  his  own  property  of  a  similar  kind.1 


1  Preston  r.  Prather,  (1891)  137  U.  8. 
604,  affirming  the  judgment  in  favor 
of  the  plaintiff  rendered  in  Prather  r. 
Kriui,  29  Fed.  Rep.  498.  The  court 
referred  to  the  following  cases  in  sup- 
port of  their  judgment,  to  wit:  "In 

*  *    *    Third  National  Bank  r.  Boyd, 
44  Md.  47,   it  appeared   that  a  firm 

*  *     *     a  large   customer    of    [the 
bank]  [on  a  certain  date]  was  indebted 
to  it  in   about  five  thousand  dollars. 
Subsequently,  the  senior  member   of 
the  firm,  pursuant  to  an  agreement  be- 
tween him  and  the   president  of   the 
bank,  deposited  with  the  bank  certain 
bonds  and  stocks  as  collateral  security 
for  the  payment  of  all  obligations  of 
himself  and  of  the  firm  then  existing 
or  that  might  be  incurred  thereafter, 
with  the  understanding  that  the  right 
to  sell  the  collaterals  in  satisfaction  of 
such  obligations  was  vested  in  the  of- 
ficers of  the  bank.     Some  of  the  bonds 
\\ITC    subsequently     withdrawn    and 
others  deposited  in  their  places.  While 
these  collaterals  were  with   the  bank 
the  firm  kept  a  deposit  account,  hav- 
ing an  average  of  about  four  thousand 
dollars,  and   from  time  to  time,  as  it 
needed,   obtained  on  the  security  of 
the  collaterals  discounts  ranging  from 

68 


three  to  fifteen  thousand  dollars.  The 
firm  was  not  indebted  to  the  bank  sub- 
sequently to  July,  1872,  when  it  paid 
its  last  indebtedness;  the  bonds,  how- 
ever, were  not  then  withdrawn,  but 
left  in  the  bank  under  the  original 
agreement.  In  August,  1872,  the  bank 
was  entered  by  burglars  and  certain  of 
the  bonds  were  stolen.  In  an  action  by 
the  senior  partner  against  the  bank  to 
recover  the  value  of  the  l>onds  stolen 
it  was  held:  '  First,  that  the  contract 
entered  into  by  the  bank  was  not  a 
mere  gratuitous  bailment.  *  *  * 
Third,  that  the  original  contract  of 
bailment  being  valid  and  binding,  the 
obligation  of  the  bank  for  the  safo  cus- 
tody of  the  deposit  did  not  cease  when 
the  plaintiffs  debt  had  been  paid. 
Fourth,  that  the  defendant  was*  respon- 
sible if  the  bonds  were  stolen  in  con- 
sequence of  its  failure  to  exercise  such 
care  and  diligence  in  their  custody  and 
keeping  as  at  tin-  time  banks  of  com- 
mon prudence  in  like  situation  and 
business  usually  In-stowed  in  the  cu* 
tody  and  keeping  of  similar  property 
belonging  to  themselves;  that  the  can1 
and  diligence  ought  to  have  been  mob 
as  was  properly  adapted  t<>  the  preser- 
vation and  protection  of  the  property. 


538  BANKS  AND  BANKING.  [§  296 

§  296.  The  rights  of  a  bank  as  to  securities  pledged  to  it. 
—  In  this  case  it  appeared  that  an  agent,  in  pursuance  of  his  prin- 
cipal's instructions,  loaned  money  on  pledges  of  personal  property 
for  which  property  he  took  warehousing  receipts  in  his  name  as 
"  agent."  He  then  pledged  these  warehousing  receipts  to  a  bank 
to  secure  his  individual  debts  to  the  bank,  the  latter  having 
knowledge  of  the  business  relations  between  this  agent  and  his 
principal  and  the  operations  in  which  they  were  engaged.  The 
bank  afterwards  sold  the  goods  represented  by  these  warehousing 
receipts  and  applied  the  money  to  the  payment  of  the  debts  of 
the  agent  who  had  pledged  them  to  it.  This  action  was  brought 
by  the  owner,  the  principal  of  the  pledger,  for  the  recovery  of 
their  value  from  the  bank.  The  United  States  Circuit  Court 
for  the  district  of  Maryland  held  that  the  knowledge  above 
referred  to,  together  with  the  use  of  the  word  "  agent "  on  the 
receipts,  was  sufficient  to  put  the  bank  upon  inquiry,  and  it  was 
liable  to  the  principal  for  the  amount  realized  by  it  from  the  sale 
of  the  goods.1  The  bank  contended  that  the  agent  having 

and  should  have  been  proportioned  to  and  made  no  examination  of  the  secu- 
the  consequences  likely  to  arise  from  rities,  and  exercised  no  care  or  dili- 
auy  imprudence  on  the  part  of  the  de-  gence  in  regard  to  them;  also,  that  the 
fendant.  Fifth,  that  the  proper  meas-  president  had  been  in  the  habit  of  ab- 
ure  of  damages  was  the  market  value  stracting  securities  and  using  them  in 
of  the  bonds  at  the  time  they  were  his  private  business,  most  of  them  be- 
stolen.  Whether  due  care  and  dili-  ing  returned  when  called  for;  and  that 
gence  have  been  exercised  by  a  bank  the  manager,  who  had  knowledge  of 
in  the  custody  of  bonds  deposited  with  this  habit,  did  not  take  any  means  to 
it  as  collateral  security,  is  a  question  prevent  it,  nor  did  he  notify  the  trus- 
of  fact  exclusively  within  the  province  tees.  It  was  held  that  the  bank  was 
of  the  jury  to  decide.'  In  *  *  *  chargeable  with  negligence,  and  that 
Cutting  v.  Marlor,  78  N.  Y.  454,  it  ap-  the  defendant  was  entitled  to  counter- 
peared  that  the  defendant,  as  collateral  claim  the  value  of  the  securities;  that 
security  for  a  loan  made  to  him  by  a  the  bailment  was  for  the  material  beue- 
bank,  delivered  to  it  certain  securities,  fit  of  the  parties;  that  the  bailee  wag 
which  were  taken  and  converted  by  bound,  for  the  protection  of  the  prop- 
the  president  to  his  own  use.  In  an  erty,  to  exercise  ordinary  care,  and  was 
action  by  the  receiver  of  the  bank  to  liable  for  negligence  affecting  the 
recover  the  amount  loaned,  it  was  safety  of  the  collaterals,  distinguishing 
found  that  the  trustees  of  the  bank  the  case  from  the  liability  of  a  gra- 
left  the  entire  management  of  its  busi-  tuitious  bailee,  which  arises  only 
ness  with  the  president  and  assistant,  where  there  has  been  gross  negligence 
styled  manager;  that  they  received  the  on  his  part." 

statements  of  the  president  without  '  Thurber  t.  Cecil  National  Bank, 
question  or  examination;  that  they  had  (1892)  52  Fed.  Rep.  513.  See  as  an- 
no meetings  pursuant  to  the  by-laws,  thority  for  this  rule  National  Bank  ». 


§  29fi]  BANKS  AND  UANK:  .  ::• 

authority  to  sell  and  tho  provisions  of  certain  statutes  of  Mar\ 
l;md  relieved  it  from  liability.  The  court  held  that  the  fact  th.-it 
the  agent  had  authority  to  sell  di<l  not  affect  the  duty  of  the  hank 
to  make  inquiry,  as  authority  to  sell  did  not  include  authority  to 
pledge,  nor  was  the  bank  excused  from  liability  by  the  Maryland 
Factors'  Act  (Code,  art.  2),  providing  that  any  IH.TSOH  intrusted 
with  storekeeper's  certificates  or  other  similar  documents  fhow- 
iiiir  possession  may  pledge  the  goods  to  anybody  who  i-  without 
notice  that  such  person  is  not  the  actual  owner,  the  word  "  agent" 
in  the  receipts  and  the  circumstances  charging  the  bank  with 
notice ;  nor  by  article  1-i  of  the  Maryland  Code,  declaring  storage 
receipts  to  be  negotiable  instruments  in  the  same  manner  as  bilk 
of  lading  and  promissory  notes  ;  for  when  the  fiduciary  character 
of  the  holder  is  expressed  on  the  face  of  a  negotiable  instrument 
notice  is  thereby  given  to  the  indorser  that  the  holder  prlm-i 
facie  has  no  right  to  pledge.1  In  this  case  the  plaintiffs  action 
was  for  certain  coupon  railroad  mortgage  bonds  which  it  was 
claimed  the  bank  became  wrongfully  and  illegally  possessed  of. 
Plaintiff,  the  owner  of  these  bonds,  had  placed  them  with  certain 
brokers  to  cover  margins  in  transactions  in  the  purchase  of  stocks 
by  them  on  his  account.  These  brokers,  keeping  a  regular 
account  with  the  bank  in  their  usual  course  of  business,  had 
placed  these  bonds  with  other  securities  as  collateral  with  the 
bank  under  an  agreement  to  this  effect :  "  We  hereby  agree  with 
the  St.  Nicholas  National  Bank  of  New  York,  in  the  city  of  New 
York,  that  in  case  we  shall  become  or  be  at  any  time  indebted  to 
said  bank  for  money  tent  or  paid  to  us  or  for  our  account  or  use, 
or  for  any  overdraft,  in  any  sum  or  amount  then  due  and  pay- 
able, the  said  bank  may,  in  its  discretion,  sell  at  the  brokers'  board 
or  at  public  auction  or  private  sale,  without  advertising  the  same, 
and  without  notice  to  us,  all,  any  and  every  collateral  securities, 
things  in  action  and  property  held  by  said  bank  for  securing  the 
payment  of  such  debt,  and  apply  the  proceeds  to  the  payment  «>f 
such  indebtedness,  the  interest  thereon,  and  the  expenses  of 

Insurance  Co.,  104  U    S.  54;  Duncan  '  Ibid.     In  support  of  thrae  rule*  Me 

t>.  Jaudon,  15  Wall.    165;   Warner   r.  Allen  r.  St.  LouU  Bank. <lv- 

Martin,    11    How.   225;    Taliaferro  r.  8.20,  82;  a.  r.,  7  Sup   <t     !:• 

Bank,  71  M.i.  208;    s.  •-..  17  Atl.  Hep.  Kinder  r.  Shaw,  8  Maaa.  80*.  Phillip* 

1086;    Lowry    r.    Bank,   Tancy,   810;  r.  Iluth.  6  Mec».  A  W.  572,  508;  Colec. 

Shaw  r.  Spencer,   100  Mass.  3X2;  Dil-  North  Western  Bunk.  L.  It,  10  C.  P. 

Ion  «.  Insurance  Co.,  44  Md.  888.  IM     ' 


540  BANKS  AND  BANKING.  [§  296 

holding  ourselves  responsible  and  liable  for  the  payment  of  any 
deficiency  that  shall  remain  unpaid  after  such  application."  The 
bank  paid  and  advanced  for  these  brokers  on  the  faith  of  the  bonds 
and  other  securities  large  sums  of  money.  The  brokers  failed 
in  business,  and  owed  the  bank  a  large  sum  for  checks  certified 
by  it  and  outstanding,  and  for  money  paid  by  it  up  to  the  close 
of  the  business  a  few  days  before  their  failure.  There  was  no 
notice  or  claim  as  to  the  ownership  of  the  bonds  involved  by  the 
alleged  owner  until  two  weeks  after  the  failure  of  his  brokers. 
The  bank  in  good  faith  and  on  the  best  available  terms  made  sale 
of  the  bonds  and  other  securities  and  credited  its  depositors,  the 
brokers,  with  the  proceeds,  which  left  a  small  deficiency  which 
it  never  received.  This  case  was  tried  on  a  circuit  of  the 
Supreme  Court  of  the  State  of  New  York,  and  the  plaintiffs 
asked  the  court  to  direct  a  verdict  against  the  bank  and  in  their 
favor  on  the  ground  that  the  certification  of  the  checks  by  the 
bank  was  void,  because  it  was  unlawful,  being  a  certification  of 
checks  drawn  by  the  brokers  when  they  had  no  money  on  deposit 
to  their  credit  with  the  bank,  and  the  bank  could  not  hold  the 
bonds  as  against  such  unlawful  certification,  and  on  the  further 
ground  that  the  bank  did  not  take  the  bonds  in  the  ordinary 
course  of  business.  The  trial  court  refused  and  directed  a  ver- 
dict for  defendant.  Exceptions  to  this  judgment  came  before 
the  Supreme  Court  in  General  Term,  and  the  court  denied  a 
motion  of  plaintiffs  for  a  new  trial  with  an  order  that  the  defend- 
ant have  judgment  against  the  plaintiffs  upon  the  verdict  with 
costs.1  The  case  was  carried  to  the  United  States  Supreme  Court, 

1  Thompson  v.  St.  Nicholas  National  would  defeat  the  very  policy  of  an  act 
Bank,  (1888)47  Hun.  621;  affirmed  in  intended  to  promote  the  security  and 
Thompson  v.  St.  Nicholas  National  strength  of  the  national  banking  sys- 
Bank,  (1889)  113  N.  Y.  325,  in  which  tern,  if  its  provisions  should  be  so  con- 
rase  RUG ER,  Ch.  J.,  remarked:  "That  strued  as  to  inflict  a  loss  upon  the 
the  statute  of  the  United  States  af-  banks  and  a  consequent  impairment  of 
firmed  the  validity  of  the  contract  of  their  financial  responsibility."  The 
certification,  and  expressly  provided  court  then  cited  to  support  that  view 
the  consequences  which  should  follow  National  Bank  T.  Matthews,  98  U.  S. 
its  violation;  that  the  penalty  incurred  621;  National  Bank  v.  Whitney,  103 
was  impliedly  limited  to  a  forfeiture  U.  S.  99,  and  National  Bank  of  Xenia 
of  the  bank's  charter  and  the  winding  v.  Stewart,  107  U.  S.  676.  It  was 
up  of  its  affairs;  that  it  was  thus  further  said  "  that  the  statute  in  ques- 
clearly  implied  that  no  other  conse-  tion  had  no  application  to  the  question 
quences  were  intended  to  follow  a  involved  in  this  suit,  which  concerned 
violation  of  the  statute;  and  that  it  only  the  relations  between  [the  brokers} 


§  296]  BANKS  AND  BANK  I  .Ml 

on  a  writ  of  error,  then-  being  a  federal  question  involved,  the 
construction  and  effect  upon  this  contract  «»f  the  Tinted  .v 
Revised  Statutes,  section  5208,  providing :  "  It  shall  be  unlawful 
for  any  "Hirer,  clerk  or  agent  of  any  national  bank  to  certify  any 
check  drawn  upon  said  bank,  unless  the  IK,TMMI  or  company 
drawing  said  check  shall  have  on  deposit  in  said  bank  at  the  time 
such  check  is  certified  an  amount  of  money  equal  to  the  amount 
specified  in  such  check ;  and  any  check  so  certified  by  duly 
authorized  officers  shall  be  a  good  and  valid  obligation  against  such 
bank  ;  and  any  officer,  clerk  or  agent  of  any  national  bunk 
lating  the  provisions  of  this  act  shall  subject  such  bank  to  the 
liabilities  and  proceedings  on  the  part  of  the  comptroller  as  pro- 
vided for  in  [the  section  of  an  act,  the  provisions  of  which 

and  the  [bank];  that  by  the  deposit  of  brokers];  that  the  fact  that  the  [bank), 

the    bonds    the    former    secured    the  in  connection  with  the  agreement  to 

promise  of  the  [bank]  to  protect  their  pay  such  checks,  had  also  promised 

checks  of  a  certain  day  for  a  specified  third  parties  to  pay  them,  could  not 

amount;    that  the  certification  of  the  invalidate  the  liability  previously  in 

checks  was  entirely   aside  from  the  currcd,  or  impair  the  security  which 

agreement  between  [the  brokers]  and  had    previously    been    given    to    tin- 

the   [bunk],   and   was  a  contract  be-  [bank]  upon  a  valid  consideration;  that 

tween  the  [bank]  and  the  anticipated  the  fact  of  the  certification  was  entirely 

holders     of    the    checks;     that    [the  immaterial  in  respect  to  the  liability 

brokers]  had  received   the  considera-  incurred  by  [the  brokers]  to  the  [bank]; 

tion  of  their  pledge  when  the  [bank]  tliat  there  was  no  evidence  impairing 

agreed  with  them  to  honor  their  checks,  the  title  to  the  bonds  acquired  by  the 

and   that  would   have    been   equally  [bank]  through  the  transfer  of  them 

effectual  between  the  parties  without  to  it  by  [the  brokers];  that  the  purpose 

any  certification;  that  the  certification  for  which  the  bonds  were  transferred 

was  simply  a  promise  to  such  persons  by    [their    original    owner]    to    [the 

as  might  receive  the  checks  that  they  brokers]  contemplated   thrir  transfer 

should  be  paid  on  presentation  to  the  and  sale  by  the  latter  to  third  pettOM; 

[bank],  in  accordance  with  its  previ-  that  the  [bank]  acquired  a  valid  title 

ous  agreement  with  [the  brokers];  that  to  them  by  their  transfer  to  it;    that 

the  legal  effect  of  the  agreement  was  the  transaction  between  [the  broken] 

that  the  [bank]  should  loan  a  certain  and  the  [bank]  was  in  the  ordinary 

amount  to  [the  brokers],  and  would  course  of  business    pursued    by   the 

pay  it  out  on  their  checks  to  the  per-  latter;   that  it  received  the  bon<K  in 

sons  holding  such  checks;   that  it  was  good  faith  fora  valuable  conitidcration. 

entirely  legal  for  the  [bank]  to  con-  and  within  all  the  authorities  this  gave 

tract  to  pay  [the  brokers']  checks,  and  it  a  good  title  to  tho  bonds;  thai  it  was 

it  did  not  affect  the  legality  of  that  authorized  to  dval  with  liu-rn  for  tlw- 

transaction  that  the  [bank]  also  reprc-  purpose  of  effecting  the  object   for 

senti-il  to  third  parties  that  it  had  made  which  they  were  transferred  to  it;  Uwl 

such  agreement,  nor  could  any  other  its  right  to  hold  the  bonds  continued 

party  standing  in  the  shoes  of  [the  so  long  as  any  part  of  ite  debt  against 


542  BANKS  AND  BANKING.  [§  296 

that  the  comptroller  of  the  currency  might  forthwith  appoint  a 
receiver  to  wind  up  the  affairs  of  the  banking  association]."  The 
Supreme  Court  affirmed  the  decision  of  the  New  York  Court  of 
Appeals.1  In  this  case  a  national  bank  in  a  failing  condition, 
while  being  pressed  by  its  customers,  remitted  securities  in  the 
form  of  bills  of  exchange,  notes,  etc.,  to  a  large  amount  to  its 
correspondent  bank  in  another  city,  on  which  it  asked  advances 
or  loans  for  its  relief  and  also  authorized  the  holding  of  these 
securities  as  collaterals  to  protect  against  its  overdrafts.  The 
failing  bank  finally  succumbed  to  the  pressure,  and  was  placed  in 
the  hands  of  a  receiver.  The  receiver  brought  action  against  the 
bank  holding  these  securities,  claiming  a  right  to  their  possession 
in  himself  as  assets  of  the  bank.  The  contention  on  the  part 
of  the  receiver  was  that  the  United  States  Revised  Statutes,  sec- 

[the  brokers]  remained  unpaid;    that  pressly  provides  that  a  check  certified 

the  [original  owner]  could  at  any  time  by  a  duly  authorized  officer    of  the 

have  established  his  equitable  right  to  bank,  when  the  customer  has  not  on 

a  return  of  the  bonds,  and  could  have  deposit  an  amount  of  money  equal  to 

procured  their  surrender  by   paying  the    amount    specified   in  the    check 

the    amount     for    which    they    were  certified,  shall  nevertheless  be  a  good 

pledged,  but  he  refrained  from  doing  and  valid  obligation  against  the  bank; 

so,  and  impliedly  denied  any  right  in  and  there  is  nothing    in  the  statute 

the  [bank]  by  demanding  the  uncon-  which,  expressly   or   by  implication, 

ditional  surrender  of  the  bonds,  and  prohibits     the     bank     from     taking 

that  he  never  became  entitled  to  such  security    for    the     protection    of    its 

surrender,  and  of  course  was  not  au-  stockholders  against    the    debt    thus 

thorized     to    recover     possession    of  created.      There     is     no   prohibition 

them."  against  a  contract  by  the    bank    for 

1  Thompson  v.  St.  Nicholas  National  security  for  a  debt  which  the  statute 

Bank,    (1892)    146    U.    S.    240.      Mr.  contemplates  as  likely  to  come  into 

Justice    BLATCHFORD,  for    the  court,  existence,  although  the  unlawful  act 

approved  the  views  of  the  New  York  of  the  officer  of  the  bank  in  certifying 

Court  of  Appeals  as  sound  and    as  may  aid   in    creating  the   debt.      In 

covering    the    case.      He  then    said  :  order  to  adjudge  a  contract  unlawful, 

"The  agreement  [before  referred  to]  as  prohibited  by  a  statute,   the  pro- 

between  [the  brokers]  and  the  [bank]  hibition  must  be  found  in  the  statute, 

did  not  call  for  any  act  violating  the  The  subjection  of  the    bank  to  the 

statute.     There  was  nothing  illegal  in  penalty  prescribed  by  the  statute  for 

providing   that  the    securities  which  its  violation  cannot  operate  to  destroy 

the   bank  might   hold  to  secure  the  the  security  for  the  debt   created  by 

debt  to  it  of  [the  brokers]  should  be  the    forbidden    certification.      If    the 

available  to  make    good  such  debt,  [original    owner]     had     pledged    the 

The    statute    does    not    declare   void  bonds  to  the  [bank],  he  could  not,  after 

a  contract  to  secure  a  debt  arising  on  receiving    [the  bank's]    money,  have 

the    certificates    which    it    prohibits,  replevied  the  bonds ;   and  after   pos- 

In  addition  to  that,   the    statute  ex-  session  of  the  bonds  had  been  given. 


§296]  BANKS  AND  BANK:  .'.  J  i 

tiou  5242,  which  prohibits  all  transfer-  l.y  any  national  banking 
•iuti.m  after  the  cummi-M.m  of  an  act  «.t "  i:i-.!vi-in-v,  »r  incou- 
teniphition  thereof,  with  a  view  to  the  preference  ..f  ..ne  cn-dr 
another,  liad  la-en  violated  by  the  insolvent  bank,  and  that  the  oor- 
re-pondent  bank  hud,  therefore,  n<»  title  in  «.r  lien  upon  the  socur- 
itie>  which  it  held.  WALLACE,  J.,  of  the  I'nitcd  State-  Circuit 
Court  for  the  southern  district  of  New  York,  held  that  the  >tatute 
was  directed  to  preference,  not  to  the  giving  of  a  security  when  a 
debt  is  created ;  and  if  the  transaction  be  free  from  fraud  in 
fact,  and  is  intended  merely  to  adequately  protect  a  loan  made  at 
the  time,  the  creditor  can  retain  property  transferred  to  secure 
such  a  loan  until  the  debt  is  paid,  though  the  debtor  w  insolvent, 
and  the  creditor  has  reason  at  the  time  to  believe  that  to  IK.-  tin- 
by  him  to  [the  brokers],  and  after  they  money  which  they  might  hare  de- 
had  been  subsequently  taken  by  the  posited  to  meet  the  checks.  More- 
[bank]  in  good  faith,  neither  he,  nor  over,  it  has  been  held  repeatedly  by 
his  executors  can  set  up  the  statute  to  this  court  that  when-  the  provi-i 
destroy  the  debt.  This  construction  the  National  IJankinir  Act  prohibit  CIT 
of  the  statute  iu  question  is  strength-  tain  acts  by  banks  or  their  offlccrx. 
oned  by  the  subsequent  enactment,  without  imposing  any  penalty  or  for- 
making  it  a  criminal  offense  in  an  feiture  applicable  to  particular  trans- 
ollici-r,  clerk  or  agent  of  a  national  actions  which  have  been  executed, 
bank  to  violate  the  provisions  of  the  their  validity  can  be  questioned  only 
act.  [Rev.  Stats.  U.  S.  §  5208,  to  by  the  United  States,  and  not  by 
wit  :  Act  July  12.  1882,  §  13,  c.  private  parties.  National  Bank  r. 
288;  22  Stats,  at  Large,  166.]  This  Matthews,  98  U.  S.  621;  National 
shows  that  congress  only  intended  to  Bank  r.  Whitney,  108  U.  S.  99, 
impose,  as  penalties  for  over  certifying  National  Bank  of  X«-nia  r.  Stewart, 
checks,  a  forfeiture  of  the  franchises  107  U.  S.  070.  The  bonds  in  question 
of  the  bank  and  a  punishment  of  the  came  into  the  possession  of  the  [hank] 
delinquent  officer  or  clerk,  and  did  before  it  certified  the  clu-cks.  They 
not  intend  to  invalidate  commercial  were  not  pledged  to  it  under  any 
transactions  connected  with  forbidden  agreement  or  knowledge;  on  its  part. 
certifications.  As  the  [bank]  was  or  in  fact  on  the  jwrt  of  [the  broken], 
bound  to  make  good  the  checks  to  the  that  subsequent  certificate*  would  bo 
holders  of  them,  because  the  act  made.  Tin-  certificate*  were  tnad« 
[heretofore  referred  to]  declares  that  after  the  pledge  anil  created  a  debt  of 
the  checks  shall  be  good  and  valid  [the  broken ].  which  artme  after  tin- 
obligations  against  the  [bank],  it  fol-  pledge.  The  agreement  [at  the  tim« 
lows  that  [the  brokers]  were  bound  to  of  depositing  the  collateral*]  applii-1 
make  good  the  amounts  to  the  [bank],  and  became  operative  simuluncoualy 
It  necessarily  results  that  the  | bank  j.  with  the  certification*,  but  indcpeod 
in  paying  the  checks,  was  as  much  ently  of  them,  as  a  legal  pn>|K«iUun. 
entitled  to  resort  to  the  securities  In  Logan  County  Bank  r.  Townsrnd. 
which  [the  brokers]  had  put  into  its  139  U.  S.  67,  77,  decided  in  March. 
hands,  as  it  would  have  been  to  apply  1891,  after  the  present  ca»e  was  dc- 


544 


BANKS  AND  BANKING. 


[§296 


fact.1  In  the  same  case  the  correspondent  bank  insisted  that  it 
acquired  a  banker's  lien  upon  the  securities  for  the  amount  of 
any  balance  upon  its  general  account  with  the  insolvent  bank 
which  remained  unpaid.  But  the  court  held  that  a  banker's  lien 
for  the  amount  of  the  balance  of  its  general  account  does  not 
exist  when  the  securities  have  been  deposited  with  the  bank  for 
a  special  purpose  or  for  the  payment  of  a  particular  loan.2 


dded  by  the  Court  of  Appeals  of  New 
York,  this  court  approved  the  decision 
in  National  Bank  v.  Whitney,  103  U. 
S.  99,  and  said  that  a  disregard  by  a 
national  bank  of  the  provisions  of  the 
act  of  congress  forbidding  it  to  take  a 
mortgage  to  secure  an  indebtedness 
then  existing,  as  well  as  future  ad- 
vances, could  not  be  taken  advantage 
of  by  the  debtor,  but  '  only  laid  the 
institution  open  to  proceedings  by  the 
government  for  exercising  powers  not 
conferred  by  law.' " 

1  Armstrong  p.  Chemical  National 
Bank,  (1890)  41  Fed.  Rep.  234.  It  was 
said  by  the  court:  ' '  The  naked  fact  that 
the  Fidelity  Bank  was  insolvent  at  the 
time  it  sent  the  securities  to  the  de- 
fendant does  not  imply  that  the  trans- 
fer of  the  securities  was  made  in  con- 
templation of  insolvency,  or  with  a 
view  of  a  preference  of  the  defendant 
over  its  other  creditors.  Although,  in 
the  light  of  subsequent  events,  the 
Fidelity  Bank  was  insolvent,  it  may 
be  that  its  insolvency  was  not  sus- 
pected by  its  officers.  So  far  as  ap- 
pears no  act  of  insolvency  had  been 
committed.  A  bank  is  not  in  con- 
templation of  insolvency  until  the 
fact  becomes  reasonably  apparent  to 
its  officers  that  it  will  presently  be  un- 
able to  meet  its  obligations,  and  will 
be  obliged  to  suspend  its  ordinary  ob- 
ligations. Roberts  v.  Hill,  24  Fed. 
Rep.  571.  Until  this  condition  of 
affairs  exists,  certainly  a  national  bank- 
ing association  does  not  violate  the 
statute  by  pledging  its  securities  to  a 
reasonable  amount  to  raise  money 
needed  to  meet  an  unexpected  run. 


The  best  managed  institutions  are 
liable  to  such  contingencies,  and  the 
right  to  use  their  assets  in  an  honest 
attempt  to  bridge  over  such  a  crisis  is 
indispensable  to  their  safety.  Obvi- 
ously the  exercise  of  this  right  would 
be  impracticable  if  the  pledge  becomes 
void  whenever  the  attempt  of  the 
bank  to  rescue  itself  from  failure  be- 
comes unsuccessful." 

4  Armstrong  v.  Chemical  National 
Bank,  (1890)  41  Fed.  Rep.  234.  WAL- 
LACE, J.,  said  :  "  It  is  familiar  law 
that  a  banker  has  a  lien  upon  all  funds 
and  securities  in  his  possession,  de- 
posited with  him  in  the  usual  course 
of  business  by  a  customer  to  facilitate 
the  financial  transactions  contemplated 
between  them,  which  extends  to  the 
payment  of  any  balance  on  general 
account.  The  lien  arises  from  the  im- 
plied understanding  of  the  parties  that 
credit  is  to  be  given  in  the  course  of 
dealings  between  them  by  the  banker 
to  the  customer  upon  the  faith  of  the 
securities.  It  is  equally  familiar  law 
that  the  lien  does  not  exist  when  the 
securities  have  been  deposited  for  a 
special  purpose,  or  for  the  payment  of 
a  particular  loan;  and  where  they  are 
delivered  specifically  to  protect  the 
banker  in  a  particular  transaction,  or 
series  of  transactions,  he  has  no  lien 
upon  them  for  any  other  purpose,  and 
cannot  assert  one  for  any  other  in- 
debtedness whether  arising  upon 
general  account  or  otherwise.  This 
doctrine  has  recently  been  reiterated 
and  applied  by  the  Supreme  Court  in 
Reynes  v.  Dumont,  130  U.  S.  354;  s.  c., 
9  Sup.  Ct.  Rep.  486.  That  was  a  case 


§§  297,  298]  BANKS  AND  BAXKIWO. 

ji  297.  Personal  guaranty  of  a  bank  by  stockholders  and 
directors.— The  Tuin-d  St.-itrs  Circuit  Court  of  Apj>cal*  for  tin- 
fifth  circuit  has  held  that  a  personal  guaranty  «fiv«-ii  by  stock- 
holders and  directors  of  a  bank  to  another  lank  in  consider 
of  "loans,  discounts  or  other  advances  to  be  made,"  for  tin- 
repayment  of  any  indebtedness  thus  created,  imposed  a  liability 
on  the  guarantors  when  acted  on  by  the  guarantee,  though  no 
notice  of  acceptance  of  the  guaranty  was  given,  the  contract 
showing  a  personal  interest  of  the  guarantors  in  the  advances, 
constituting  a  consideration  moving  to  them.1 

§  298.  Misrepresentations  by  a  bank  as  to  solvency  of  a 
customer. —  A  state  bank  having  loaned  large  sums  of  money 
to  a  manufacturing  corporation  upon  representations  made  t-»  it 
by  a  national  bank  through  its  cashier  as  to  the  good  standing, 
etc.,  of  the  corporation,  which  were  not  repaid  to  the  bank  by 
reason  of  the  insolvency  of  the  corporation,  brought  its  action 
against  the  national  bank  to  recover  damages  for  what  it  alleged 

in  which  securities  consisting  of  two  case]  liad  resulted,  either  in  conse- 
hundred  and  seventy-live  thousand  qucnce  of  a  subsequent  express  con- 
dollars  of  municipal  bonds  had  been  tract,  or  in  consequence  of  any  iro- 
left  by  one  banking  firm  with  another  plication  from  the  nature  of  the  Iran* 
for  a  period  of  two  years  and  a  half,  action,  in  giving  the  defendant  a  lien 
during  which  large  transactions  on  for  the  antecedent  indebtedness  of  the 
general  account  took  place  between  [insolvent]  bank,  it  is  extremely 
them;  various  loans  were  made  to  the  doubtful  whether  the  transaction  could 
former  by  the  latter  upon  an  express  be  upheld.  The  cases  of  Bank  r. 
pledge  of  the  bonds,  and  the  former,  at  Colby,  21  Wall.  009,  and  Bank  r. 
the  request  of  the  latter,  had  also  ob-  Butler,  129  U.  8.  228;  ».  r..  9  Sup.  Ct. 
tained  various  loans  of  other  bankers  Hep.  281,  take  a  view  of  the  statute 
by  pledging  so  many  of  the  bonds  as  which  suggests  that  no  preference  CM 
was  necessary  in  the  particular  trans-  be  obtained  by  one  creditor  of  a  na- 
action.  The  court  found  as  a  fact  that  tional  hank  over  another,  after  the 
the  bonds  were  left  with  the  banking  bank  has  become  insolvent,  whether 
firm  originally  as  collateral  for  a  par-  obtained  with  the  consent  of  or  by 
ticular  loan;  that  there  was  no  express  adversary  proceedings  against  the 
understanding  between  the  two  hank-  bank  and  whether  the  creditor  has  or 
ing  firms  that  they  were  to  stand  as  a  has  not  any  reason  to  suppose  the 
security  for  general  transactions,  and  bank  to  be  insolvent  at  the  time  " 
that  the.loans  subsequently  made  upon  '  Dond  r.  National  Park  Bank  of 
them  were  specific  loans  accompanied  New  York,  (1898)  54  ;-.  846 
by  an  express  pledge,  and  held  that  See  Davis  r.  Wells,  104  T.  9.  159.  for 
these  circumstances  were  inconsistent  a  review  of  the  precedents  in 
with  the  existence  of  a  general  Hen.  case  and  a  statement  of  their  doctrin. 
If  the  sending  of  the  securities  [in  this 
69 


546  BANKS  AND  BANKING.  [§  298 

were  fraudulent  misrepresentations  as  to  the  standing,  etc.,  of  the 
corporation.  Different  defenses  were  made  by  the  bank  to  this 
suit.  Among  others,  it  contended  that  neither  the  bank  itself 
nor  its  cashier  had  power  to  make  such  representations  as  were 
made  concerning  the  standing  or  credit  of  the  corporation.  The 
United  States  Circuit  Court  for  the  district  of  Oregon  held  that 
the  national  bank  was  liable  for  fraudulent  representations  made 
by  it  through  its  cashier  to  the  other  bank  as  to  the  financial 
responsibility  of  its  customer.1  There  was  a  contention  in  this 
case,  the  letter  containing  the  misrepresentations  as  to  the  credit 
of  the  corporation  seeking  loans  being  signed  simply  by  the 
cashier  of  the  national  bank  sued,  that  the  action  upon  the  repre- 
sentation was  barred  by  the  Statute  of  Frauds.  The  provision  in 
the  Code  of  Oregon,  in  substance  a  reproduction  of  Lord  TEN- 
TERDEN'S  act  (9  Geo.  IY,  chap.  14,  §  6),  was  as  follows  :  "  No 
evidence  is  admissible  to  charge  a  person  upon  representation  as 
to  the  credit,  skill  or  character  of  a  third  party  unless  such  repre- 
sentation or  a  memorandum  thereof  be  in  writing  and  either  sub- 
scribed by  or  in  the  handwriting  of  the  party  to  be  charged." 
Under  this  contention  arose  the  question  whether  the  letter  as 
written  and  signed  by  the  cashier  of  the  national  bank  was  the 

1  Nevada  Bank  of  San  Francisco  v.  case  the  doctrine  of  ultra  tire*  has  no 
Portland  Nat.  Bank,  (1893)  59  Fed.  application.  Corporations  are  liable 
Rep.  338.  GILBERT,  Circuit  Judge,  for  the  acts  of  their  servants  while  en- 
said:  "The  defendants  contend  that  gaged  in  the  business  of  their  employ  - 
the  defendant  bank,  which  is  a  na-  ment  in  the  same  manner  and  to  the 
tional  bank,  had  not  the  power  to  as-  same  extent  that  individuals  are  liable 
sume  a  liability  for  its  own  error  or  under  like  circumstances.'  In  Bank 
mistake  in  certifying  to  the  financial  T.  Graham,  100  U.  S.  699,  702,  the 
standing  of  a  customer  seeking  credit  court  said:  'An  action  may  be  main- 
at  another  bank.  It  must  be  conceded  tained  against  a  corporation  for  its  ma- 
that  it  had  not  the  power  to  assume  licious  or  negligent  torts,  however 
such  liability  ex  contracts,  but  in  the  foreign  they  may  be  to  the  object  of 
case  of  a  tort  committed  by  the  bank  its  creation,  or  beyond  its  granted 
or  its  officers  a  different  principle  is  powers.  It  may  be  sued  for  assault 
applied.  In  such  a  case  it  is  the  rule  and  battery,  for  fraud  and  deceit,  for 
that  the  corporation  is  liable  for  the  false  imprisonment,  for  malicious 
negligence  or  other  tort  of  its  agents  prosecution,  for  nuisance  and  for 
and  servants,  even  when  performing  libel.' "  The  same  doctrine  is  applied 
acts  that  are  ultra  fires.  In  the  case  in  the  cases  of  Railroad  Co.  r.  Derby, 
of  Merchants'  Bank  v.  State  Bank,  10  14  How.  468;  Railroad  Co.  «.  Quigley, 
Wall.  604,  the  court  said:  'Corpora-  21  How.  202;  Ettinge. Bank,  11  Wheat, 
tions  are  liable  for  every  wrong  of  59;  Bissell  r.  Railroad  Co.,  22  N.  Y. 
which  they  are  guilty,  and  in  such  258. 


§2D8] 


BANKS  AND  BANKING. 


M7 


Irtu-rof  tlu-  hank  and  the 

within  tin-  inuiiniiig  of  this  statut.-. 


the  signature  of  tlic  bank 
Tin-  court  lu-ld  that  it  wag.1 


1  Nevada  Bunk  of  Sun  Francisco  t>. 
Portland  N:it.  Bank,  (1893)  5'J  F.-.l. 
Kcp.  388.  GILBERT,  Circuit  Judge, 
art/Ht-ndo,  said:  "  It  is  argued  that  the 
signature  of  the  cashier  of  the  drfrml- 
ant  bunk,  attached  to  the  letters,  is  not 
the  signature  of  the  bank.  The  Eng- 
lish case  of  Swift  r.  Jewsbury,  L.  H.,  9 
Q.  15  :U)l,dccided  in  1874,  is  relied  upon 
as  giving  that  interpretation  to  the  stat- 
ute. In  that  case  a  letter  had  been  writ- 
ten to  the  manager  of  a  bank,  request- 
ing his  opinion  of  the  standing  of  one 
who  was  seeking  credit.  The  answer 
was  signed  M.  B.  Goddard,  Manager.' 
The  banking  company  had  no  knowl- 
edge that  such  letter  liad  been  written, 
and  gave  the  manager  no  express  au- 
thority to  write  the  same.  The  com- 
pany was  not  a  corporation.  It  was  a 
copartnership,  with  certain  privileges 
conferred  by  statute.  It  could  sue  and 
be  sued  only  in  the  name  of  one  of  its 
public  officers,  and  its  members  could 
not  be  made  liable  in  respect  to  trans- 
actions with  the  company  until  a  judg- 
ment had  first  been  obtained  against 
the  company  through  one  of  its  public 
officers.  The  decision  of  the  Court  of 
Qiiren's  Bench  was  that  the  signature 
of  Goddard,  the  manager,  was  in  fact 
and  law  the  signature  of  the  banking 
company;  but  upon  appeal  to  the 
Court  of  Exchequer,  Lord  COLKRIDOK 
was  of  the  opinion  that  the  signature 
to  the  document  upon  which  the  bank 
was  sought  to  be  held  liable  was  not 
signed  by  the  party  to  be  charged,  and 
did  not  come  within  the  terms  of  the 
statute.  Instead  of  basing  the  decis- 
ion upon  that  view  of  the  law,  how- 
ever, he  held  that  the  decision  of  the 
Queen's  Bench  should  be  reversed  upon 
the  ground  that  upon  the  language  of 
the  correspondence  there  was  no  inten- 
tion to  consult  the  bank,  but  rather 
the  manager  thereof;  and  that  the  rep- 
resentation was  made  by  Goddard  him* 


self  of  matters  as  to  which  he  was 
pledging  his  personal  knowledge  only. 
Upon  this  ground  the  decision  wan 
concurred  in  by  the  remainder  of  the 
court.  No  American  case  to  found 
which  covers  the  point  in  question,  but 
the  tendency  of  tin-  drrUion*  in  the 
states  in  which  Lord  TKXTERDKS'H  act 
has  been  adopted  has  been  to  modify 
the  protection  which  the  statute  afford* 
to  fraud  by  enforcing  a  strict  construe- 
tion  of  its  provisions.  Bush  r. 
Sprague.  51  Mich.  41;  B.  c.,  16  N  \V 
Rep.  222;  Hodgin  r.  Bryant,  114  Ind. 
401:  s.  C..16N.  E.  Rep.  815.  •  •  « 
A  corporation  can  sign  instruments  in 
writing  only  by  an  officer  or  officer* 
empowered  so  to  do.  In  the  usual 
course  of  the  corporation's  business 
the  act  of  signing  is  not  the  act  of  an 
agent  but  the  act  of  the  corporation 
itself.  While  formal  documents  are 
usually  signed  by  the  president  and 
secretary,  and  further  authenticated 
by  the  corporate  seal,  the  corpora- 
tion may,  nevertheless.  em|H>wer  any 
officer  to  execute  dec-da  or  other 
instruments  in  writing.  In  bank- 
ing corporations,  most  instruments  in 
writing  issued  or  indorsed  by  the  bank 
are  signed  by  the  cashier.  The  letters 
of  the  bank,  in  iu  usual  correspond^ 
dcnce  about  business  arc  often,  if  not 
generally,  signed  by  him.  In  Morse 
on  Banks  and  Bunking  (g  188)  Ik 
is  said  that  it  is  the  special  duty  of  the 
cashier  to  conduct  the  corre*ponil«  iu-c 
of  the  bank.  The  name  of  the  drfi-tul 
ant  bank  stands  at  the  head  of  both 
letters  referred  to  in  the  complaint, 
and  both  arc  signed  by  the  cashier,  and 
his  official  title  is  appended.  The  ques 
tion  is  not  free  from  doubt,  but  I  am 
inclined  to  the  view  that  in  a  document 
of  this  kind,  written  under  the  rircum 
stances  detailed  in  the  complaint,  tin 
signature  of  the  cashier  is  the  signa- 
ture of  the  bank." 


CHAPTEK  X. 


OFFICERS  OF  BANKS. 


§  299.     Directors  —  their  powers  and 
duty. 

300.  Jurisdiction  of  state  courts  in 

cases  of  directors  of  national 
banks  violating  their  duty. 

301.  Jurisdiction     of     courts     of 

equity  in  such  cases. 

302.  Statutory  liability  of   direct- 

ore  of  national  banks  — 
actions  to  enforce  it  —  rules. 

303.  President  —  his     power     and 

duty. 

304.  President's  acts    binding    on 

bank  —  illustrations. 

305.  President's  acts  not  binding 

on  bank  —  illustrations. 

306.  When  a  bank  is  not  charge- 

able with  constructive 
notice  and  knowledge  of  its 
president. 

307.  Cashier —  his  power  and  duty. 


§  308.     Cashier's  liability  for  his  acts, 

309.  Knowledge  of  its  cashier  not 

imputable  to  bank — illus- 
trations. 

310.  Rules  as  to  ratification  of  a 

cashier's  act  by  the  bank. 

311.  Act    of    cashier    binding    on 

bank. 

312.  Promise    by    cashier  to   pay 

draft  of  a  customer  to  be 
drawn  at  a  future  day  — 
not  binding  on  the  bank. 

313.  Estoppel  of  a  bank  to   deny 

the  validity  of  an  act  of  its 
cashier  iu  drawing  drafts 
on  its  correspondent  and 
fraudulently  indorsing 
them. 

314.  Teller  and  bookkeeper  —  their 

powers  and  duties. 


§  299.  Directors  —  their  powers  and  duty. —  Directors  of  a 
bank  may  authorize  one  of  their  number  to  assign  anj  securities 
belonging  to  the  corporation.1  The  directors  of  a  bank  have 
authority  to  settle  with  its  cashier,  where  his  accounts  exhibit  a 
deficiency  in  the  funds ;  and,  if  the  directors  be  guilty  of  fraudu- 
lent conduct  in  the  settlement  made  with  him,  the  settlement 
would  still  be  valid,  where  the  cashier  is  not  shown  also  to  be 
guilty  of  fraud.2  But  if  the  cashier  be  guilty  of  fraud  in  con- 
nection with  the  settlement,  the  bank  will  not  be  concluded  by 
it.3  Directors  of  a  bank  have  no  authority,  to  allow  overdrafts.4 
The  giving  of  compensation  to  a  director  by  the  board  of  direct- 


1  Northampton    Bank 
(1874)  11  Mass.  288. 

8  Frankfort    Bank   V.    Johnson,    24 
Me.  490. 

8  Ibid. 

4  Market    Street    Bank  v.   Stumpe, 


v.  Pepoon,  of  the  directors  of  a  bank,  see  Harper 
v.  Calhoun,  7  How.  (Miss.)  203;  State 
ID.  Commercial  Bank  of  Manchester, 
6  Smedes  &  Marsh.  (Miss.)  218;  Com- 
mercial Bank  of  Manchester?;.  Bonner,. 
13  Smedes  &  Marsh.  (Miss.)  649. 


(1876)  2  Mo.  App.  545.     As  to  powers 


§  200]  OFFICERS  OF  BANKS.  !• 

ore  of  a  bank  for  extra  services,  though  unlawful,  will  not  expoao 
the  directors  to  liability  if  clone  in  good  faith  and  with  tin-  purest 
intention  to  benefit  the  bunk.1  A  director  of  a  bank  receiving 
his  compensation  provided  by  law  as  a  director  cannot  contract 
with  the  board  of  direct.  >r>  while  he  ct.Mtiuues  a  member  f«»r  com- 
pensation for  extra  services.8  But  a  board  of  directors  of  a  bank 
may  compensate  a  member  of  the  board  for  services  rendered  to 
the  bank  prior  to  his  membership.8  Where  a  director  of  a  bank 
has  received  money  by  order  of  its  board  of  directors,  which  U 
unauthorized  by  law,  it  may  be  recovered  by  the  bank  as  to 
much  received  to  its  use.4  A  bank  will  be  affected  with  the 
knowledge  of  one  of  its  directors,  who  acts  for  it  in  discounting  a 
note,  that  the  note  was  procured  by  fraud.5  Where  the  director 
having  knowledge  of  the  character  of  negotiable  paper  dis- 
counted by  a  bank  simply  recommends  its  discount,  the  bank  will 
not  be  charged  with  his  knowledge  if  the  director  does  not  con- 
trol its  discretion  or  discount  the  paj>er  himself  as  an  officer  or 
agent  of  the  bank.'  The  directors  of  banks  are  bound  to  con- 
stant activity  and  thorough  acquaintance  with  the  daily  course  of 
affairs  and  dealings  of  the  institution.  They  are  bound,  in  the 
absence,  illness  or  negligence  of  the  cashier,  to  perform  any  duty 
which  Ixilongs  to  him,  and  it  is  their  duty  to  see  that  the  duty  w 
performed.  They  are  bound  in  law  to  know  the  securities  of  the 
bank,  its  bilks  payable  and  bills  receivable,  maturity  of  its  paper 

1  Godbold  r.  Branch  Bank  at  Mobile,  *  Security  Bank  P.  Cushman,  (1877) 

11  Ala.  191.  121  Mass.   490.     Under  what  circum- 

*  Branch  Bank  at  Mobile  r.  Collins,  stances  a  bank  would  not  be  affected 
(1845)  7  Ala.  95;  Branch  Bunk  at  Mo-  by  the  knowledge  of  one  of  ita  direct- 
bile  v.  Scott,  (1845)  7  Ala.  107.  An  or-  ore  in  discounting  a  note,  ace  Wash* 
der  of  a  board  of  directors  allowing  ingUjn  Bank  r.  Lewis.  (1839)  22  lick, 
a  compensation  of  $1,000  cash  to  the  (MBit.)  24.  When  notice  to  a  director 
members  of  the  board  constituting  the  of  facts  affecting  pnpcr  offered  for  din- 
real  estate  committee,  has  been  held  to  count  is  notice  to  the  bank,  we  Clerks' 
be  illegal  and  void  in  Branch  Bank  Savings  Bunk  r.  Thomas.  (1876)  8  Mo. 
at  Mobile  r.  Collins.  (1845)  7  Ala.  App.  867.  As  to  a  notice  to  a  bank 
95;  Brunch  Bank  at  Mobile  r.  Scott,  director,  or  knowledge  obuin«-«l  »>y 
(1845)  7  Ala.  107.  him  while  not  engaged  either  officially 

»  Branch  Bank  at  Mobile  r.  Collins,  or  as  an  agent  or  attorney  in  the  busi- 

(1845)  7  Ala.  95;  Branch  Bank  at  Mo-  ness  of  the  bank,  being  inoperative  as 

bile  r.  Scott,  (1845)  7  Ala.  107.  a  notice  to  Uie  bank,  aee  FViirfleld  8aT- 

4  Branch  Bank  at  Mobile  r.  Collins,  ings  Bank  r.  Chn-     7 .'  M      288. 

(1845)  7  Ala.  95;  Branch  Bank  at  Mo-  •  Shaw  r.  (lark,  49  Mich.  884. 
Scott.  (1845)  7  Al'i.  107. 


550  OFFICERS  OF  BANKS.  [§  200 

and  who  are  the  parties.     And,  in  thex  absence  of  the  cashier, 
they  are  bound  to  due  diligence  in  perfecting  the  liability  of  all 
indorsers  upon  the  paper  of  the  bank.1     The  doctrine,  that  the 
directors  of  a  bank  are  conclusively  presumed  to  know  the  finan- 
cial condition  of  the  bank,  its  general  business  and  its  receipts 
and  expenditures  as  shown  by  its  regular  books,  is  for  the  protec- 
tion   of  third   parties  dealing  with  the   bank  and  of  the  bank 
against   the   prejudicial  action   of   any  director,  and  cannot  be 
invoked  to  uphold  a  wrong  appropriation  of  moneys  by  the  cashier 
or  other   officer,   which  appropriation  may  be    made  and  also 
entered  upon  the  books  of  the  bank  without  the  actual  knowl- 
edge of  the  directors.2     The  sacrifice  of  the  corporate  property 
by  officers  of  a  bank  for  the  purpose  of  passing  a  crisis  in  its 
affairs,  can  only  be  justified  when  the  object  is  to  protect  the 
rights  of  the  creditors  and  do  equal  justice  to  all  the  stockholders 
of  the  corporation.     The  act  must  not  be  for  the  exclusive  bene- 
fit of  a  particular  individual,  especially  if  it  be  one  to  whom  the 
management   of    the   funds   of   the   bank   has   been  intrusted.8 
Where  the  obligations  for  loans  held  by  a  bank  against  its  direct- 
ors  exceeded  the  limit  prescribed  by   law,  and  the  cashier  to 
reduce   them   procured  notes  to  be  made  and  indorsed  for  his 
accommodation,    and     had    them    substituted    and    absolutely 
exchanged  for  notes  indorsed  by  a  director  and  discounted  by  the 
bank  for  his  accommodation,  the  Supreme  Court  of  New  York 
held  that  the  transaction,  being  in  good  faith  and  not  a  mere  shift 
to  present  a  temporary  appearance  of  soundness,  was  legal  and  the 
new  notes  valid.4     Directors  of  a  bank  under  the  Maine  statutes 
are  liable  to  a  creditor  of  the  bank  suffering  certain  losses  grow- 
ing out  of  the  official  mismanagement  of  the  directors.     These 
directors  are  personally  responsible  for  the  official  mismanage- 
ment only  which  may  have  occurred  during  the  year  for  which 
they  were  to  have  been  chosen  and  during  which  they  have  acted. 

1  Lane  v .  Bank  of  West  Tennessee,  the  bank,  see  United  Society  of  Shak- 

9  Heisk.  (Tenn.)  419;  Moses  v.   Ocoee  ers  v.  Underwood,  (1873)  9  Bush  (Ky.), 

Bank,  1  Lea  (Tenn.),  398.  616. 

*  First    National    Bank    v.     Drake,  3  Gillet   «.  Moody,  3  N.  Y.  479. 

(1883)  29  Kans.  311.     As  to  the  dili-  4  Seneca    County    Bank    v.    Neass, 

gence  required  of  directors  of  a  bank  (1848)  5  Denio,  329.     As  to  loans  of 

in  acquiring  knowledge  of  its  business,  bank    funds    to    directors,   see    Bank 

and  what   negligence    would    render  Commissioners  r.    Bank    of    Buffalo, 

them  liable  for  special  deposits  lost  by  (1837)  6  Paige  Ch.  497. 


•9]  OFFICERS  OF  BANKS.  .'..',  I 

They  are  personally  answerable  fur  ordinary  neglect  in  their  o<li- 
cial  bikini— .  I  Jut  one  board  of  directors  Cannot  U-  mad*-  t.. 
answer  for  renewal!  of  worthless  J»;I[HT  ili-r,,imfr«l  l,v  a  prvx  \»\\- 
board.1  In  a  rather  recent  case,  an  action  by  dill  of  tli- 
•  if  a  national  bunk  against  its  former  directors  and  tin-  repreeent- 
atives  of  such  as  were  deceased,  framed  upon  tin-  thi-orv  of  it 

breach  by   the  defendants  as  directors  "of   their   • nn-m-Iaw 

duties  as  trustees  of  a  financial  corporation  and  of  hreache*  of 
special  restrictions  and  obligations  of  the  National  Bankit  L'  Art," 
the  questions  of  the  management  of  the  business  of  such  in.-titu- 
tion  and  the  liability  of  its  directors  have  lieen  fully  eonsid<-rvd 
in  the  main  opinion  by  the  majority  of  the  Supreme  Court  of  the 
United  States,  and  the  dissenting  opinion  of  the  minority.  It 
appeared  that  the  provisions  of  the  by-laws  were  not  oliserved, 
and  that  the  management  of  the  bank  was  left  almost  entirely  to 
the  officers.  No  exchange  committee  nor  examination  committee 
was  appointed,  and  the  meetings  of  the  l»oard  were  infrequent 
and  perfunctory.  For  years  prior  to  the  failure,  fourteen  at  least, 
the  business  of  the  bank  had  \tccn  conducted  by  the  president. 
FULLER,  Ch.  J.,  speaking  for  the  majority,  said  :  k<  It  is  not  con- 
tended that  the  defendants  knowingly  violated,  or  permitted  the 
violation  of,  any  of  the  provisions  of  the  Banking  Act,  or  that 
they  were  guilty  of  any  dishonesty  in  administering  the  affairs  of 
the  bank,  but  it  is  charged  that  they  did  not  diligently  ]K?rform 
duties  devolved  upon  them  by  the  act.  Our  attention  has  not 
been  called,  however,  to  any  duty  sjxjcitically  imposed  UJKUI  the 
directors  as  individuals  by  the  terms  of  the  act,  although  if  any 
director  participated  in  or  assented  to  any  violation  of  the  law  by 
the  board  he  would  be  individually  liable.  The  corporation  after 
the  amendment  of  1874  had  power  to  carry  on  its  husine<* 
through  its  officers.  And  although  no  formal  resolution  author- 
ized the  president  to  transact  the  business,  yet,  in  view  of  the 
practice  of  fourteen  years  or  more,  we  think  it  must  be  held  that 
lie  was  duly  authorized  to  do  so.  It  does  not  follow  that  the 

1  Bank  Mutual  Redemption  r.  Hill.  bank  to  b»-  damaged  b.v  wrongful  acu 

56  Me.  88T).     Tlmt  dim-tors  of  ti  bank,  of  its  president.  *w  Smith  r  Ifatthbun. 

after  its  insolvency,  havr  no  rights  in  23  Hun.  LV).     As  to  liability  of  dim  t 

equity   to  secure  any    advantage    to  ore  of  a  tmnk   to  depositor*  for  their 

themselves,  sec  Roan  r.   Winn.  (18H7)  grotw  negligence  and  mUn: 

93  Mo.  .TOT.     As  to  liability  of  dim-tore  sec   Adam*  r.  Manning.   10  W.  N.  C. 

of  a  bank  who  may  have  allowed  a  (Pa.)  449. 


.">.") 2  OFFICERS  OF  BANKS.  [§  290 

executive  officer  should  have  been  left  to  control  the  business  of 
the  bank  absolutely  and  without  supervision,  or  that  the  statute 
furnishes  a  justification  for  the  pursuit  of  that  course.     Its  lan- 
guage  does  enable  individual  directors  to  say  that  they  were 
guilty  of  no  violation  of  a  duty  directly  devolved  upon  them. 
Whether  they  were  responsible  for  any  neglect  of  the  board  as 
such,  or  in  failing  to  obtain  proper  action  on  its  part  is  another 
question.     Indeed,  it  is  frankly  stated  by  counsel  that  '  although 
special  provisions  of  the  statute  are  quoted  and  relied  upon,  these 
do  not  create  the  cause  of  action,  but  merely  furnish  the  standard 
of  duty  and  the  evidence  of  wrong-doing,'  and  section  556  of 
Morawetz  on  Corporations  is  cited,  which  is  to  the  effect  that 
'  the  liability  of  directors  for  damages  caused  by  acts  expressly 
prohibited  by  the  company's  charter  or  act  of  incorporation  is  not 
created  by  force  of  the  statutory  prohibition.     The  performance 
of  acts  which  are  illegal  or  prohibited  by  law  may  subject  the 
corporation  to  a  forfeiture  of  its  franchises,  and  the  directors  to 
criminal  liability,  but  this  would  not  render  them  civilly  liable 
for  damages.     The  liability  of  directors  to  the  corporation  for 
damages  caused  by  unauthorized  acts  rests  upon  the  common-law 
rule  which  renders  every  agent  liable  who  violates  his  authority 
to   the    Damage   of   his   principal.     A   statutory   prohibition   is 
material   under   these   circumstances    merely   as    indicating    an 
express   restriction   placed  upon    the  powers  delegated   to   the 
directors  when  the  corporation  was  formed.'    It  is  perhaps  unneces- 
sary to  attempt  to  define  with  precision  the  degree  of  care  and 
prudence  which  directors  must  exercise  in  the  performance  of 
their  duties.     The  degree  of  care  required  depends  upon  the  sub- 
ject to  which  it  is  to  be  applied,  and  each  case  has  to  be  deter- 
mined in  view  of  all  the  circumstances.     They  are  not  insurers 
of  the  fidelity  of  the  agents  whom  they  have  appointed,  who  are 
not  their  agents,  but  the  agents  of  the  corporation,  and  they  can- 
not be  held  responsible  for  losses  resulting  from  the  wrongful 
acts  or  omissions  of  other  directors  or  agents,  unless  the  loss  is  a 
consequence  of  their  own  neglect  of  duty,  either  for  failure  to 
supervise   the  business   with  attention  or  in  neglecting  to  use 
proper  care  in  the  appointment  of  agents.     Morawetz,  §  551   et 
seq.,  and  cases.     Bank  directors  are  often  styled  trustees,  but  not 
in  any   technical  sense.     The  relation  between  the  corporation 
and  them  is  rather  that  of  principal  and  agent,  certainly  so  far  as 


OFFICEKS  OF  BANKS. 


55fl 


creditors  arc  concerned,  between  whom  and  the  corporation  tin; 
relation  is  that  of  contract  ami  not  of  tnM.  Uut,  undoubtedly, 
under  circumstances,  they  may  In*  treated  a-  occupying  the 
position  of  trustees  to  cetitui  que  trust"  After  referring  to  the 
cases  cited  below,1  the  majority  of  the  court  applied,  through 
the  chief  justice,  these  principles  to  the  particular  acts  of  par- 
ticular ones  of  the  directors  charged  in  the  bill  with  neglect  and 
relieved  them  from  liability  as  cliarged.2  Four  of  the  justices, 
however,  dissented  as  to  the  acts  of  several  of  the  directors.1 


'  Percy  r.  Millandon.  8  Muit.  (N. 
8.)  (La.)  68;  Bperiug's  Appeal,  71  Pa. 
St.  11;  Citizens'  B'lilding  Association 
«.  Coriell.  34  N.  J.  Eq.  383;  Hodges  r. 
New  England  Screw  Co.,  1  R.  I.  812; 
Wakeman  r.  Dalley.  51  N.  Y.  27. 

1  Briggs  r.  Spauldiug,  (1891)  141  U. 
S.  132. 

s  Ibid.  Mr.  Justice  HAHLAN,  speak- 
ing for  himself  and  GRAY,  BRKWKR 
and  BROWN,  JJ.,  in  the  dissenting 
opinion,  presented  their  conclusions  in 
these  words  :  "  We  are  of  opinion  that 
when  the  act  of  congress  declared  that 
the  affairs  of  a  national  banking  associ- 
ation shall  be  'managed'  by  its  direct- 
ors, and  that  the  directors  should  take 
an  oath  to  'diligently  and  honestly  ad- 
minister' them,  it  was  not  intended 
that  they  should  abdicate  their  func- 
tions and  leave  its  management  and  the 
administration  of  its  affairs  entirely  to 
executive  officers.  True,  the  bank 
may  act  by  'duly  authorized  officers  or 
agents,'  in  respect  to  matters  of  cur- 
rent business  and  detail  that  may  l>e 
properly  intrusted  to  them  by  the  di- 
rectors. But.  certainly,  congress  never 
contemplated  that  the  duty  of  direct- 
ore  to  manage  and  to  administer  the 
affairs  of  a  national  bank  should  be  in 
abeyance  altogether  during  any  period 
that  particular  officers  and  agents  of 
the  association  are  authorized  or  JMT- 
mitted  by  the  directors  to  have  full 
control  of  its  affairs.  If  the  directors 
of  a  national  bank  choose  to  invest  its 
officers  or  agents  with  such  control, 
70 


what  the  latter  do  may  bind  the  bank 
as  between  it  and  those  dealing  with 
such  officers  and  agents.  But  the  duty 
remains,  as  between  the  director*  and 
those  who  are  interested  in  the  bank, 
to  exercise  proper  diligence  and  super- 
vision in  respect  to  what  may  be  dono 
by  its  officers  and  agents.  Aa  t<>  tin- 
degree  of  diligence  and  the  extent  of 
supervision  to  be  exercised  by  direct 
ors,  there  can  be  no  room  for  doul»t. 
under  the  authorities.  It  is  such  dili- 
gence and  supervision  as  the  situation 
and  the  nature  of  the  business  requires. 
Their  duty  is  to  watch  over  and  guard 
the  interests  committed  to  them.  In  fi- 
delity to  their  oaths  and  to  the  obliga- 
tions they  assume,  they  must  do  all 
that  reasonably  prudent  and  careful 
men  ought  to  do  for  the  protection  of 
the  interests  of  others  intrusted  to 
their  charge."  The  justice,  in  sup- 
port of  the  conclusion*  of  the  mi- 
nority, quoted  largely  from  many  of 
the  following  cases,  and  cited  the  oth- 
ers :  Martin  r.  Webb.  110  U.  8.  7; 
Cutting  r.  Marlor.  78  N.  Y.  4*4;  Prw- 
ton  r.  Prather.  137  U.  8.  604  ;  Hun  r. 
Cary.  82  N.  Y.  65;  Ackcrman  r.  Hal 
Bey,  87  N.  J.  Kq.  356;  Halscy  r 
erinan.  8S  N.  J.  Kq.  501;  I'mie-l  N.,  , 
ety  of  Shakers  r.  t'nderwood.  9  Bunli 
(Ky.).  601);  Horn  Silver  Co.  r.  Ryan.  43 
Minn.  196;  United  State*  r.  Means.  43 
Pod.  Rep.  590;  Ik-lai.o  ft 
III.  247;  Perry  r.  Milhudmi.  X  U. 
568;  Marshall  r.  F.  A  M.  Saving* 
Bank  of  Alexandria,  etc.,  85  Va.  676; 


554  OFFICERS  OF  BANKS.  [§  300 

§  300-  Jurisdiction  of  state  courts  in  cases  of  directors  of 
national  banks  violating  their  duty. —  This  being  a  case 
against  the  directors  of  a  national  bank  which,  being  insolvent 
and  in  the  hands  of  the  receiver,  defendant  here,  the  demurrer 
to  the  bill  challenged  the  jurisdiction  of  the  state  court.  To  this 
it  was  said  :  "  The  right  of  action  is  not,  in  our  opinion,  derived 
from  the  act  of  congress,  but  depends  upon  general  principles  of 
equity,  but  in  any  aspect  of  the  case,  the  state  courts  have  con- 
current jurisdiction,  unless  exclusive  jurisdiction  has  been  con- 
ferred upon  the  United  States  courts.1  The  jurisdiction  of  the 
state  courts  over  actions  against  national  banks  is  expressly  recog- 
nized by  the  act,  and  such  jurisdiction  has  been  repeatedly  exer- 
cised in  actions  by  receivers  to  collect  claims  due  to  such  banks. 
There  can  be  no  reason  why  civil  actions  brought  by  stockholders 
in  place  of  the  receiver,  to  enforce  claims  against  delinquent 
directors  or  officers,  should  stand  upon  any  different  footing. 
The  only  cases  in  which  exclusive  jurisdiction  is  conferred,  by  the 
Banking  Act,  upon  the  courts  of  the  United  States,  so  far  as  we 
can  find,  are  proceedings  to  enforce  the  forfeiture  of  the  fran- 
chises of  banking  associations  for  violations  of  the  act  (§  5239), 
and  proceedings  to  enjoin  the  comptroller  of  the  currency  from 
winding  up  the  corporation,  through  a  receiver.  There  is  noth- 
ing in  the  act  which  withdraws  from  the  jurisdiction  of  the  state 
courts  civil  actions  to  enforce  rights  of  individuals  against  national 
banks  or  their  officers.2  Criminal  prosecutions  for  offenses  cre- 
ated by  the  act  stand  upon  a  different  footing.  Exclusive  juris- 
diction in  such  cases  is  vested  in  the  Circuit  and  District  Courts 
of  the  United  States  by  the  Judiciary  Act  of  1789."  As  to  par- 
ties, it  was  also  said  :  "  The  bank  was  a  proper  and  even  necessary 
party  defendant.  Robinson  v.  Smith,  3  Paige,  222.  It  con- 
tinued to  be  a  corporation,  notwithstanding  the  appointment  of  a 
receiver,  and  the  receiver  may  bring  action  in  its  name.  Pah- 
quioque  Bk.  v.  Bethel  Bk.,  36  Conn.  325 ;  Kennedy  v.  Gibson,  8 

Building  Fund  Trustees  v.  Bosseiux,  Newberne,   81   N.    Y.  .385;    National 

3  Fed.  Hep.  817 ;  Charitable  Corpora-  Bank  of  Gloversville  v.  Wells,  79  N. 

tion    v.    Sutton,   2  Atk.    400  ;    Land  Y.  498;  affirmed  in  the  Supreme  Court 

Credit  Co.  of  Ireland  v.  Lord  Fermoy,  of  the  United  States,  January,   1882. 

L.  R,  5  Ch.  763 ;  Williams  v.  McKay,  Siting  Cooke  r.  State  Nat.  Bank  of 

40  N.  J.  Eq.  189.  Boston,  52  N.  Y.  96;  Bletz  T.  Colum- 

1  Citing  Claflin  r.  Houseman,  93  U.  bia  Nat.  Bank,  87  Pa.  St.  87. 
S.  130;  Robinson  c.  National  Bank  of 


§  301  I  OPH.-I.I:-.  ,,|.    I:\NK-. 


Wall.  50G;  Green  v.  Walkill  Nat.  lik.,  7  Hun,  03;  City  of 
ington  /•.  IJutler,  14  Wall.  888;  i:.mk  9.  Kennedy,  17  Wa! 
The  receiver  was  also  a  necessary  party,  as  it  was  through  him 
that  the  amount  which  might  IH;  adjudged  against   tin-  directors 
was  to  be  collected  and  paid  over.     The  presence-  of  Ix.th  of 
these   parties   was   necessary   to   a   final   determination   of    the 
controversy."  l 

§  301.  Jurisdiction  of  courts  of  equity  in  such  cases.— 

The  New  York  Court  of  Appeals  has  sustained  the  jurisdiction 
of  courts  of  equity  of  suits  to  enforce  the  liability  of  directors 
of  corporations  growing  out  of  a  violation  of  their  duties  in 
allowing  or  promoting  the  waste  of  corporate  funds,  for  instance. 
Upon  this  subject  RAPALLO,  J.,  for  the  court,  said  :  "The  liability 
of  directors  of  corporations  for  violations  of  their  dut 
breaches  of  the  trust  committed  to  them,  and  the  jurisdiction  of 
courts  of  equity  to  afford  redress  to  the  corporation,  and  in 
proper  cases  to  its  shareholders,  for  such  wrongs  exist  independ- 
ently of  any  statute.  By  the  Revised  Statutes  of  New  York  (2 
R.  S.  462)  it  is  declared  that  the  chancellor  has  jurisdiction  over 
directors,  managers  and  other  trustees,  and  officers  of  corjx>ra- 
tions,and  to  compel  them  to  account  for  their  official  conduct  in 
the  management  and  disposition  of  the  funds  and  property  com- 
mitted to  their  charge,  and  to  compel  payment  by  them  to  the 
corporation  whom  they  represent,  of  all  sums  of  money,  and  the 
value  of  all  property  which  they  may  have  acquired  to  them- 
selves or  transferred  to  others,  or  may  have  lost  or  wasted  by  any 
violation  of  their  duties  as  such  trustees.  These  enactments  are, 
however,  merely  declaratory  of  a  jurisdiction  long  previously 
conceded  to  exist,  both  in  this  state  and  in  England,  and  to  tliem 
were  added  by  further  provisions  of  the  Revised  Statutes  certain 
visitorial  powers  not  before  exercised  by  the  Court  of  Chancery 
(except  in  cases  of  charitable  bodies),  viz.,  to  restrain  corpora- 
tions from  exceeding  their  corporate  powers.  This  latter  juris 
diction  was  that  which  the  Court  of  Chancery  disclaimed  in  the 
well-known  case  of  The  Attorney-General  v.  The  I'tica  In-  « 
2  Johns.  Ch.  389,  with  reference  to  which  case  the  provision- 
of  the  Revised  Statutes  just  referred  to  were  f  mined.  I  hit,  in 
that  very  case,  jurisdiction  in  cases  like  the  present  \\a-  conceded 

1  Brinkurhoff   r.  Bwtwick,  (1882)  88  N.  Y.  52,  60,  6t. 


556 


OFFICERS  OF  BANKS. 


[§301 


to  be  inherent  in  the  court,  and  in  Robinson  v.  Smith,  3  Paige, 
222,  233,  the  power  is  declared  to  exist  independently  of  the 
provisions  of  the  Revised  Statutes,  so  far  as  the  individual  rights 
of  stockholders  are  concerned,  to  call  directors  to  account  and 
make  satisfaction  for  losses  occasioned  by  breaches  of  their  trust. 
This  jurisdiction  has  been  continually  exercised  in  England  and 
in  this  country,  and  is  not  of  statutory  origin.  Angell  &  Ames 
on  Corp.  §  312,  and  cases  cited."  * 


1  Brinkerhoff  v.  Bostwick,  (1882) 
88  N.  Y.  52,  58,  59.  See,  also, 
Brinckerhoff  v.  Bostwick,  (1885)  99  N. 
Y.  185.  As  to  how  such  actions  may 
be  brought,  it  was  said  in  Brinker- 
hoff v.  Bostwick,  88  N.  Y.  52  :  "  The 
action  to  recover  such  losses,  as  before 
observed,  should  in  general  be 
brought  in  the  name  of  the  corpora- 
tion, but,  if  it  refuses  to  prosecute,  the 
stockholders,  who  are  the  real  parties 
in  interest,  will  be  permitted  to  sue  in 
their  own  names,  making  the  corpora- 
tion a  defendant.  Greaves  v.  Gouge, 
69  N.  Y.  154.  And  that  course  of 
proceeding  is  also  allowed  if  it  ap- 
pears that  the  corporation  is  still  under 
the  control  of  those  who  must  be 
made  the  defendants  in  the  suit.  See 
Butts  v.  Wood,  37  N.  Y,  317;  Robin- 
son v.  Smith,  3  Paige,  222.  In  such 
cases  a  demand  upon  the  corporation 
to  bring  the  suit  would  be  manifestly 
futile  and  unnecessary.  A  suit  prose- 
cuted under  the  direction  and  control 
of  the  very  parties  against  whom  the 
misconduct  is  alleged,  and  a  recovery 
is  sought,  would  scarcely  afford  to 
the  shareholders  the  remedy  to  which 
they  are  entitled,  and  the  fact  that  the 
delinquent  parties  are  still  in  control 
of  the  corporation  is  of  itself  sufficient 
to  entitle  the  shareholders  to  sue  in 
their  own  names.  Hodges  v.  New 
England  Screw  Co.,  1  R.  I.  312; 
Heath  v.  Erie  Railway  Co.,  8  Blatchf. 
347.  If  they  could  not  be  permitted 
in  such  cases  to  assert  their  own  rights 
in  a  court  of  equity,  the  directors  so 


long  as  they  remained  in  office  could 
set  them  at  defiance.  In  the  present 
case  the  corporation  cannot  sue,  be- 
cause all  its  rights  of  action  have  been 
transferred  by  operation  of  law  to  the 
receiver.  He  certainly  is  not  a  proper 
person  to  whom  to  intrust  the  conduct 
of  the  action,  even  did  he  consent  to 
institute  it,  or  should  the  comptroller 
of  the  currency  direct  him  so  to  do, 
for  he  is  one  of  the  parties  charged 
with  misconduct  and  against  whom  a 
remedy  is  sought.  It  necessarily  fol- 
lows that  the  shareholders  must  be 
permitted  to  sue  in  their  own  names, 
or  the  wrongs  complained  of  must  go 
without  redress,  and  substantial 
rights  be  sacrificed  to  a  mere  matter 
of  form.  The  shareholders  are  the 
parties  whose  interests  are  involved  in 
the  proceeding.  If  conducted  in  the 
name  of  the  corporation  or  the  re- 
ceiver, it  would  be  as  their  representa- 
tive and  for  their  benefit;  and  when, 
as  in  this  case,  sufficient  reasons  are 
shown  why  it  cannot  be  effectually 
prosecuted  in  that  form,  the  right  of 
the  shareholders  to  sue  in  their  own 
names  is  sanctioned  by  principle  and 
precedent.  Where  the  shareholders 
are  numerous,  the  suit  may  be  brought 
by  one  or  more  in  behalf  of  all." 
Butts  v.  Wood,  37  N.  Y.  317;  Robin- 
son v.  Smith,  3  Paige,  222;  Hichens  v. 
Congreve,  4  Russ.  562;  Heath  r.  Erie 
Railway  Co.,  8  Blatchf.  347.  More 
than  sixty  years  ago  Chancellor 
WALWOKTH,  of  the  Court  of  Chancery 
of  New  York,  referring  to  the  allega- 


OFFICER!)  OF  HANKS.  557 

§  302.  Statutory  liability  of  directors  of  national  banks 
actions  to  enforce  it  —  rules.  -The  personal  liability  of direct- 
ors of  a  national  bank  for  violation  of  the  Revised  Statutes  of 
the  United  States,  section  52<>4,  by  declaring  dividends  in 
excess  of  net  profits,  and  of  section  ."•L'IMI  for  loaning  to 
separate  persons,  firms  or  corporations  amounts  exceeding 
one-tenth  of  the  capital  stock,  cannot  be  enforced  in  an 
action  at  law.1  Under  the  Revised  Statutes  of  the  Unit«-d 
States,  section  5239,  providing  that,  if  the  directors  of  a 
national  bank  shall  violate  any  of  the  provisions  of  the  tit  It- 
relating  to  the  organization  and  management  of  banks,  the 
franchises  of  the  bank  shall  be  forfeited,  such  violation,  how- 
ever, to  l)e  determined  by  a  proper  court  of  the  United  States  in 

lions  of  the  bill  before  him  said  :  "  If  negligently  permitting  various  persons 
[  tiny  ]  are  true,  there  is  no  doubt  that  and  cor|Kjrations  who  were  insolvent 
the  directors  of  this  company  were  and  irresponsible  to  overdraw  their 
guilty  of  a  most  palpable  violation  of  accounts  to  a  large  amount  without 
their  duty,  in  engaging  in  this  security,  and  negligently  permitting 
gambling  speculation  in  stocks,  which  the  money  of  the  bank  to  be  loaned  to 
was  wholly  unauthorized  by  their  irresponsible  persons  and  corporations, 
charter,  and  which,  the  bill  alleges,  without  adequate  security,  whereby 
was  carried  on  to  subserve  their  own  said  money  was  lost;  with  employing 
individual  interests  and  purposes.  I  a  cashier  who  was  dishonest,  un  faith 
have  no  hesitation  in  declaring  it  as  ful  and  incompetent,  all  of  which  was 
the  law  of  this  state  that  the  directors  known  to  them;  with  neglecting  to 
of  a  moneyed  or  other  joint-stock  cor-  take  and  keep  good  and  sufficient 
poration,  who  willfully  abuse  their  security  for  the  performance  of  the 
trust  or  misapply  the  funds  of  the  duties  of  said  cashier  and  of  the 
company,  by  which  a  loss  is  sustained,  president  and  other  officer*  of  the 
are  personally  liable  as  trustees  to  bank;  and  that  they  so  negligently 
make  good  their  loss.  And  they  are  and  carelessly  conducted  iU  •**•*•• 
equally  liable,  if  they  suffer  the  cor-  that  its  entire  capital,  surplus,  prop- 
porote  funds  or  property  to  be  lost  or  erty  and  effect*  were  lost  and  the 
wasted  by  gross  negligence  and  in-  stock  rendered  worthless,  and  the 
attention  to  the  duties  of  their  trust."  stockholders  wen?  rendered  liable  for 
Robinson  r.  Smith,  (1832)  3  Paige  Ch.  a  large  sum  of  money  on  account  of 
828,  282.  Adopting  and  approving  the  unpaid  debts  of  the  bank,  stated  a 
this  rule  declared  by  Chancellor  WAI.-  cause  of  action  upon  the  personal 
WORTH,  the  Court  of  Appeals  has  liability  of  din-dors, 
since  held  that  a  complaint  charging  'Welles  r.  Graves,  (1890)  41  !•'•••  1 
the  directors  of  a  national  bank  with  Itcp.  4.M).  in  acconlancc  with  the  doc- 
neglecting  to  perform  their  official  trine  laid  down  in  Humor  r.  limning, 
duties  as  such  directors,  and  ncgli-  08  U.  8.  238.  See  Stone  r.  Chisolin. 
gently  permitting  the  money,  prop-  113  U.  S.  802;  s.  «  "•  Sup  C't  Rt«p. 
erty  and  effects  of  the  bank  to  bo  487. 
stolen,  wasted  and  squandered;  with 


558  OFFICERS  OF  BANKS.  [§  302 

a  suit  therefor  by  the  comptroller,  and  that  in  cases  of  such  vio- 
lation every  director  participating  therein  shall  be  personally  lia- 
ble for  all  damages  which  the  bank,  its  shareholders,  or  any  other 
person  shall  have  sustained  in  consequence  thereof,  the  comp- 
troller cannot  authorize  the  receiver  of  any  such  bank  to  bring  suit 
under  section  5234  to  enforce  such  personal  liability  until  it  has 
been  adjudged  by  a  proper  court  that  such  acts  have  been  done 
as  authorized  a  forfeiture  of  the  charter.1  Directors  of  a 
national  bank  have  been  held  personally  liable  as  provided  by 
section  5239  of  the  Revised  Statutes  of  the  United  States  for 
damages  sustained  in  consequence  of  excessive  loans  where  they 
had  assented  to  a  loan  in  excess  of  the  limit  prescribed  by  section 
5200  of  the  Revised  Statutes  of  the  United  States,  and  subse- 
quently retired  paper  representing  a  part  of  this  loan  by  charg- 
ing it  against  an  illegal  dividend,  declared  when  the  bad  paper 
reckoned  to  make  up  an  apparent  surplus  more  than  exceeded 
the  capital  stock,  which  transaction  was  invalid,  the  liability 
being  fixed  at  the  amount  of  the  paper  thus  retired.2  An  action 
under  the  act  of  congress  imposing  a  legal  liability  on  the 
directors  of  a  national  bank  for  certain  things  which  they  do 
which  shall  result  in  an  injury  to  the  bank,  its  stockholders  or 
creditors,  and  making  them  liable  for  the  amount  of  the  dam- 
ages, survives  against  the  estate  of  a  director,  the  statute  being  a 
remedial  and  not  a  penal  statute.8  It  is  no  defense  to  an  action 
by  the  receiver  of  a  bank  against  a  director's  estate,  such  bank 
director  having  made  a  wrongful  loan  of  money  from  which  loss 
occurred,  that  the  insolvency  of  the  person  to  whom  the  loan  was 
made  was  not  discovered  until  after  the  death  of  the  director  and 
the  appointment  of  the  receiver.4  Directors  of  an  insolvent 
national  bank  which  has  been  placed  in  the  hands  of  a  receiver 
are  not  amenable  to  a  suit  by  a  stockholder  in  the  bank  to  make 
them  personally  liable  for  the  mismanagement  of  the  bank,  such 
right  of  action  being  in  the  receiver  and  not  in  the  individual 
stockholder.5  The  receivers  of  a  railroad  company  in  Texas  had 

'Welles  «.   Graves,   (1890)  41   Fed.  4  Ibid. 

Rep.  459.     See  Kennedy  T.  Gibson,  8  s  Howe  v.  Barney,  (1891)  45  Fed.  Rep. 

Wall.  498.  668.     In  National  Exchange  Bank  of 

'Witters  T,  Sowles,  (1890)  43  Fed.  Baltimore   «.    Peters,    (1890)   44   Fed. 

Rep.  405.  Rep.  13,  HUGHES,  Circuit  Judge,  re- 

8  Stephens  t.  Overstolz,  (1890)  43  Fed.  ferring  first  to  the  statutes,  discussed 

Rep.  465.  this  question  elaborately  as  follows: 


§ 


(MTU   I  1>   ..I     HANKS. 


509 


under  the  onirr-  of  the  federal  eourt  appointing  them  deposited 
larire  amounts  of  money  in  11  hank  in  that  htatc.  Tim  bank 
l>eeatue  insolvent  and  it-  affair*  were  in  tin-  hands  of  a  receiver 
appointed  l.y  a  .-tate  court.  The  balance  of  funds  due  receiver- 
on  their  deposit  account  not  In-in^  paid  mi  demand,  thev  jn-ti 
tioried  the  court  appointing  them,  alleging  a  conspiracy  on  the 
part  of  >everal  oflieers  of  that  hank  to  misappropriate  the  fund-, 

"  Thus  the  statute  lnw  makes  directors  As  before  said,  wlmti  v.-r  i*  claimed  in 
of  a  ii:itiuii:il  bank  liaMe  in  damages  the  suit  at  bar  would  bo  an aMet  in  the 
for  violations  of  their  duty,  or  negli-  hands  of  tin-  receiver  if  n-covcml.  and 
gcnce  or  malfeasance  as  directors,  and  the-  statute  law  imposes  U|K>II  him  tin- 
prescribes  how  they  shall  be  subjected  duty  of  suing  for  it.  under  the  comp- 
to  liability.  Being  liable  in  damages,  trailer's  direction.  But  this  bill  <<>n 
tin  y  arc  amenable  to  suit  for  damages  tains  no  allegation  cither  that  corn- 
in  u  jury  proccciling,  and  not,  I  infer,  plainant  called  upon  the  comptroller 
to  suit  in  any  other  form,  whether  at  to  direct  the  receiver  to  sue,  and  be 
law  or  in  equity.  Hut  even  if  they  refused,  or  that  the  receiver  hinuelf 
WITC  amenable  to  liability  in  a  pro-  was  called  upon  and  refusal.  Coo- 
ceeding  not  sounding  in  damages,  then,  taining  no  such  allegation,  the  bill 
tin-  damages  recoverable  being  an  asset  makes  no  ease  for  a  suit  by  a  penon 
of  the  bank,  the  statute  law  empowers  other  than  the  receiver.  Nor  would  it 
and  requires  the  receiver  of  the  in-  follow,  even  if  such  an  application 
jun-d  bank,  under  the  direction  of  the  had  l>een  made  and  refused,  and  the 
comptroller,  and  him  alone,  to  sue  the  fact  liad  been  only  alleged  in  the  bill. 


claim.     Except  the  receiver,  the  stat 
ute  law  nowhere  uuthori/es  suit  to  be 
brought  by  any  person  not  in  privity 
against   directors   of    national    banks. 


that  this  suit  could  be  maintained,  for 
in  cases  where  directors  of  national 
banks  have  violated  or  negligently 
permitted  the  violation  of  the  lawn 


The  bill  of  complaint   under  consid-  regulating   those    banks,    the    statute 

eration  has,  therefore,  no  sanction  in  law  seems  to  require  tlmt  tlie  question 

respect  to  its  party  plaintiff  from  the  of  violation  shall  IHJ  judicially  detor- 

statute  law  of  the  land.     Does  it  pre-  mined  in  a  proper  court  of  the  United 

sent  a  case  in  which  equity,  in  the  ex-  States,  in  a  suit  instil utcd  in  hi*  own 

ercise  of  a  high  prerogative  to  which  name    by    the    comptroller    for    that 

it  feels  at  liberty  sometimes  to  resort,  sj>ecific   pur|M>sc.   l>eforc  the  liability 

will  relieve  against  the  rule  of  privity,  can  attach  to  the  directors;  and.  therr- 

and  entertain  this  suit,  though  brought  fore,  it  would  seem  i  hat  dirccton  cmn- 

by  a  plaintiff  otherwise  incompetent  not  !><•  pursued  individually  for  «uch 

to  sue?     Certainly    the   bill   contains  violation  until  after  such  an  ad judica 

nothing  on   its  face  to  require  or  to  tion  thus  obtained.     So  that  if  tin-  r< 

justify  such  a  recourse.     Exceptional  ceiver  and    the   comptroller,    though 

authority  to  sue  is  given  only  in  the  culled  up""  to  sue  the  defendant*  in 

rare  cases  in  which  those  legally  com-  this  suit,  had  refused  to  do  so,  even 

petcnt  to  sue  wrongfully  refuse  to  do  the  allegation  of  such  application  mid 

so.      When   such  a  ease  is  presented,  refusal   would   have  been  inauftVi'  m 

equity  will   sometimes  authorize  and  ground  of  authority  for  bringing  thi» 

direct  suit   to  be  brought    by  some  suit.     I  am  of  the  opinion   that  ibr 

other  plaintiff  whom  it  may  approve,  provisions  of    the  National   Banking 


560 


OFFICERS  OF  BANKS. 


[§302 


the  making  of  securities  to  themselves  for  alleged  personal  debts 
against  the  bank  and  the  appointment  of  a  receiver,  and  asked 
that  these  officers  of  the  bank  be  punished  as  in  contempt  of  the 
court.  The  rule  for  contempt  was  discharged,  but  an  order  was 
laid  upon  the  receivers  to  institute  such  proceedings  as  might  be 
necessary  to  make  the  respondents  individually  and  collectively 
liable  for  all  the  funds  wrongfully  obtained  from  and  withheld 
from  the  receivers.1 


Act  enter  as  part  into  the  contracts  of 
creditors  with  the  national  banks,  and 
that  those  provisions  which  define  the 
liability  of  directors,  and  prescribe  the 
proceedings  to  be  taken  against  them, 
when  guilty  of  violations  of  the  act, 
are  exclusive  of  other  liability  and 
other  proceedings;  and  that  it  is  not 
within  the  prerogative  of  equity  to 
authorize  a  disregard  of  the  provisions 
of  the  National  Banking  Act,  denning 
such  liability  and  prescribing  such 
proceedings."  See,  on  this  point, 
Smith  t>.  Kurd,  12  Met.  871;  Craig  v. 
Gregg,  83  Pa.  St.  19;  Allen  v.  Curtis, 

26  Conn.  455;  Evans  v.   Brandon,   53 
Tex.    56.     As    to    the    circumstances 
under  which  a  stockholder  may  bring 
such  actions,  see  Robinson  v.  Smith,  3 
Paige,  222;     Brinkerhoff  v.  Bostwick, 
88  N.  Y.  52;  Smith  t>.  Poor,  40  Me. 
415;  Carter  v.  Glass  Co.,  85  Ind.  180. 
As  to  the  avails  of  such  litigation  by 
stockholder  going  to  the  corporation 
and  being  a  part  of  its  means,   see 
Dewing  v.  Perdicaries,  96  U.  S.   193, 
197,  198. 

1  Southern  Development  Co.  v.  Hous- 
ton &  Texas  Central  Ry.  Co.,  (1886) 

27  Fed.  Rep.  344.     PARDEE,  J.,  said: 
"  Counsel    for  the  receivers  contend 
that  the  effect  of  the  order  of  court 
designating  the  bank  as  one  of   the 
depositories  of  the  receivers,  and  the 
acceptance  by  the    bank  of    the  re 
ceivers'  deposits,  was  to  make  the  bank 
and  its  officers  officers  of  the  court, 
and,  therefore,  directly  responsible  to 
the  court  for  misappropriation  of  the 


moneys  deposited  by  the  receivers 
under  the  order  of  court."  He  then 
said:  "The  adjudged  cases  on  this 
point  brought  to  the  attention  of  the 
court  are  unsatisfactory.  The  state- 
ment in  Rapalje  on  Contempts  (§  15) 
that  'a  private  corporation  made  the 
depository  of  the  funds  of  the  court, 
is  an  officer  of  the  court,  within  the 
power  of  the  court  to  punish  by  con- 
tempt process  for  misconduct,'  is  sup- 
ported by  a  dictum  of  the  Supremo 
Court  of  Illinois  in  the  case  of  In  re 
Western  Marine  &  Fire  Ins.  Co.,  38 
111.  289,  in  which  case  it  is  said 
'  When  a  court  makes  an  order  ap- 
pointing a  particular  person  a  deposi- 
tary of  the  court  funds,  and  such  per- 
son, knowing  of  such  order,  accepts 
the  deposit,  he  unquestionably  be- 
comes pro  hoc  vice  an  officer  of  the 
court.  The  court  may  order  him  to 
refund  the  money,  and  if  he  fails  to  do 
so,  without  shoicing  gome  valid  reason, 
may  proceed  against  him  as  for  a  con- 
tempt. The  same  rule  would  apply 
to  a  corporation,  and  if  its  officers, 
Jutting  control  of  its  funds,  and  hating 
the  means  of  payment  belonging  to  the 
corporation  in  their  hands,  should  re- 
fuse to  pay,  they  might  be  proceeded 
against  as  for  a  contempt.'  It  will  be 
noticed  by  the  foregoing  that  officials 
of  a  corporation  delinquent  as  a  de- 
pository are  to  be  held  as  in  case  of 
contempt  when  they  have  control  of 
its  funds  and  have  the  means  of  pay- 
ment belonging  to  the  corporation  in 
their  hands.  *  *  *  In  the  present 


§  303]  anvam  m  um,  561 

§303-  President  —  his  power  and  duty.— The  exccutis. 
officers  of  a  bank,  its  pn-sid. -nt  and  wwhier,  art'  j>rr«umcd  to  h;i\.- 
authority  to  direct  the  application  of  any  funds  in  the  hunk  t.. 
its  debts.1  An  official  indorsement  of  a  note  payable  at  a  bank 
by  its  president  will  bind  the  bank.1  A  president  of  a  bank  must 
be  authorized  by  the  board  of  director-,  ..r  In-  will  not  be  author- 
ized to  execute  a  warrant  of  attorney  to  institute  a  suit.1  Should 
a  president  of  a  bank  receive  stock  of  the  l>ank  in  payment  for  a 
note  made  payable  to  the  bank  in  its  stock,  he  would  hold  the 
stock  for  the  bank  as  its  property.4  It  has  been  held  in  Vermont 
that  the  president  of  a  bank  had  the  right  in  behalf  of  the  bank, 
and  without  special  authority,  to  agree  with  the  makers  of  a  note, 
payable  to  and  at  the  bank,  upon  an  agent  to  receive  money  upon 
the  note  at  some  other  place,  and  to  forward  it  to  the  bank  ;  and 
that  such  agency  might  be  proved  by  parol.5  A  bank  will  In- 
case I  think  that  it  is  somewhat  doubt-  possession  of  [one  of  the  respondent*]. 
ful  whether  the  funds  deposited  by  as  receiver,  being  that  of  tbo  [Texan 
the  complaining  receivers  with  the  court  appointing  him].'  So  that  if  we 
[insolvent  bank]  under  the  aforesaid  take  the  law  to  be  as  broad  as  declared 
order  of  court,  were  strictly  court  by  the  Supreme  Court  of  Illinois,  in 
f  unds  or  could  be  considered  as  moneys  the  Western  Marine  &  Fire  Ins.  Co. 
paid  into  court.  By  the  orders  ap-  case,  it  is  not  broad  enough  to  meet  the 
pointing  them,  the  complainants,  as  necessities  of  this  case;  for  if  it  is  con- 
joint receivers,  were  authorized  and  ceded  that  the  [insolvent  bank],  by 
directed  to  carry  on  and  operate  the  designation  of  the  court  and  by  accept- 
railways  and  property  of  the  [railway  ance,  became  an  officer  of  the  court, 
corporation  in  their  hands];  and  such  and  that  the  funds  deposited  therein 
carrying  on  and  operating  contem-  were  court  funds,  and  that,  therefore. 
plated  and  required  the  handling,  re-  the  bank  is  liable  for  misconduct  in 
ceiving  and  paying  out  of  money,  the  misappropriating  such  fun<bt,  as  in 
payment  and  collection  of  bills  and  the  cases  of  contempt,  there  is  neither 
transaction  of  such  financial  business  reason  nor  authority  for  considering 
as  would  require  the  medium  of  and  that  each  servant  or  agent  of  tbo  bank 
accommodation  of  banks.  In  the  also  became  pro  fuif  nVv  an  officer  of 
transaction  of  this  business,  moneys  the  court,  and.  therefore,  amenable  to 
were  not  deposited  as  special  funds  to  the  court,  as  in  case  of  contempt  for 
be  drawn  out  on  order  of  the  court,  misconduct  in  dealing  with  the  bank 
but  were  deposited,  generally,  to  the  funds." 

credit  of   the    receivers,   and    to   be       '  City  Bank  r.   Halt-man.  7  II.  ft  J. 
handled  and  used  by  the  bank  like  the   (Md.)  104. 

deposits  of  its  other  patrons  in  a  bank-       »  Aiken   r.    Marine    Bank,    18  Wte. 
ing,  loan  and  discount  business.     And   670. 

it  may  be  further  noticed  that  the  re-       *  Bank  r.  Keim.  10  Phil.  811. 
spondents  have  not  the  possession  of       *  Markley  r.  Rhode*.  59  Iowa.  87. 
the  funds  of  the  bank  nor  means  in       •  National    Bank    r.    Strait.  06  Vt. 
their  hands  belonging  to  the  bank,  the   448. 

71 


562  OFFICERS  OF  BANKS.  [§  303 

bound  by  whatever  its  president  may  do  in  taking  a  new  note  for 
matured  paper,  so  far  as  it  is  within  the  apparent  scope  of  his 
authority.1  The  president  of  a  bank  cannot  make  a  valid  contract 
to  pay  for  obtaining  depositors.2  A  president  of  a  bank,  when 
discounting  paper  for  the  bank,  has  no  authority  to  promise  the 
holder  that  lie  need  not  pay  it.3  Neither  the  president  nor  cashier 
of  a  bank  organized  under  the  laws  of  Kansas  has  the  power, 
virtute  qfficii,  to  sell  the  safe  of  the  bank  for  a  debt  of  the  bank.4 
A  contract  made  by  a  president  of  a  national  bank  for  the  bank 
to  act  as  agent  in  the  purchase  of  bonds  or  stocks,  as  the  bank  has 
no  such  power,  would  be  ultra  vires  and  not  binding  upon  the 
bank.5  Notice  to  the  president  of  a  bank  is  notice  to  the  bank.6 
A  bank  will  be  affected  with  notice  of  knowledge  acquired  by  its 
president  in  the  course  of  its  business  that  money  deposited  by  a 
depositor  in  his  individual  account  belongs  to  an  estate  of  which 
he  may  have  control,  for  instance,  as  assignee  for  the  benefit  of 
creditors ;  and  the  money  deposited  by  him  cannot  be  appropri- 
ated by  the  bank  to  the  payment  of  his  notes.  Payments  thus 
made  could  be  recovered  from  the  bank  by  the  assignee.7  Where 
the  cashier  of  a  national  bank  in  the  usual  course  of  business 
takes  a  note  before  its  maturity  without  notice  or  knowledge 
of  any  defense  to  the  note,  the  knowledge  of  the  presi- 
dent of  the  bank  that  there  was  claimed  to  be  a  failure 
of  consideration  would  be  no  notice  to  the  bank  of  that  fact.8 
It  would  be  a  breach  of  duty  for  a  president  of  a  bank  to  allow  a 
customer  of  the  bank  to  take  away  its  securities  for  inspection, 
and  he  and  his  sureties  would  be  liable  for  the  results  of  such  an 
act  on  his  part  without  regard  to  the  question  of  good  faith.9 

1  Cake  v.  Bank,  116  Pa.  St.  264.  knowledge  of    its    president.     Union 

1  Ttfft  P.  Bank,  8  Pa.  Co.  Ct.  Rep.  Bank??.  Wando  Mining  &Mfg.  Co.,  17 

606.  S.  C.  361.     Under  what  circumstances 

3  First  National  Bank  of  Whitehall  one    who    may   have   compromised  a 
v.  Tisdale,  (1879)  84  N.  Y.  655.  claim  and  given  a  release  to  the  bank 

4  Asher  «.  Sutton,  (1884)  31    Kans.  may  avoid  that  release  by  reason  of  tho 
286.  falsity  of  a  president's  statement,  seo 

5  Bank  v.  Hoch,  89  Pa.  St.  324.  Gould    v.    Cayuga    County    National 
«  Savings  Bank  v.  Holt,  58  Vt.  166.    Bank,  (1877)  56  How.  Pr.  505.     That  a 
1  Bank  v.    Peisart,   2    Pennypacker   president  of  a  bank  has  no  authority 

(Pa.),  278.  to  release  debts,  see  Olney  v.  Chadsey, 

8  First  National  Bank  r.  Sherburne,  7  R.  I.  224. 

14  Bradw.  (111.)  566.     Bank  chargeable  9  Bank  r.  Wiegand,  5  W.  N.  C.  (Pa.) 

with  notice  of  facts  within  the  official  12. 


§  303]  OFFICERS  OF  BANKS.  ..'..; 

An  overdraft  on  a  bank,  if  imule  without  authority,  is  a  fraud 
upon  the  part  of  the  drawer;  if  suggested,  coin jtniunccd,  con- 
nived at  and  allowed  by  tin-  proidi-ut  of  a  bank,  without  any 
authority  of  the  directors,  it  would  IK-  a  fraud  on  the  part  of  the 
president,  and  he  will  be  held  liable  personally  for  the  damages 
to  the  bank.1  In  a  Kansas  case  it  appeared  that  <»nc.  at  the  same 
time  stockholder,  director  and  vice-piv-ident  of  a  savings  Iwnk, 
sold  his  stock  in  the  bank,  while  it  was  in  an  embarrassed  condi 
tion,  to  an  outside  party  who  had  no  funds  in  the  bank,  but,  »n 
the  contrary,  had  an  overdrawn  account  with  the  bank  of  several 
montlis'  standing,  from  whom  he  received  a  check  on  the  bank 
in  payment  for  the  stock  for  $2,100.  .This  outside  party  tlu-n 
sold  the  stock  to  the  cashier  of  the  bank,  who  purchased  it  for 
the  bank,  but  had  no  authority  from  the  bank  or  from  any  our 
else  to  make  such  purchase.  The  cashier  then  gave  to  thU  out- 
side party  a  credit  for  the  stock  of  $2,100  on  the  books  of  the 
bank,  and  on  the  same  day  gave  the  vice-president  of  the  bank, 
who  had  sold  this  stock,  a  credit  on  the  books  of  the  bank  for  the 
amount  of  the  check  drawn  by  the  outside  party,  and  charged  the 
latter  with  a  like  amount.  A  few  days  afterwards  the  vice-pn-.-i- 
dent  drew  the  amount  out  of  the  bank.  The  Supreme  Court  of 
that  state  held  that  the  bank  could  maintain  its  action  against  this 
officer  for  the  amount  of  money  so  withdrawn  from  the  Iwink.1 
As  to  the  duty  of  officers  of  the  bank,  it  was  held  by  the  court 
that  a  director,  having  personal  and  private  dealings  with  his 
bank,  was  bound  to  know  (so  far  as  the  same  affected  his  own 
personal  dealings)  the  general  condition  and  management  of  his 
bank,  and  everything  of  importance  that  occurred  therein,  either 
at  the  time  it  occurred  or  soon  thereafter.  Further,  it  was  held 
that  this  officer,  the  vice-president,  was  bound  to  know  when  his 

1  Oakland  Bank  of  Savings  r.  Wil-  r.  Heed,  86  Mich.  263.  too  president  of 
cox.  (1882)  60  Cul.  126.  Sec,  on  tbo  the  bank  was  held  personally  llnbl.-  for 
subject  of  personal  liability  of  officers,  moneys  paid  out  by  tbo  cashier  under 
Leffinan  r.  Flanigan,  5  Phila.  155;  his  directions  and  without  security 
Shea  c.  Mabry,  1  Lea  (Tcnn.),  319;  to  one  who  was  supposed  to  be  lire- 
Minor  v.  Mechanics'  Bank,  1  Pet.  72;  sponsible.  with  whom  the  president 
Eichelberger  r.  Finley,  7  liar.  &  J.  was  interested  in  the  business  for 
(Mil.)  387,  Bank  of  St.  Mary's  r.  Gal-  which  the  money  was  obtained,  these 
dcr,  3  Strobh.  (S.  C.)  408;  Lancaster  payments  having  been  kept  from  the 
Bank  r.  Woodward,  18  Pa.  St.  862;  knowledge  of  tin-  directors.. 
Shear  r.  K.  &  K.  R  R.  Co.,  6  Bax.  *  German  Savin**  Bank  r.  Wulfe- 
(Tenn.)  278.  In  First  National  Bank  kuhler.  (1877)  10  Kans.  60. 


564  OFFICERS  OF  BANKS.  [§  304r 

bank  was  in  an  embarrassed  condition,  and  the  condition  of  an 
account  which  had  been  overdrawn  for  months ;  and  that  where 
the  cashier  had  given  a  credit  to  the  person  having  such  over- 
drawn account,  for  an  insufficient  and  illegal  consideration,  the 
officer  was  bound  to  know  the  same  within  less  than  several  days 
thereafter.1 

§  304.  President's  acts  binding  on  bank  —  illustrations.— 
In  an  action  by  a  receiver  of  an  insolvent  national  bank  against  a 
correspondent  bank  to  recover  the  amount  of  a  deposit  by  the 
insolvent  bank  with  this  correspondent,  where  the  evidence 
showed  that  the  board  of  directors  left  it  to  the  president,  as  the 
agent  of  the  bank,  to  negotiate  loans,  and  to  make  such  contracts 
as  to  repayment  and  security  as  were  lawful  and  usual,  the  United 
States  Circuit  Court  for  the  southern  district  of  New  York  held 
that  the  evidence  was  sufficient  to  establish  the  authority  of  the 
president  to  pledge  the  deposit  with  the  correspondent  bank  as 
security  for  loans  by  it  to  the  insolvent  bank.2  This  was  an  action 
by  the  receiver  of  a  national  bank  against  the  makers  of  a  note 
found  among  its  assets.  The  defense  of  the  makers  was  that 
there  was  no  consideration  towards  them  ;  that  it  was  an  accom- 
modation note  made  by  them  at  the  instance  of  the  president  of 
the  bank,  to  be  used  for  the  purposes  of  the  bank.  The  note  was 
made  payable  to  the  order  of  the  makers  and  indorsed  by  them. 
On  the  trial  the  note  clerk  of  the  bank  testified  to  entries  on  the 
discount  book  indicating  that  the  note  was  discounted  on  a  cer- 
tain day,  and  that  the  account  of  the  proceeds  was  handed  to  the 
president  of  the  bank,  who  put  his  signature  upon  it,  thus  making 
it  an  order  on  the  teller  for  the  amount  therein  stated  ;  that  this 
order  was  returned  to  the  clerk,  together  with  the  president's 
own  check  for  an  amount  sufficient  to  make  up  the  face  of  the 
.note,  and  that  this  amount  was  used  to  pay  a  former  note  of 

1  Ibid.  practice  which  the  directors  may  have 

2  Bell  v.  Hanover  Nat.  Bank,  (1893)  permitted  to  grow  up  in  the  business 
57  Fed.  Rep.  821.     LACOMBE,  Circuit  of  the  bank,  and  by  the  knowledge 
Judge,  said:  "It  is  true  that  no  ex-  which  the  board  of  directors  must  be 
press   authority    from    the    board  of  presumed  to  have  had  of  the  acts  and 
directors  to  make  such  an  agreement  doings  of  its  subordinates  in  and  about 
is  shown,  but  the  contract  is  not  an  the  affairs  of    the  corporation.     Ma- 
unusual  one,  and  authority  to  make  it  honey  Mining  Co.  v.  Anglo- Calif  ornian, 
may   be  established  by  proof  of  the  Bank,  104  U.  S.  194." 

course  of  business,  by  the  usages  and 


"I  :  l:.\XKB.  568 

the  maker>.  As  to  tin-  former  note,  lit-  te>tilied  to  entries  on  the 
discount  book  indicating  that  it  had  been  di-coiintvd,  nnd  that 
the  proceed.-  were  deposited  to  the  credit  of  the  j.n-i.l.-nt  of  the 
hank.  The  bank  a  short  time  afterwards  Ix-came  in.-olvent. 
The  United  States  Circuit  Court  of  Appals  for  the  third  circuit 
held  that  this  testimony  did  not  sufficiently  show  the  Imnk  to  be 
a  lonafde  holder  for  value,  as  against  the  defense  that  the  notes 
were  procured  from  the  makers  by  the  president,  who  was  abo 
the  managing  officer  of  the  bank,  by  fraud  and  without  considera- 
tion. They  also  held  that  it  was  error  to  refuse  to  allow  the 
makers  to  show  that  the  note  in  suit,  and  the  former  notes  which 
were  renewed  by  it,  were  given  at  the  solicitation  of  the  presi- 
dent, who,  in  the  actual  conduct  of  the  business  of  the  bank,  was 
its  sole  managing  officer,  and  upon  his  execution  of  a  receipt 
which  was  also  offered  in  evidence  reciting  that  the  note  was  for 
the  use  of  the  bank,  and  was  to  be  paid  by  it  at  maturity ;  and 
that  he  stated  that  he  proposed  to  use  it  in  the  clearing  house,  as 
it  would  look  Ixjtter  for  the  credit  of  the  bank  than  numerous 
small  notes  which  it  held,  and  which  small  notes  it  would  retain 
to  protect  this  note  of  the  makers,  as  the  facts,  if  shown,  would 
make  a  valid  defense  to  the  action.  It  was  also  held  to  be  error 
to  refuse  the  defendant's  offer  to  show  that  the  president  was  the 
sole  managing  officer  of  the  bank,  in  the  actual  conduct  of  the  busi- 
ness, and  that  the  cashier  occupied  more  the  position  of  a  clerk 
than  that  of  actual  cashier;  for,  if  the  president  exercised  the 
.Junctions  of  cashier  and  was  the  sole  managing  officer  of  the  bank, 
he  had  authority  to  borrow  money  for  the  use  of  the  bank  in  tho 
regular  course  of  its  business.1  One  intending  to  purchase  bank- 

1  Simons   r.  Fisher.  (1803)  55  Fed.  should  have  a  lien;  the  flrni  to  be  kept 

Rep.  905  (BUTLER,  D.  .!..  dissenting),  informed  of  the  condition  of  the  bunk. 

ACIIESON,  Circuit  Judge,  in  the  opinion  which  the  cashier  stated  to  be  cmbar- 

of  the  majority  of  the  court,  referred  rassed,  but,  with  certain  expected  aid, 

to  the  case  of  Coats  r.  Donnell,  94  N.  able  to  continue  business.     The  agree* 

Y.  168,  176,  as  having  features  very  ment  was  held  to  be  valid,  and  within 

like   the   case   before   the  court.     He  the  power  of  the  cashier  to  make,  both 

said:  "  The  cashier  of  a  bntik  [in  that  under  his   general  authority  and   by 

case]  orally  agreed  with  a  firm  that  if  virtue  of  a   by-law  which  gave  him 

the  latter  would  receipt  certain  drafts  supervision  of  the  bank,  with  tin- duty 

negotiated  by  the  bank  it  would  keep  to  attend  to  the  making  of  loans,  din- 

on  deposit  with  the  firm  until  their  ma-  counts  and  other  active  business  trans- 

turity  a  balance  equal  to  the  amount  actions  of  the  bank."     It  was  snid  in 

of  the  drafts,  upon   which  the  firm  Coats  r.  Donnell,  tupra :  "The  cashier 


566  OFFICERS  OF  BANKS.  [§  305 

stock  is  entitled  to  rely  upon  a  statement  of  its  president  as  to 
the  bank's  condition,  without  inquiring  further.1 

§  3°5-  President's  acts  not  binding  on  bank  —  illustra- 
tions.—  The  Nebraska  Supreme  Court  has,  in  an  action  against 
a  national  bank  to  recover  the  amount  of  a  subscription  made  in 
its  name  by  the  president  of  the  bank  to  encourage  and  aid  the 
erection  of  a  paper  mill,  affirmed  the  judgment  of  the  trial  court 
instructing  the  jury  to  return  a  verdict  for  the  bank.2  The 
president  of  a  national  bank  in  Wyoming  arranged  with  bankers 
in  New  York  to  credit  his  bank  with  $10,000,  with  the  under- 

of  a  bank  is  its  executive  officer,  and  part  of  the  business  for  which  it  was 
it  is  well  settled  that  as  an  incident  of  incorporated.  The  bank  —  that  is,  the 
his  office  he  has  authority,  implied  corporation  —  by  the  unanimous  con- 
from  his  official  designation  as  cashier,  sent  of  its  stockholders,  might,  no 
to  borrow  money  for  and  to  bind  the  doubt,  make  such  donation  of  its 
bank  for  its  repayment;  and  the  as-  capital  to  any  enterprise  or  person  it 
sumption  of  such  authority  by  the  chose;  but  is  the  bank  bound  by  a 
cashier  will  conclude  the  bank  as  contract  made  in  its  name  by  its  presi- 
against  third  persons,  who  have  no  dent,  in  and  by  which  it  is  agreed  to 
notice  of  his  want  of  authority  in  the  donate  to  some  person  or  enterprise  a 
particular  transaction,  and  deal  with  part  of  its  capital  ?  A  large  part  of 
him  on  the  basis  of  its  existence."  the  argument  of  counsel  in  this  court 

1  Merrill    •c.   Florida  Land   &  Imp.    has  been  directed  to  the  doctrine  of 
Co.,  (1893)  60  Fed.  Rep.  17.  ultra  vires,  but  we  do  not  think  that  it 

2  Robertson  v.  Buffalo  County  Na-    is  necessary  to  invoke  that  doctrine  in 
tional  Bank,   (Neb.    1894)  58  N.   W.    order  to  reach  a  correct  decision  in 
Rep.  715.     The  court  said :  "Theun-    this  case.     It  seems  to  us  that  this 
disputed  evidence  in  the  case  is  that    question  is  one  of  agency.     The  bank 
the  president  of  the  bank,  without  the   is  the  principal  -and  the  president  of 
knowledge  or  consent  of  the  directory,    the  bank  was  its  agent,  and  the  bank, 
signed  the  name  of  the  bank  to  the    of  course,  was  bound  by  the  acts  of 
subscription     paper,     and     that    the   its  president,  done  within  the  scope 
directory  of  the  bank  had  never  rati-   of  his    authority.      In  Morawetz    on 
fled  this  act  of  the  president.    Whether   Private  Corporations  (§  423)  it  is  said  : 
the  court  erred  in  instructing  the  jury    '  The  property  and  funds  of  a  corpora- 
te return  a  verdict  for  the  bank  de-    tion  belong  to   its  stockholders,  and 
pends,  then,  upon  the  question  as  to   cannot  be  devoted  to  any  use  which  is 
whether  the  bank  is  bound  by  the  sub-    not  in  accordance  with  their  chartered 
scription  made  by  its  president.     This   purposes,   except  by  unanimous  con- 
bank  was  organiKed  undeV  the  act  of   sent.     No  agent  of  a  corporation  has 
congress  for  the  purpose  of  lending   implied  authority  to  give  away  any 
money,  receiving  deposits  and  for  the    portion  of  the  corporate  property  or 
conducting  of  a  general  banking  busi-    to     create     a     corporate     obligation 
ness.     The  making  of  donations  of  its   gratuitously.'     In  Jones  v.  Morrison, 
funds  or  capital  to  aid  in  the  building   31  Minn.  140;    s.  c.,  16  N.    W.  Rep. 
of  paper  mills,  canals  or  churches  is  no   854,  it  is  said  :    '  The  directors  of  a 


""'J  OFFICERS  OF  BANKS.  -7 

standing  that  the  bank  would  not  draw  agjiitift  it,  ai»d  liad  the 
Nrw  York  bankers  charged  with  tin-  anniiint,  and  hi.-  own  per- 
sonal account  with  his  bank  credited  with  the  amount,  placing 
with  the  Now  York  lianker.-  his  individual  note  for  dirt-mint  f..r 
the  same  amount.  He  then  was  allowed  t..  overdraw  hi-  indi- 
vidual account  afterwards,  and  then  authorized  the  New  Y«»rk 
bankers  to  charge  the  amount  of  his  individual  not.-  to  hi.-  l»ank, 
which  they  did.  The  bank  becoming  in.-- .1  vent,  the  re< 
brought  his  action  against  the  New  York  Itaiikere  for  the  amount. 
The  United  States  Circuit  Court  of  Appeals  for  the  second  cir- 
cuit held  that  unless  expressly  authorized  to  do  so  the  president 
of  the  bank  could  not  use  the  funds  of  the  bank  to  pay  hi-  per- 
sonal obligations ;  and,  there  being  no  proof  of  such  express 
authority,  that  he  authorized  the  New  York  bankers  to  do  so  was 
not  a  defense  to  the  suit.1 

corporation  have  no  authority  to  ap-  same  manner  as  natural  persona.'    We 

propriate  its  funds  iu  paying  claims  think  these  authorities  are  decisive  of 

which  the  corporation  is  under  no  legal  the  case  at  bar.     This  is  not  a  case  in 

or  moral  obligation  to  pay,  as  to  pay  which  the  bank  has  received  ami  n 

for  post    services    which    have    been  tains  the   fruits  of    an    unauthorized 

rendered  and  paid  for  at  a  fixed  salary  contract  made  by  its  agent."     For  an 

previously    agreed    on,    or    under    a  illustration  of  what  kind  of  a  contract 

previous  agreement  that  there  should  made    by    the  director    of    a    bank, 

be  no  compensation  for  them.'    To  the  specially  delegated  to  take  charge  of 

same  effect  see  Salem  Hunk   r.  Glou-  the  matter,  and  who  acted  under  the 

cester  Bank,    17  Mass.    29;    Bissell  r.  direct  advice  of  the  president  of  the 

City  of  Kankakee,  ill  111.  249;  Minor  bank,    would    be    binding    upon    the 

r.  Bank,  1  Pet.  40;  Case  r.  Bank,  100  bank,  see  Waxahachie   Nat.  Bank  r. 

U.  S.    446.     In  Alexander  r.    Cauld-  Vickery.  (Tex.  1894)28  S.  W.  Rep.  876. 
well,  88  N.   Y.  480,  it  is  said  :  '  One       '  Chrystie  r.  Foster.  (1894)  «1  Fed. 

who  deals  with  the  officers  or  agents  Rep.  551.     WALI.ACK,  Circuit  Judge, 

of  a  corporation  is  bound  to  know  their  said  :  "  While  it  may  be  conjectured, 

powers  and  the  extent  of  their    au-  in  view  of  the  character  of  (the  prwii- 

thority.    The  corporation  is  only  bound  dent's]  relations  with  the  bank,  that  it 

by  their  acts  and  contracts  which  are  would   have    |>erniitted    him  at    any 

within  the  scope  of  their  authority.'  time  to  overdraw  his  account,  there  U 

In  Rich  r.  Bank,  7  Neb.  201,  it  is  said  no  evidence  tluit  it  did  not  rely  upon 

in  the  syllabus  :  'No  officer  of  a  bank  the  credit  [given  it  by  the  New  V.-rk 

can   bind   it  by   a   promise  to   pay  a  bankers]  in    its    subsequent  dealing* 

debt   which  the  corporation  does  not  [with  the  prcsidenll.  and  the  prv»um|> 

owe  and  was  not  liable  to  pay,  unless  tion  is  that  the  notice  given  by  the  do 

the  hank  authorizes  or  has  ratified  the  fendants  influenced  the  bank  an  tin •> 

act;    but  ratification  is  equivalent  to  intended  it  should.     Theauthnrixatimi 

original  authority  to  net  in  the  matter,  to  the  defendant*  by  (the  president), 

and  the  corporations  are  bound  in  the  in  his  official  capacity  as  president  of 


568  OFFICERS  OF  BANKS.  [§  300 

§  306.  When  a  bank  is  not  chargeable  with  constructive 
notice  as  to  knowledge  of  its  president. —  This  was  an  action 
against  a  bank  brought  by  the  grantor  of  an  undivided  half  inter- 
est in  a  city  lot  by  a  full  conveyance  of  title  to  one  who  was  the 
owner  of  the  other  undivided  half  interest  in  the  lot,  at  the  time  the 
president  of  the  bank,  and  who  had  subsequently,  for  a  valuable 
consideration,  conveyed  the  whole  lot  to  the  bank  for  its  uses,  to 
enforce  the  vendor's  lien  upon  the  undivided  half  interest  con- 
veyed by  him.  It  appeared  that  the  bank  knew  nothing  of  the 
transaction  between  this  vendor  and  its  president  beyond  the 
deed  of  full  conveyance  from  the  grantor  to  the  president.  The 
United  States  Circuit  Court  of  Appeals  for  the  fifth  circuit  held 
that  the  bank  acquiring  its  title  by  conveyance  from  one  who  held 
the  interest  in  the  lot  under  a  deed  reciting  full  payment  of  the 
purchase  money,  and  having  no  actual  knowledge  that  the  pur- 
chase money  was  not  in  fact  paid,  was  an  innocent  purchaser 
without  notice,  and  was  not  chargeable  with  constructive  notice 
because  of  the  knowledge  of  its  president.  As  to  what  did 
appear  from  the  evidence  that  the  grantor  had  a  conversation 
with  a  director  of  the  bank,  in  which  he  stated  that  he  was  will- 
ing to  convey  his  half  interest  in  the  lot  to  the  president  of  the 
bank,  with  the  understanding  that  the  president  was  to  convey 
the  whole  lot  to  the  bank,  and  that  the  president  of  the  bank  was 
to  pay  him  by  giving  him  credit  upon  notes  then  running  against 
him  in  the  bank,  the  court  held  that  it  did  not  amount  to  notice 
to  the  director  that  the  grantor  intended  to  retain  a  vendors  lien, 
but  rather  imputed  a  notice  that  no  such  lien  was  to  be  retained.1 

the  bank,  to  apply  the  fund  in  their   another  in  making  a  contract  for  him- 
hands  belonging  to  the  bank  in  pay-    self.      West  St.   Louis   Sav.    Bank  v. 
ment  of  his  note,  docs  not  protect  the    Shawnee    Co.    Bank,    95    U.    S.   557; 
defendants.     It  is  not  pretended  that    National     Park     Bank     r.     German- 
[the  president]  had  any  express  au-  American  Mut.  Warehousing  &  Secur- 
thority  to  apply  the  funds  of  the  bank  ity  Co.,  116  N.  Y.  281;  s.  c.,  22  N.  E. 
to  the  payment  of  his  own  note.     He  Rep.  567;  Anderson  v.  Kissam,  35  Fed. 
had  no  implied  authority  to  do  so.   Rep.  699.     If  [the  president]  had  used 
There  are  no  presumptions  in  favor  of   his  note  with  the  defendants  to  pro- 
such  a  delegation  of  power.     He  who   cure  an  advance  to  the  bank   for  its 
assumes  to  rely  upon  the  authority  of   benefit,  and  not  for  his  own,  and  had 
au  agent  to  bind  his  principal  to  the   given  them    such    an    authorization, 
discharge  of  the  agent's  own  obliga-    very    different    questions    would    be 
tion  must  have  actual  authority  if  con-    presented  from  those  which  are  now 
test    arises.      No    principle     of    the   in  the  case." 

law  of  agency  is  better  settled  than       '  First   Nat.   Bank  -of    Sheffield  v. 
that    no  person  can  act  as  agent  of   Tompkins,   (1893)  57    Fed.    Rep.   20. 


§  307  I  OFFICERS  OP  BANKS. 

§307.  Cashier  — his  power  and  duty.— The  cashier  of  a 

bank   is  the  executive   olHccr  «.r  silent  »i   it>  tinuiicial  deport- 
ment, and,  iu  all  the  duties  imposed  upon  him  l»\  law  or  usage  aa 

PARDKK,  Circuit  .In.!-.-,  referred  in  Ala.  502.  If  the  fact*  were  rtroogt-r 
support  of  the  court's  ruling  to  certain  fur  the  imputation  of  notice  t. 
cases  in  these  words:  "  In  the  case  of  liams  than  an-  fuiunl  in  the  record. 
Whelaii  v,  .McCreary,  04  Ala.  819,  notice  should  n«.t  Ix-iinpuUtl  to  the  In- 
Mr.  Cliii -f  ,hi-ti( c  BIUCKEI.L,  speaking  su ranee  company.'  The  nitft  of 
for  the  court,  declared  the  law  of  Ala-  Barnes  r.  Can  Light  <  J.  Eq. 

bama  as  follows:  '  Whoever  gives  83-87.  involved  a  question  in  regard 
value,  or  enters  into  transactions  by  to  notice  very  similar  to  the  CAM  in 
which  his  position  is  materially  hand,  and  the  chancellor  held  an  fol 
changed,  and  from  which  change  loss  lows:  '  That  the  defendant*  are  boim 
must  ensue,  on  the  faith  that  the  ven-  fulc  purchasers  for  valuable  consklrra- 
dor  of  real  estate,  or  person  with  whom  tion  is  not  denied.  Their  title  U  not 
be  deals,  has,  as  the  title  papers  ex-  impugned,  except  on  the  ground  of 
hibit,  a  clear  legal  title,  will  be  pro-  notice,  and  the  claim  to  relief  t* 
tccted  against  outstanding  and  latent  based  on  the  allegation  that  at  the  time 
equities,  of  which  he  has  no  notice,  when  the  conveyance  was  made  by 
A  mortgagor  taking  a  security  for  a  Mr.  Potts  to  them  he  was  their  preal- 
contcmporaneous  loan  or  advance  falls  dent,  and  this  fact  is  relied  upon  an  of 
within  the  rule  and  is  entitled  to  pro-  itself  sufficient  to  establish  notice  to 
tection.  Boyd  r.  Beck,  29  Ala.  713;  them  of  all  the  facts  which  the  bill 
Wells  v.  Morrow,  38  Ala.  125.  The  charges  were  within  his  knowledge, 
only  notice,  actual  or  constructive,  of  The  general  proposition  is  undoubtedly 
Mrs.  Whclan's  equity,  which  is  at-  true  that  notice  of  facts  to  an  agent  in 
tributed  to  the  insurance  company,  is  constructive  notice  thereof  to  the  priu • 
imputed,  because  notice,  it  is  insisted,  is  cip.nl  himself,  where  it  arises  from  or 
traced  to  Williams,  one  of  its  direct-  is  at  the  time  connected  with  the  sub- 
ors,  active  and  instrumental  in  making  ject -matter  of  his  agency.  The  rule 
the  loan  to  Cunningham  and  McCreary,  is  based  on  the  presumption  that  the 
and  taking  the  mortgage.  Whatever  agent  has  communicated  such  facta  to 
facts  may  have  been  known  to  Wil-  the  principal.  Story  Ag.  £  140.  On 
liams  which  ought  to  have  excited  in-  principles  of  public  policy  the  knowl- 
quiry  on  his  part,  came  to  his  knowl-  edge  of  the  agent  is  imputed  to  thu 
edge  while  he  was  acting  as  the  agent  principal.  But  the  rule  dot*  not  ap- 
of  Cunningham,  in  a  transaction  in  ply  to  a  transaction  such  an  that  under 
which  the  insurance  company  bad  no  consideration,  for,  in  such  a  transar- 
interest.  The  rule  is  settled  in  this  tion.  the  officer,  in  making  the aale  and 
state  that  a  corporation  will  not  be  conveyance,  stands  as  a  stranger  t<>  tin 
affected  by  notice  which  one  of  its  company.  Stratum  r.  Allen.  10  N.  J. 
directors  or  other  officers  may  have  Eq.  221).  His  interest  in  oppoaed  to 
received  when  not  acting  for  the  cor-  theirs,  and  the  presumption  boot  that 
Deration,  but  in  the  transaction  of  his  he  will  communicate  his  knowledge  of 
own  private  affairs,  and  under  such  any  secret  impurity  of  the  title  to  tho 
circumstances  that  its  communication  corpo™*'011'  'ml  lunt  nc  w"'  COO««I 
to  other  officers  of  the  company  is  not  it.  Where  an  officer  of  a  corporation 
to  be  expected.  Terrell  r.  Bank,  12  is  thus  dealing  with  them  in  bis  own 
72 


570 


OFFICERS  OF  BANKS. 


[§  307 


such  cashier,  he  acts  for  the  bank  and  speaks  for  it.1  A  cashier, 
in  the  absence  of  all  positive  and  known  restrictions,  possesses  the 
incidental  authority,  and  it  is  his  duty  to  apply  the  negotiable 
funds  of  a  bank  as  well  as  the  moneyed  capital  to  the  discharge 


interest,  opposed  to  theirs,  he  must  be 
held  not  to  represent  them  in  the  trans- 
action, so  as  to  charge  them  with  the 
knowledge  he  may  possess,  but  which 
he  has  not  communicated  to  them,  and 
which  they  do  not  otherwise  possess, 
of  facts  derogatory  to  the  title  he  con- 
veys,' citing  in  support  of  the  same 
Bank  v.  Cunningham,  24  Pick.  270; 
Kennedy  v.  Green,  3  Mylne  &  K.  699; 
In  re  European  Bank,  L.  R  ,  5  Ch. 
App.  358;  In  re  Marseilles  Extension 
Railway  Co.,  L.  R.,  7  Ch.  App.  161; 
Winchester  v.  Railroad  Co.,  4  Md.  231. 
In  Commercial  Bank  of  Danville  P. 
Burgwyn,  (1892) HON.  C.  267,  certain 
promissory  notes  were  indorsed  to  a 
corporation  and  by  its  president  in- 
dorsed for  value  to  a  bank  some  months 
before  they  were  due.  The  president 
of  the  corporation  was  a  director  of  the 
bank  and  in  the  matter  of  discounting 
these  notes  had  spoken  to  the  presi- 
dent of  the  bank,  who  ordered  them 
discounted,  but  this  director,  the  presi- 
dent of  the  corporation,  took  no  action 
in  the  matter  of  the  discounting  of  the 
note.  In  this  action  by  the  bank  upon 
the  note  it  was  claimed  that  the  note 
was  subject  to  a  certain  equity  or  set- 
off  of  the  maker,  on  the  ground  that 
the  president  of  the  corporation  knew 
it  had  notice  of  the  impurity  of  the 
note,  and,  being  a  director  of  the  bank, 
notice  to  him  was  notice  to  the  bank. 
The  Supreme  Court  of  North  Carolina 
said:  'That  conceding  *  *  *  that 
if  the  director  of  the  bank  had  such 
notice  at  the  time  of  the  discounting 
of  all  of  the  notes,  it  is  well  established 


that  the  plaintiff  [the  bank]  cannot  be 
affected  therewith  unless  [he]  was  act- 
ing ia  his  official  capacity  for  the  plain- 
tiff in  the  said  discounting  transactions. 
The  foundation  principle  upon  which 
rests  the  doctrine  that  a  party,  whether 
an  individual  or  a  corporation,  is 
chargeable  with  notice  imparted  to  his 
agents  in  the  line  of  their  duty,  is  that 
agents  are  presumed  to  communicate 
all  such  information  to  their  principals 
because  it  is  their  duty  so  to  do.  The 
principal  is  conclusively  presumed  to 
know  whatever  his  agent  knows,  if 
the  latter  knows  it  as  agent.  Of 
course  no  such  presumption  can  exist 
where  the  agent  is  dealing  with  the 
corporation  in  the  particular  transac- 
tion in  his  own  behalf.'  In  such 
transactions  the  attitude  of  the  agent 
is  one  of  hostility  to  the  principal. 
He  is  dealing  at  arm's  length,  and  it 
would  be  absurd  to  suppose  that  he 
would  communicate  to  the  principal 
any  facts  within  his  private  knowledge 
affecting  the  subject  of  his  dealing 
unless  it  would  be  his  duty  to  do  so,  if 
he  were  wholly  unconnected  with  the 
principal.  As  was  said  by  the  court 
in  Wickersham  v.  Chicago  Zinc  Co., 
18  Kans.  481:  'Neither  the  acts  nor 
knowledge  of  an  officer  of  a  corpora- 
tion will  bind  it  in  a  matter  in  which 
the  officer  acts  for  himself  and  deals 
with  the  corporation  as  if  he  had  no 
official  relations  with  it,'  or,  as  wns 
said  in  Barnes  v.  Trenton  Gas  Light 
Co.,  27  N.  J.  Eq.  33:  'His  interest  is 
opposed  to  that  of  the  corporation,  and 
the  presumption  is  not  that  he  will 


1  Ellicott  v.  Barnes,  (1884)  31  Kans.  Bank,  10  Humph.  507;  United  States 
172;  Lane  «.  Bank  of  West  Tennessee,  v.  City  Bank  of  Columbus,  21  How. 
9  Heisk.  419;  Maxwell  r.  Planters'  364. 


§307] 


<>M  i,  ]  i;s  Ol    BA1IB. 


571 


of  the  bank's  debts  and  obligation-.1     Tin-  power  of  a  cashier  to 
purchase  for  the  bank  is  not   implied  from  his  office  m  cashier.2 
A  bank  will  be  bound   by  the  agreement  of  its  cashier  to  e.v 
paper.8     A  statement  \>y  its  cashier,  U[>on  inquiry  of  one  known 
by  him  to  be  a  surety  on  a  note  due  the  bank,  that  the  not 
been  paid,  with   the  intention  that  the  surety  .-lioiild   relv  upon 
the  statement,  and  the  surety  does  so,  and  in  eon>e«|uen< 
his  position  by  giving  up  securities  or  indorsing  othrr  not. 
the  same  principal  or  the  like,  will  estop  a  bank  from  denying 
that  the  note  was  paid.4     The  cashier  of  a  bank,  without  special 
authority,  cannot  bind  it  by  an  official  indorsement  of  hi.-  J««T 
sonal  note.     In  an  action  on  such  a  note  the  onus  would  bo  upon 
the  payee  to  show  the  cashier's  authority.5   A  bank  has  been  held 


communicate  his  knowledge  of  any 
secret  infirmity  of  the  title  to  the  cor- 
poration, but  that  he  will  conceal  it.' 
This  doctrine  has  been  applied  to  the 
case  of  a  director  procuring  the  dis- 
count of  a  note  for  his  own  benefit, 
having  knowledge  that  it  is  founded 
upon  an  illegal  consideration  (Bank  r. 
Christopher,  40  N.  J.  L.  485).  or  that 
it  was  made  for  his  accommodation 
(Bank  r.  Cunningham,  24  IMck.  270), 
or  that  it  was  obtained  upon  a  false 
pretense  of  having  it  discounted  for 
i  lie  maker  (Washington  r.  Lewis,  22 
Pick.  24),  or  that  it  was  affected  in  his 
hands  with  certain  conditions  (Louisi- 
ana State  Bank  r.  Senecal,  18  La.  525), 
or  with  a  claim  of  recoupment  of  which 
the  bank  had  no  notice  (Looinis  r.  Bank, 
1  Disney,  285),  or  with  other  equities. 
Savings  Bank  r.  Hamlin,  125  Mass.  506. 
To  the  same  effect  are  Corcoran  F.  Snow 
Cattle  Co.,  151  Mass.  74;  Innerarity  ». 
Bank,  139  Mass.  832;  Stevenson  r.  Bay 
City.  26  Mich.  44;  Frost  t.  Belmont,  6 
Allen,  163,  and  other  cases.  In  the  fore- 
going decisions  the  director  was  not  act- 
ing in  his  official  character  in  the  partic- 
ular transaction,  but  had  he  been  so  act- 
ing, the  bank  by  a  great  preponder- 
ance of  authority  would  have  been 
affected  by  his  knowledge." 

1  Maxwell   r.    Planters'  Bank,  (1860) 
10  Humph.  (Tenn.)  507. 


*  Lionberger  r.  Mayer.  (1882)  18  Mo. 
App.  575.  As  to  the  act*  of  a  caiihier. 
within  the  sphere  of  his  duties,  being 
the  acts  of  a  bank,  see  Burnham  r.  \\ .  h 
ster.  19  Me.  282;  Medomak  Bank  r. 
Curtis,  24  Me.  86;  Warren  r.  Oilman. 
17  Me.  860;  Farrar  r.  Oilman.  19  Me. 
440;  Badger  r.  Bank  of  Cumberland. 
26  Me.  428;  National  Bank  of  Metrop- 
olis r.  Williams,  46  Mo.  17.  As  to  tin* 
authority  of  cashiers  of  banks.  Me 
Caldwell  r.  National  Molmwk  Valley 
Bank,  64  Barb.  888;  Chemical  National 
Bank  r.  Kohner,  8  Daly.  580.  A»  to 
powers  habitually  exercised  by  a 
cashier  with  the  knowledge  and  acqui- 
escence of  the  bunk.  see  MrrchanU' 
Bank  r.  State  Bank.  10  Wall.  604. 

•Wakcfield  Bank  r.  Trueadell.  55 
Barb.  602. 

'Cocheco  National  Bank  r.  llankcll. 
51  N.  II.  116. 

'  West  St.  Ix>uia  Sav.  Bank  r. 
Shawncc  County  Bank.  (1874)  3  Dill. 
403;  affirmed  in  95  U.  8.  557.  In 
Houghton  r.  First  National  Bank  of 
Elkhorn,  26  Wis.  663.  the  bank  waa 
held  to  IM*  bound  by  it*  raahior'ft  in- 
dorsement of  his  name  followed  by  the 
abbreviation  "  Can."  on  the  negotiable 
note  of  another,  though  not  done  at 
the  Kink,  or  for  its  benefit .  and  by  hi* 
statement  i<>  a  purchaser  that  MI.  li 
statement  was  all  right.  An  to  pay- 


572      .  OFFICERS  OF  BANKS.  [§  307 

not  responsible  to  the  real  owner  for  money  paid  out  with  his 
consent  to  the  administrator  of  the  apparent  owner,  the  one  who 
had  deposited  it,  even  though  his  consent  had  been  given  upon 
the  advice  of  the  bank's  cashier.1  A  bank  will  be  bound  by  rep- 
resentations made  by  its  cashier  in  the  ordinary  course  of  busi- 
ness as  to  the  payment  of  a  note  in  the  bank,  upon  the  faith  of 
which  the  maker  of  the  note  may  have  acted.2  It  may  be  shown 
by  parol  that  a  check  signed  by  one  who  is  the  cashier  of  a  bank 
in  his  own  name  only  is  the  check  of  the  bank.8  The  assignee  of 
a  bank,  it  has  been  held,  could  not  recover  the  securities  deh'vered 
by  a  cashier  as  collateral  for  money  borrowed  on  the  bank's  note 
from  the  lender.4  Receiving  offers  for  purchase  of  securities 
held  by  a  bank,  and  a  statement  whether  or  not  the  bank  owns 
securities  in  its  possession,  are  within  the  scope  of  the  general 
authority  of  its  cashier.5  The  act  of  a  cashier  in  certifying  a 
check  given  as  collateral  security  for  the  delivery  of  oil,  "  good 
when  properly  indorsed,"  has  been  held  not  to  have  rendered  the 
bank  liable,  as  his  act  was  outside  his  proper  powers  and  duties.6 
Evidence  of  the  custom  of  bankers  where  a  bank  is  located  to 
borrow  money  on  time  is  competent  in  an  action  against  bankers 
upon  a  note  given  by  their  cashier  for  money  borrowed  which  he 
may  have  appropriated  to  his  own  use,  as  tending  to  show  that 
the  act  was  within  the  scope  of  the  ordinary  and  customary  busi- 
ness of  the  bankers.7  A  bank  is  not  exonerated  from  its  liability 
for  money  borrowed  by  the  fact  that  its  cashier  may  have  given 
his  own  note  for  money  borrowed  by  him  for  the  bank.8  The 
provisions  in  the  charters  of  certain  banks  in  Georgia  requiring 
all  contracts  whatever  to  be  signed  by  the  president  and  counter- 
signed by  the  cashier  in  order  to  bind  the  banks  were  held  by 
the  Supreme  Court  of  that  state  not  to  apply  to  such  dealings  and 
transactions  as  are  usually  and  necessarily  performed  by  the 

merit  of  overdrafts  by  a  cashier  being  the  bank.  Ringling  V.  Eohn,  (1878)  6 
a  violation  of  his  duty,  see  Bank  v.  .Mo.  App.  333;  Dounell  v.  Lewis  Co. 

Calder,  3  Strob.  (S.  C.)  403.  Savings  Bank,  (1883)  80  Mo.  165. 

'McDermottr.  Bank,  lOOPa.  St.  287.  5  National  Bank  of  Xenia  v.  Stew- 

*  Manufacturers'  Bank  ».   Scofield,  art,  114  U.  8.  224. 

39  Vt.  590.  6  Dorsey  v.  Abrams,  85  Pa.  St.  299. 

8  Mechanics'  Bank  v.  Bank  of  Colum-  'Grain   t.    National   Bank,  114111. 

bia,  5  Wheat.  326.  516. 

4  Creswell    v,    Lanahan,    101   U.  S.  8  City  Bank  of  New  Haven  r.  Per- 

347.     What    is  necessary  to   show  a  kins,  (1859)  4  Bosw.  420. 
cashier's  authority  to  borrow  money  for 


§  307]  OFFICERS  OF  BAKU.  ."-T  '•', 

cashier  of  a  bank,  such,  for  instance,  a>  tin-  drawing  or  indorsing 
by  a  cashier  in  connection  with  bill*  of  exchange,  checks  and 
drafts.1  A  cashier  may,  ex-ojj\> •/'//,  indorse  a  note  the  |»ro|K.-rt\ 
of  the  bank  so  as  to  authorize  a  demand  and  notice  to  the 
indorser.9  In  the  course  of  his  ordinary  duties,  the  ca»hit-r  of  a 
bank,  virtute  officii,  may  transfer  the  paper  securities  of  the  bank 
in  payment  of  the  debts  of  the  bank.  The  inducement  for  such 
indorsement  of  the  papers  need  not  appear ;  in  the  absence  of 
proof  to  the  contrary  the  presumption  would  be  in  favor  of  t Im- 
propriety of  the  transfer.  But  such  an  inference  would  n«jt  In- 
conclusive. A  party  interested  would  be  authorized  to  contro- 
vert the  fairness  of  the  transfer  by  showing  that  it  was  not  made 
in  the  regular  course  of  business,  but  in  prejudice  of  the  right* 
and  interests  of  the  bank,  and  thus  defeat  the  transfer.*  The 
exercise  by  the  cashier  of  a  bank  of  his  power  to  pledge  tin- 
negotiable  securities  belonging  to  the  bank  is  prhiiafaiyt  evi- 
deiK-e  that  he  had  the  power.4  Without  authority  from  his 
bank,  evidenced  by  a  resolution  of  the  board  of  directors,  TiMgn 
in  like  cases,  or  in  some  other  way,  a  cashier  cannot  transfer  non- 
negotiable  paper.5  But  he  has  authority  growing  out  of  his 
peculiar  relation  to  the  bank  and  his  duties  resulting  therefrom 
to  transfer  negotiable  paper  belonging  to  the  bank  for  a  legiti- 
mate purpose.6  A  cashier  can  invest  no  clerk  of  the  bank  with 
iinv  more  of  his  power  than  is  necessary  to  enable  the  clerk  to 
carry  on  the  usual  and  ordinary  business  of  the  bank.  A  clerk 
acting  as  cashier  in  the  absence  of  that  officer  has  no  authority, 
unless  conferred  upon  him  by  the  directors,  to  transfer  notes  or 

1  Merchants'  Bank  r.  Central  Bank,  case.     As  to  the  powers  of  a  cashier  in 

1  Oa.  418;  Cary,  Assignee,  r.  McDou-  discharging  and   transferring   ««curi- 

gald,  7  Ga.  84.  ties,  etc.,  of  the  bunk,  set-  State  r.  Com- 

«  Hartford  Bank  r.  Barry,  (1821)  17  mercial  Bank  of  Manchester.  6  Smote 

Mass.   94;  Folger  «.  Chase,  (1886)  18  •&  Marsh.  (Miss.)  218;    Harper  r.  Cal- 

Pick.  (Mass.)  68.  houn,  7  How.  (Mi*O  208;  Crocket    t. 

*  Everett   r.  United  States,  6  Port.  Young,    1   Sraedes    &  Marsh.  (Mte.) 

(Ala.)  166.     As  to  the  power  of  a  cash-  241. 

ier  of  a  bank  to  transfer  its  notes  and  *  Mercantile    Bank     r.     McC»rth\. 

assets  in  payment  of  the  bank's  indebt-  (1879)  7  Mo.  App.  818;  Bunk  of  8UI* 

edness,seeKimballt?.Cleveland,4Mic-h.  r.  Wheeler,  21  1ml.  90. 

606;    Peninsular  Bank  t.  Hanmer,  14  »Barrick  t.  Austin.  (1855)  21  Barb. 

Mich.  208.     Whether  the  power  to  ap-  241. 

ply  the  assets  in  this  way  include*  the  •  Bank   of  New  York   r.    Bank  of 

power  to  guarantee  their  collection  or  Ohio,  (1864)  29  N.  Y.  619. 
invalidity  was  questioned  in  the  last 


574  OFFICERS  OF  BANKS.  [§  307 

securities  of  the  bank.1  A  clerk  thus  temporarily  acting  for  tlie 
cashier  may  transmit  notes  owned  by  the  bank  or  held  for  collec- 
tion to  the  bank's  agents  for  that  purpose,  and  to  vest  in  the  col- 
lecting agents  such  title  as  is  necessary  and  proper  to  accomplish 
that  object.  But  he  has  no  power  to  transfer  any  other  or  higher 
title  thereto,  and  the  agents  of  the  bank  will  not,  as  against  the 
bank,  acquire  any  lien  on  the  notes  for  any  balance  due  from  the 
bank.2  As  its  executive  officer,  a  cashier  of  a  bank  has  authority 
to  take  such  measures  for  the  security  and  eventual  collectio'n  of 
a  debt  of  the  bank  as  he  deems  proper,  and  to  act  in  reference  to 
the  collection  or  compromise  of  the  debt  according  to  the  general 
usage,  practice  and  course  of  business.3  A  cashier  of  a  bank  has 
power,  prirna  facie,  to  indorse  for  collection  notes  discounted 
and  notes  deposited  with  the  bank  to  be  collected  or  deposited  as 
collateral  security.4  But  he  cannot  indorse,  without  special 
authority,  a  note  made  payable  to  a  bank  and  discounted  by 
another  person.5  A  cashier  may  bind  a  bank  for  costs  incurred 
in  the  collection  of  a  note  which  he  has  indorsed  for  collection.6 
That  it  was  the  usage  of  a  bank,  or  that  the  bank,  through  its 
directors,  had  adopted  his  act,  if  proven,  would  be  a  sufficient 
authority  for  the  satisfaction  of  judgments  in  favor  of  the  bank 
by  its  cashier,  although  he  may  have  no  authority  under  seal  or 
in  writing  to  satisfy  such  judgments.7  A  cashier  has  no  power 
to  accept  bills  of  exchange  on  behalf  of  the  bank  for  the  accom- 
modation merely  of  the  drawers.8  A  bank  will  be  bound  by 
the  official  signature  of  its  cashier  to  a  negotiable  note.9  A  bank 
may  be  held  liable  for  a  loan  obtained  on  its  account  for  which 
the  personal  note  of  its  cashier  may  be  given  on  a  count  for 
money  had  and  received.10  Unless  the  power  to  accept  has  been 
conferred  upon  him  by  the  corporation,  a  bank  will  not  be  bound 

1  Potter  v.   Merchants'  Bank,  (1864)  sary  to  that  end,  see  Young  «.  Hudson, 

28  N.  Y.  641.  (1889)  99  Mo.  102. 

2 Ibid.  'Bancroft     v.     Wilmington    Conf. 

3  Bridenbecker  v.  Lowell,  (1860)  32  Academy,  5  Houst.  (Del.)  577. 

Barb.  9.  8  Farmers',  etc.,  Bank  «.  Troy  City 

4 Elliot     v.   Abbot,    12  N.  H.  549;  Bank,  1  Dougl.  (Mich.)  457. 

Corser  v.  Paul,  41  N.  H.  24,  26.  9  Rockwell  v.  ElkhornBank,  13Wis. 

6  Cross  T.  Rowe,  22  N.  H.  77.  653;  Ballston  Spa  Bank  r.  Marine  Bank, 

6  Eastman  T.  Coos  Bank,  1  N.  H.  23,  16  Wis.  120. 

25.     As  to  the  power  of  a  cashier  of  a  10  Chemical  Nat.  Bank  of  Chicago  v. 

bank  to  collect  a  note  due  it  and  to  City  Bank  of  Portage,  (111.  1895)  40  N. 

adopt  such  measures  as  may  be  neces-  E.  Rep.  328. 


"7|  ..MI.  i  i>  M    BABUL 


b\  its  cashier's  acceptance  of  a  hill  ,,f  .  -\changc  in  hi*  official 
•  •apacity.1  A  cashier  of  u  hunk  ha*  M..  |M,VKT  to  transfer  judg 
iiu-nts  in  favor  ..(  tin-  hank,  or  t..  di.-poM-  of  it-  property.1 
Neither  ha>  lit-  power  to  di-<-.,unt  u  nou-  ;  hut  if  he  discount  u 
note  his  act  will  hi-  valid,  if  afterwards  ratified  by  tin-  bank.*  Hy 
hi>  general  power  to  certify  chocks,  a  cashier  of  a  hank  is  not 
authori/ed  to  certify  a  post-dated  check.4  The  general  |M.wen»  of 
iN  ca>hier  do  not  include  authority  to  him!  a  hank  to  indemnify 
an  otlicer  for  levying  on  property.3  There  U  no  implied  power 
in  a  cashier  of  a  bank  to  pledge  its  asKcts  for  payment  of  an  ante- 
cedent debt.8  A  cashier  of  a  hank  as  such  hat*  no  power  to 
accept  a  note  signed  by  two  parties  only*  in  payment  and  discharge 
of  a  note  upon  which  another  party  was  also  bound  with  the  two, 
so  as  to  release  the  third  party  from  his  indebtedness  to  the 
hank.7  Neither  can  he,  virtu  fa  ojficii,  release  a  surety  UJH»M  a 
note,  even  though  the  bank  holds  other  security  to  which  it  might 
roort,  nor  make  collateral  contracts  or  agreements  of  any  kind." 
It  is  not  within  the  ordinary  scope  of  the  duties  of  a  cashier  of  a 
bank  to  discharge  a  surety  on  a  debt  due  the  hank.*  A  cashier 
of  a  bank  cannot,  by  reason  of  the  general  authority  he  may  have 
to  certify  checks,  certify  his  own  checks  or  issue  certificates  of 
deposit  to  himself.10  It  would  be  l>eyond  the  SCOJK*  and  jwwerof 
the  cashier  of  a  private  bank  (himself  a  partner)  to  enter  credit* 
upon  the  bank  book  of  a  depositor  without  any  check,  bill  or  noU» 
being  presented  for  discount.  Should  he  enter  the  credit*  on  the 
books  of  the  bank  and  the  depositor  be  permitted  to  draw  the 
money,  the  bank  would  be  estopped  from  setting  up  the  want  of 
authority  in  the  cashier  ;  but  it  would  IK*  otherwise  as  to  credits 
not  entered  on  the  books  of  the  l>ank,  though  duly  entered  on  the 

1  Pendleton    r.   Bank  of  Kentucky,  '  Erker   r.    Firet    National  Bank  of 

(1824)  1  Mon.  (Ky.)  179.  New   Windsor.    (lt*2)   5»    Md.    »l. 

»Holtr.  Bacon,  8  Cushman,  (Miiw.)  803. 

5«7.  'Ibid 

1  1'Jantera'  Bank  r.  Sharpe,  4  Smed«s  •  I>»viea»  Co.  Saving*  Aawdati 

A  Marsh.  (Miss.  )  75.  Sailor.  (1878)  88  Mo.  24.    TbU  a  cashier 

4  Clarke  National  Bank  r.   Bank  of  ha*  no  power  to  dforharjre  a  aunty  on 

Albion,  (1868)  52  Barb.  592.  bank  paper,  HecCochi-ro  National  Bank 

•Watson  r  Bennett,  (1851)  12  Barb  r.  Ilaskvll.  51  N.  H.    116.     Rrlnur  of 

196.  surety  by  canhicr.    Merchant*'  Bank  r 

•State  of  Tennessee  r.  Davis.  (Sup.  Rudolf,  3  Neb.  540. 

Ct.  N.  Y.  Spl.   Terra.   1874)  50  How.  '•  Lee  r.  8mlth.  (1884)  84  Ma  804. 
Pr.  447. 


576  OFFICERS  OF  BANKS.  [§  307 

depositor's  pass  book.1  The  cashier  of  a  national  bank  which 
holds  the  paper  of  a  firm  of  which  he  was  a  member,  it  has  been 
held,  could  not  waive  liability  on  an  accommodation  note  procured 
by  him  to  be  substituted  for  the  indebtedness  of  his  firm.2  A 
cashier  of  a  bank  cannot  bind  it  as  an  accommodation  indorser  on 
his  individual  note.8  Neither  can  he  bind  the  bank  by  assurances 
that  would  release  parties  from  their  liability  on  a  note  held  by 
the  bank.4  The  act  of  an  assistant  cashier  of  a  bank,  prohibited 
by  the  bank  to  certify  checks,  in  accepting  a  post-dated  check 
without  any  usage  to  justify  it,  would  be  void,  even  as  toward  a 
bonajide  holder.5  A  director  in  a  savings  institution  of  West 
Virginia,  by  collusion  with  other  directors  and  the  co-operation 
of  the  cashier,  when  he  knew  the  institution  was  insolvent,  with- 
drew a  deposit  of  a  large  sum  of  money  which  he  had  had  for 
some  length  of  time  in  the  institution  at  interest.  The  money 
was  not  paid  to  the  whole  amount,  but  the  cashier  paid  him  in 
bills  and  notes  which  had  been  discounted  by  the  bank  and 
belonged  to  it.  The  bank  having  made  an  assignment  to  one  for 
the  benefit  of  its  creditors,  he  brought  his  action  against  the 
director  to  recover  the  amount  which  he  had  received  on  the 
ground  of  the  fraud  and  other  wrongdoing  by  which  it  was  accom- 
plished. The  Court  of  Appeals  of  West  Virginia  held  that  this 
assignee  or  trustee  was  entitled  to  recover  in  proper  action  the 
amount  of  deposits  which  this  director  had  withdrawn  under  the 
circumstances  disclosed  in  the  case.6  In  an  action  by  a  Nebraska 

1  Williams  v.  Dorrier,  135  Pa.  St.  tended  that  he  had  any  such  authority 

445.  from  the  board  of  directors.  The  whole 

*  Allen  v.  Bank,  127  Pa.  St.  51.  record  is  against  any  such  presump- 

3  West  St.  Louis  Savings  Bank  v.  tion  as  this.  Did  he  then,  virtute  of- 

Shawnee  County  Bank,  95  U.  S.  557.  ficii,  have  the  right  to  dispose  of  the 

SBank  of  Metropolis  v.  Jones,  8  discounted  bills  and  notes  of  the  bank? 

Pet.  12.  There  is  nothing  in  the  charter  of  the 

5  Pope  0.  Bank  of  Albion,  (1874)  57  institution  conferring  that  right  upon 
N.  Y.  126.  him.     The  management  is  there  con- 

6  Lamb    v.  Cecil,  (1884)    25  W.  Va.  f erred  upon  a  board  of  directors.    The 
288.     It  was  necessary  in  determining  Court  of  Appeals  of  New   York,  in 
this  question  for  the  court  to  discuss  Hoyt  t.  Thompson,  1  Seld.  320,  held 
the  question  of   the   power   and  au-  that  where  the  management  of  the  af- 
thority  of  a  cashier  to  dispose  of  the  fairs  of  a  corporation  is  intrusted  by 
discounted  bills  and  notes,  the  prop-  its  charter  to  a  board  of  directors,  the 
erty  of  the  bank.     Upon  that  question  president  and  cashier,  unless  specially 
it  was  said  by  JOHNSON,  President,  authorized  by  the  charter,    have  no 
speaking  for  the  court:  "  It  is  not  pre-  power  to  assign  the  choses  in  action  of 


§  307]  OFFICERS  OF  BANKS. 

bank  upon  a  note  the  maker,  as  a  dd'en-e.  claimed  payment  of 
the  liahiiioe  due  on  the  note,  in  that  In-  hail  sold  to  the  bank 
through  its  cashier  certain  shares  of  stock  in  an  insurance  company, 
the  cashier  promising  at  the  time  that  lie  would  credit  them  on  the* 
note  when  it  should  be  returned  from  another  city,  where  it  then 
was.  The  Supreme  Court  of  Nebraska  held  that  the  ea-hicr,  hv 
virtue  of  his  office,  had  not  the  power  to  accept  the  stock  of  the 
insurance  company  in  payment  of  the  debt  due  the  bank,  but 
that  power,  if  it  existed,  was  lodged  in  the  directory,  and,  as  it 
had  not  expressly  authorized  the  cashier  thereto,  he  exceeded  his 
powqr  in  agreeing  to  accept,  on  behalf  of  his  principal,  the  iti>ur- 
ance  company  stock  in  payment  of  the  debt  due  the  bank,  and 
that  the  bank  was  not  bound  thereby.1 

the  corporation  to  its  creditors  as  secu-  abused.  But  the  stockholders  should 
rity  for  the  payment  of  a  precedent  provide  against  this  evil  in  the  • 
debt  of  the  corporation  without  au-  of  directors.  Having  this  power,  tlu-n- 
thority  from  the  board  of  directors,  is  no  reason  why  it  should  not  ! 
An  assignment  so  made  is  not  merely  ercised  by  one  of  the  body  with  tin- 
voidable,  but  is  absolutely  void.  Rro-  consent  of  the  rest,  expressed  by  tlu-ir 
'ii-.  Ch.  J.,  in  delivering  the  opinion  vote.  We  are  satisfied,  therefore,  that 
of  the  court,  said:  But  the  power  and  the  directors  might  by  their  vote  or 
duties  of  the  president  and  cashier  are  power  of  attorney  authorize  the  prep- 
rint prescribed  by  the  charter;  no  dent  or  any  other  officer  of  the  bank  u> 
power  is  conferred  upon  them  to  mort-  assign  over  the  promissory  notes  pay- 
gage,  assign  ordispose  of  the  property  able  to  the  company.'  In  Fleckner  r 
of  the  corporation.  This  is  a  part  of  U.  S.  Bank.  H  Wheat.  33*.  it  was  held 
the  management  of  the  business  of  the  that  the  authority  of  the  cashier  to 
company  which  is  confined  expressly  assign  a  note  of  the  bank  need  not  be 
to  the  directors,  but  not  to  the  presi-  under  the  corporate  seal,  but  that  a 
dent  and  cashier.  In  no  case  has  it  resolution  passed  by  the  directors  WM 
been  held  that  these  officers  arc  author-  sufficient  authority  for  the  cashier.  I 
ized  to  do  an  act  like  that  in  question  can  find  no  authority  which  holds  that 
without  the  assent  and  authority  of  the  cashier,  without  authority  from  the 
the  directors.  To  the  same  effect  is  directors,  can  dispose  of  the  discounted 
Spear  t.  Ladd.  11  Mass.  94,  and  Bank  bills  and  notes  of  the  bank.  It  would 
v.  Pepoon,  11  Mn«l.  988.  Indeed,  in  be  a  dangerous  (tower,  indeed,  to  re- 
the  first  of  these  cases  it  was  gravely  pose  in  au  officer  of  the  bank.  It 
consfdered  whether  the  board  of  di-  would  put  a  large  part  of  the  property 
rectors  could  confer  such  powers  on  the  of  the  bank  under  the  absolute  control 
president  and  cashier;  and,  in  the  sec-  of  the  cashier  or  other  officer  ex< 
ond,  whether  they  could  confer  it  on  cLsing  such  power;  and  be  might,  for 
any  attorney.  In  the  last-named  case,  his  own  use.  dispose  of  surh  pm; 
PAUKER,  Ch.  J.  (p.  292).  said:  'This  and  pass  good  title  th<: 
power  puts  the  whole  property  of  the  '  Bank  of  Commerce  r.  Ilart.  (1808) 
bank  under  the  control  of  the  directors.  87  Neb.  197.  RT AX,  C..  speaking  far 
and  without  doubt  the  power  may  be  the  court,  as  leading  to  and  supporting 

73 


578 


OFFICERS  OF  BANKS. 


[§308 


§308.  Cashier's  liability  for  his  acts.  — A  cashier  applying 
to  his  use  securities  of  a  bank  will  be  liable  on  his  bond  for  the 
full  amount.1  And  a  misapplication  by  such  officer  of  funds 
delivered  to  him  out  of  business  hours  and  remote  from  the  bank- 
ing house,  will  be  a  violation  of  the  condition  of  his  official 


their  conclusion,  made  reference  to 
leading  authorities,  as  follows:  "In 
Sandy  River  Bank  v.  Merchants  & 
Mechanics'  Bank,  1  Biss.  146,  the  facts 
were:  The  cashier  of  the  Mechanics' 
Bank  settled  an  account  of  twenty-two 
thousand  dollars  with  the  cashier  of 
the  Sandy  River  Bank,  by  paying  ten 
thousand  dollars  cash  and  giving 
twelve  thousand  dollars  private  paper, 
which  the  cashier  of  the  Sandy  River 
Bank  accepted  in  payment,  and  gave 
a  receipt  in  full.  The  Sandy  River 
Bank  brought  its  action  against  the 
Merchants  and  Mechanics'  Bank  on  the 
account.  The  latter  pleaded  payment 
by  the  contract  with  the  cashier.  The 
question  in  the  case  was  whether  the 
cashier  had  authority  to  receive  in  pay- 
ment anything  but  money.  In  the 
course  of  the  opinion  delivered,  the 
judge  said:  '  A  cashier  of  a  bank  is 
ordinarily  the  executive  of  the  bank. 
He  is  the  agent  through  whom  third 
persons  transact  their  business  with  the 
bank.  The'bank  generally  holds  him 
out  to  the  world  as  having  authority 
to  act  according  to  the  general  usage, 
practice  and  course  of  business,  and 
all  acts  done  by  him  within  the  scope 
of  such  usages,  practice  and  course  of 
business,  bind  the  bank  as  to  third 
persons  who  transact  business  with 
him  on  the  faith  of  his  official  char- 
acter; and  perhaps  it  may  be  presumed 
without  proof,  and  merely  from  his 
office,  that  he  is  authorized  to  receipt 
and  discharge  debts,  and  deliver  up 
securities  on  payment  or  discharge  of 
the  debt  for  which  they  are  held. 
*  *  *  But  still  this  authority  is  a 


limited  autlwrity,  and  when  a  party 
claims  a  discharge  from  a  debt  due  the 
bank,  not  by  payment,  but  by  giving 
other  or  different  notes,  bills  or  secu- 
rities, which  the  cashier  has  agreed  to 
take  and  release  the  debt,  his  author- 
ity, like  that  of  any  other  agent;  must 
be  shown  by  proof.  As  a  general 
rule,  a  jury  have  not  a  right  to  infer 
that  the  cashier  of  a  bank,  as  such,  has 
the  authority  to  compromise  and  dis- 
charge debts  without  payment  or  by 
taking  other  securities,  but  the  author- 
ity from  the  bank  must  be  shown  ex- 
pressly or  by  necessary  implication,  or 
it  must  *  *  *  be  established  by 
the  particular  usage  or  practice  or 
mode  of  doing  business  of  the  bank, 
or  it  must  be  ratified  or  acquiesced  in 
by  the  bank  in  order  to  be  binding.' 
In  United  States  0.  City  Bank  of 
Columbus,  21  How.  356,  the  facts  were: 
The  cashier  of  the  Columbus  Bank 
gave  to  one  of  its  directors,  Miner,  a 
letter  to  the  secretary  of  the  treasury 
of  the  United  States,  to  the  effect  that 
Miner  had  authority  to  contract  in  be- 
half of  the  bank  for  the  transfer  of 
money  for  the  government.  Relying 
upon  this  letter,  the  secretary  of  the 
treasury  made  a  contract  with  Miner 
for  him  to  transfer  one  hundred 
thousand  dollars  of  the  government's 
money  from  New  York  to  New  Or- 
leans. Miner  received  the  money,  but 
never  delivered  it.  The  United  States 
brought  suit  against  the  Columbus 
bank  to  recover  the  money.  The 
Supreme  Court  of  the  United  States 
decided  that  the  action  could  not  be 
successfully  maintained,  as  the  cashier 


1  Pendleton    r.   Bank  of    Kentucky,  (1824)  1  Mon.  179. 


§  308]  OFFICERS  OF  BANKS. 

bond.1  A  cashier  of  a  banking  corporation,  having  authority  to 
Iccin  tin- money  of  the  bonk,  wither  without  M-mritv,  has  been  h«'ld 
in  California  liable  for  losses  arising  from  loans  without  security  not 
entered  in  the  books  of  the  bank  nor  reported  to  the  board  of 

of  the  Columbus  bank  bad  no  author-  tatc  in  satisfaction  and  release.  U  the 
it  v  to  make  such  a  contract,  and  there  function  of  the  hoard  of  directors  and 
was  no  proof  that  the  board  of  di-  not  of  any  individual  director  or 
rectors  had  authorized  it.  In  the  officer.  It  baa  also  been  decided  that. 
course  of  the  opinion  Justice  SWAYNK  in  the  rtmmoo  of  special  authority, 
said:  '  The  court  defines  the  cashier  of  the  cashier  of  a  bank  could  not  release 
a  bank  to  be  an  executive  officer  by  the  surety  from  a  note  owned  by  the 
whom  its  debts  are  received  and  paid,  bank.  Merchants'  Bunk  r  Itudolf. 
and  its  securities  taken  and  transfer-  5  Neb.  527;  Cocheco  National  Bank 
red,  and  that  his  acts,  to  be  binding  «.  Huskell,  51  N.  11.  116.  That  in  tin 
upon  a  bank,  must  be  done  within  the  absence  of  special  authority  or  estab- 
ordinary  course  of  his  duties.  *  *  *  lished  usage  the  cashier  lias  no  power 
The  term  'ordinary  business,'  withdi-  to  compromise  claims  due  his  bank. 
rect  reference  to  the  duties  of  cashiers  Chemical  National  Hnnk  r.  Kditicr. 
of  banks,  occurs  frequently  in  *  *  *  8  Daly,  590.  That  he  had  no  author 
reports  of  the  decisions  of  our  state  ity  to  bind  his  bank  by  issuing  a  cer- 
courts,  and  in  no  one  of  these  has  it  tificate  of  deposit  to  himself.  Lee  r. 
been  judicially  allowed  to  comprehend  Smith.  H4  Mo.  904.  Nor  bind  the  bank 
a  contract  made  by  a  cashier,  without  by  an  official  indorsement  of  his  own 
an  express  delegation  of  power  from  a  note.  Yv'est  St.  Louis  Savings  Bank  r. 
board  of  directors  to  do  so,  which  in-  Shawnec  County  Bank,  95  U.  8.  Sfl. 
volves  the  payment  of  money,  unless  The  cashier  of  the  [plaintiff  bank], 
it  be  such  as  has  been  loaned  in  the  then,  as  the  executive  officer  of  the 
usual  and  custonmry  way.  Nor  has  bank,  was  clothed  with  authority  to 
it  ever  been  decided  that  a  cashier  collect  all  debts  due  the  bank,  but  this 
could  purchase  or  sell  the  property  or  means  collections  in  money.  If  a 
create  an  agency  of  any  kind  for  a  cashier  may  discharge  the  debts  due 
bank  which  he  had  not  been  author-  his  bank  by  exchanging  the  evidence* 
ized  to  make  by  those  to  whom  has  of  them  for  stocks  of  an  insurance  00ss> 
been  confided  the  power  to  manage  its  pany  or  a  gas  company,  then  he  can, 
business,  both  ordinary  and  extra-  under  the  name  and  charter  of  the 
ordinary.'  The  court  then  addressed  bank,  conduct  an  entirely  different 
itself  to  the  case  at  bar,  and  said:  The  business,  and  use  the  funds  of  his 
power  of  this  bank  to  purchase  stock  stockholders  for  a  purpose  for  which 
In  an  insurance  company,  if  it  exists  they  were  never  subscribed,  and  in 
at  all,  is  an  extraordinary  power  and  violation  of  the  law  of  the  bank's  ere- 
one  not  confided  to  the  cashier,  but  alion.  The  purposes  for  which  [thin 
belonging  to  the  directory.  In  The  bank]  was  organized,  as  expressed  in 
Bank  of  Hcaldsburg  r.  Bailhache.  65  its  articles  of  incorporation,  were  to 
Cal.  329,  it  is  said  that  the  power  to  receive  deposits  of  money  and  par  the 
make  a  settlement  of  defalcation  to  a  same  out  on  proper  vouchers ;  to  loan 
bank,  and  accept  a  deed  of  real  es-  money  on  personal  security ;  to  issue 

•Ibid. 


580  OFFICERS  OF  BANKS.  [§  SOS 

trustees,  but  treated  in  his  reports  to  the  board  as  cash  on  hand.1 
The  obligors  upon  a  bond  of  the  cashier  of  a  bank  under  a  condition 
for  him  "  safely  and  securely  to  keep  all  moneys  deposited,  and  to 
refund  and  pay  over  the  same  when  properly  required,"  will  not 
be  held  liable  for  money  violently  robbed  from  him  while  in  the 
discharge  of  his  duty.2  A  bond  of  a  cashier  of  a  bank  framed  to 
cover  past  as  well  as  future  delinquencies  will  be  invalid  against  a 
surety,  if  his  name  was  procured  at  the  desire  of  the  directors 
where  they  have  knowledge  that  past  defalcations  exist  of  which 
the  surety  may  be  ignorant  and  withhold  the  knowledge  from  him 
when  they  have  a  suitable  opportunity  to  communicate  it.3  A 
cashier  of  a  bank  employed  to  sell  certain  shares  of  its  stock  at  a 
fixed  price,  but  before  he  had  completed  the  sale,  the  bank  was 
enjoined  and  proved  insolvent,  has  been  held  not  to  be  responsible 
for  the  supposed  value  of  the  stock,  no  negligence  on  his  part  in 
forwarding  the  sale  being  shown.4  Where  a  bank  brings  an 
action  against  its  cashier  for  a  wrongful  appropriation  of  moneys, 
it  would  be  no  defense  that  at  the  time  of  the  appropriation  he  was 
the  owner  of  four-fifths  of  the  stock  of  the  bank  and  had  since 
that  time  sold  all  of  his  stock  to  other  parties  who  were  now  the 
officers  and  managing  authority  of  the  bank.5  The  condition  of 

drafts  or  letters  of  credit;  to  buy  and  collect  its  debts,  under  orders  of  the 

sell  securities  of  every  kind,  and  do  a  board    of   investment,    to    execute    a 

general  banking  business.      Had  this  power  of  sale  under  a  mortgage  to  the 

charter  expressly   provided    that  the  bank,   by  conveying  to  a  purchaser, 

corporation  might  invest  its  funds  in  see  North   Brookfield   Sav.    Bank    r. 

stocks  of  insurance  companies  and  deal  Flanders,  (Mass.  1894)  37  N.  E.  Eep. 

generally  in  stocks  of  other  corpora-  307.      See,  also,  Bank  v.  Keavy,  128 

tions,  such  a  provision  would  have  been  Mass.  298;  Holden  v.  Upton,  134  Mass. 

contrary  to  the  laws  of  the  state  and  177,  179;  Trustees  of  Smith  Charities 

^oid.     But  there  is  no  provision  in  the  v.  Connolly,  157  Mass.  272;  s.  c.,  31  N. 

bank's  charter  which  by  any  reason-  E.  Rep.  1058. 

able  construction  can  be  construed  into  !  San  Joaquin  Valley  Bank  v.  Bours, 

an  authority  to  purchase  and  hold  the  (1884),  65  Cal.  247. 

stocks  of  any  other  corporation.    True,  *  Bank  of  Huntsville  v.  Hill,  1  Stew. 

it  says  'to  purchase  securities  of  every  (Ala.)  201. 

kind,'  but  certificates  of  stock  are  not  3  Franklin  Bank  v.  Cooper,  36  Me. 

securities  within  the  meaning  of  this  179;  Franklin  Bank  v.  Stevens,  39  Me. 

provision,  nor  such  as  the  word  imports  532;  Franklin  Bank  v.  Cooper,  39  Me. 

in  commercial  or  banking  phraseology.  542. 

'Securities,'  as  here  used,  means  notes,  *  Washburn  v.  Blake,  47  Me.  316. 

bills,  evidences  of  debt,  promises  to  pay  5  First    National    Bank    D.     Drake, 

money."    As  to  the  authority  of  a  sav-  (1883)  29  Kans.  311. 

ings  bank's  treasurer,  having  power  to 


§  308]  OFFICERS  OF  BAN  KM.  ,  •>  1 

tin  Ixjnd  of  the  cashier  of  a  state  bank  as  required  by  the  statnt.- 
of  Indiana  is  that  ho  "  will  honestly  and  faithfully  discharge  [hi>] 
duties  as  such  [officer]  *  *  *  during  [his]  continuance  in 
office."  This  was  an  action  against  the  cashier  of  a  hank  and  hi- 
sureties  upon  his  official  bond,  and  his  arts  complained  ..f  were 
that  ho  converted  different  amounts  «.f  the  large  sums  of  money 
coining  into  his  hands  to  his  own  use,  as  alleged  in  one  paragraph 
of  the  complaint.  In  another  it  was  alleged  that  pur.Miant  t..  the 
by-laws  of  the  bank  it  had  organized  an  "  exchange  committee, 
composed  of  its  president,  cashier  and  a  designated  director ;  that 
the  by-laws  further  provided  that  the  cashier  should  not  make 
loans  in  excess  of  five  hundred  dollars  without  the  approval  of 
such  committee  or  one  member  besides  himself."  It  was  further 
alleged  that  as  cashier  that  officer,  in  violation  of  his  trust  and 
the  said  by-laws,  loaned  and  otherwise  disposed  of  large  sums  of 
money  belonging  to  the  bank,  which  were  wholly  lost.  Various 
other  breaches  of  the  bond  were  charged  in  allowing  overdraft* 
of  customers,  making  loans  in  violation  of  his  trust  and  the  rules 
and  regulations  of  the  bank  ;  also,  that  by  a  conspiracy  with  two 
others,  large  sums  of  money  were  withdrawn  from  the  vaults  and 
invested  in  "  options  "  and  "  bucket-shop  deals  "  so-called  ;  witli 
further  allegations  of  the  entire  loss  of  such  moneys  and  the  con- 
cealment on  his  part  of  these  transactions  from  the  other  officers 
of  the  bank.  The  sureties,  in  their  answer,  admitted  these  alle- 
gations, but  alleged  that,  in  violation  of  its  duty  and  the  require- 
ment of  the  by-laws  in  force  when  the  bond  sued  on  was  exe- 
cuted, the  bank  failed  to  organize  an  "  exchange  committee,"  and 
because  of  such  failure  the  duties  of  the  cashier  were  delayed, 
and,  as  the  result,  the  various  breaches  of  duty  and  losses  com- 
plained of  ensued,  and  hence  they  were  not  liable.  BERKSHIRE, 
J.,  for  the  Supreme  Court,  in  the  opinion,  said  of  this  answer: 
"  The  basal  rock  upon  which  these  paragraplis  of  the  answer  iwt 
is  the  allegation  that  there  was  no  exchange  committee  organized, 
as  required  by  the  by-laws ; "  and  afterwards  :  "  But  the  answer* 
themselves  disclose  the  existence  of  the  4 exchange  committee' 
provided  for  in  the  by-laws.  They  show  that  this  committee  WM 
to  be  composed  of  the  cashier,  president  and  a  designated  director. 
The  committee  was  composed  of  three  ineinlH-i>  ;  the  by-laws 
named  two  of  them,  or  a  majority ;  the  failure  to  name  a  director 
for  that  committee  did  not  deprive  the  committee  of  its  powers ; 


582  OFFICERS  OF  BANKS.  [§  309 

the  two  Lad  power  to  act.  Besides,  the  by-laws  provided  that 
the  cashier  was  at  liberty  to  take  any  legitimate  action  in  dispos- 
ing of  the  funds  of  the  bank  with  the  approval  of  its  president ; 
hence,  the  approval  of  the  chief  officer  would  have  been  the 
cashier's  justification  as  to  any  such  transaction.  But  if  it  were 
conceded  that  the  bank  had  entirely  failed  to  provide  for  an 
'exchange  committee,'  and  in  the  absence  of  such  committee 
that  the  cashier  had  exclusive  and  complete  authority  to  transact 
any  and  all  of  the  business  of  the  bank,  this  would  not  relieve  his 
sureties  from  liability  because  of  his  fraudulent  conduct  in  con- 
nection with  [co-conspirators],  whereby  large  sums  of  money 
belonging  to  the  bank  were  invested  in  illegitimate  transactions. 
Under  no  circumstances  was  the  cashier  authorized  to  dispose  of 
the  funds  of  the  bank  for  such  purposes.  "With  or  without  the 
approval  of  an  '  exchange  committee,'  such  as  provided  for,  this 
was  a  clear  violation  of  duty  and  rendered  his  sureties  liable." 
The,  court  further  held  that  an  agreement  by  the  board  of  direct- 
ors, after  the  execution  of  the  cashier's  bond,  enlarging  his  duties, 
and  increasing  his  salary,  but  not  changing  the  character  of  his 
duties,  or  his  relation  to  the  bank  as  cashier,  was  no  defense  to 
this  action  against  the  sureties  for  the  cashier's  violation  of  duty.1 

§  309.  Knowledge  of  its  cashier  not  imputable  to  bank  — 
illustration. —  In  an  action  by  the  makers  of  a  note  against  a 
bank  cashier  to  have  the  note  surrendered  for  cancellation,  it 
being  alleged  that  there  was  fraud  or  misrepresentation  on  the 
part  of  one  who  was  not  only  cashier  of  the  bank  which  had  dis- 
counted the  note  for  the  corporation,  and  also  secretary  and  treas- 
urer of  this  outside  corporation,  concerning  which  the  represen- 
J;ations  alleged  to  be  fraudulent  were  made,  it  was  attempted  to 
charge  the  bank  with  his  knowledge.  The  Supreme  Court  of 
Missouri,  in  affirming  the  dismissal  of  this  bill,  stated  "  that,"  as 
shown  by  the  evidence,  "  in  the  negotiation  for  the  sale  and 
further  delivery  of  the  stock  [the  cashier  of  the  bank]  repre- 
sented, and  only  represented,  the  company ;  that  the  plaintiff 
relied  wholly  upon  him,  as  the  secretary  and  treasurer  of  the  com- 
pany, for  the  delivery  of  the  stock  for  which  he  had  contracted. 
To  that  transaction  the  bank  was  an  entire  stranger,  and  in  it  its 
cashier  neither  represented,  nor  undertook  to  represent,  the 

1  Wallace  v.  Exchange  Bank  of  Spencer,  (1890)  126  Ind.  265. 


§310] 


OKKK  I  I>   ..I     HANKS. 


588 


hank."1  Notice  to  a  cashier  that  *t«»<-k  j>l<-<lged  to  a  bank  was 
trust  stock  lias  been  held  to  IK-  notice  to  tin-  hank  of  that  f-.n-i.- 
It  has  l>een  held  in  Vermont  that  notice  to  the  attorney  of  a  hank 
or  to  the  cashier,  while  acting  in  the  matter  ,,f  attaehini:  land  for 
the  benefit  of  the  bank,  of  an  equitable  right  in  a  third  jR-rson  — 
as,  by  a  defective  deed  or  record  —  was  notiee  to  the  hank.1 

§  310.  Rules  as  to  ratification  of  a  cashier's  act  by  the 
bank. — In  a  case  before  the  Supreme  Court  of  Iowa  it  appeared 


1  Benton  r.  German-American  Na- 
tional Bank,  (bio.  1894)  268.  W.  Rep. 
975;  citing  1  Mor.  Priv.  Corp.  §  540c; 
Hank  r.  Loybed,  28  Minn.  396;  8.  c., 
10  N.  W.  Rep.  421;  DeKay  v.  Water 
Co.,  88  N.  J.  Eq.  158;  Wilson  r.  Bank, 
(Pa.)  7  All.  Rep.  145.  Sep.  also, 
Bank  r.  Christopher.  40  N.  J.  L.  435; 
Inerarity  r.  Bank,  139  Mass.  332;  8. 
<-.,  1  N.  E.  Rep.  282;  Barnes  r.  Gas 
Light  Co.,  27  N.  J.  Eq.  33;  Bank  r. 
Neass,  5  Den.  329;  In  re  European 
Bank.  5  Ch.  App.  358;  Bank  r.  Savery, 
82  N.  Y.  291;  Fisher  v.  Murdock. 
13  Hun,  485;  Gates  r.  National 
Bank,  100  U.  S.  239,  245;  Louisiana 
State  Bank  r.  Benecal,  13  La.  527; 
Branch  Bank  at  Huntsvillc  r.  Steele, 
10  Ala.  915.  The  Missouri  court  said: 
"  Whatever  may  have  been  his  kuowl- 
edge  of  the  condition  of  the  company's 
stock  account,  or  of  its  affairs  gener- 
iilly.  that  knowledge  cannot  be  im- 
puted to  the  bank  when,  subse- 
quently, he  came  to  pnx-ure  for  that 
company  a  discount  of  paper  acquired 
in  his  negotiations  for  the  company 
which  he  represented.  It  seems  to  be 
well-settled  law  in  this  state  that 
knowledge  which  comes  to  an  officer 
of  a  corporation  through  his  private 
transactions,  and  beyond  the  range  of 
his  official  duties,  is  not  notice  to  the 
corporation.  State  Savings  Aasn.  r. 
Nixon-Jones  Printing  Co.,  25  Mo.  App. 
648;  Bank  r.  Schaumburg.  88  Mo. 
228;  Manhattan  Brass  Co.  r  Webster 
Glass  &  Queensware  Co..  3?  Mo.  App. 
145;  Hyde  r.  Larkin.  35  Mo.  App.  306; 


Johnston  r.  Short  ridge.  03  Mo.  287;  a. 
c.,  6  8.  W.  Rep.  64;  Bank  r  I 
114  Mo.  519;  s,  c..  21  8.  W.  Rep.  885. 
In  this  last  case,  which  is  quite  anala- 
gous  to  tkc  case  in  hand,  we  held  that: 
'  An  officer  of  a  banking  corporation 
has  a  perfect  right  to  transact  hi*  own 
business  at  the  bank  of  which  be  is  an 
officer,  and  in  such  transaction  bin  in- 
terest is  adverse  to  the  bank,  and  hi* 
represents  himself  and  not  the  bank. 
Tin-  law  is  well-settled  that  where  an 
officer  of  a  corporation  is  dealing  with 
it  in  his  individual  interest  the  corpo- 
ration is  not  chargeable  with  his  un 
communicated  knowledge  of  facts  de- 
rogatory to  his  title  to  the  pro|>crty 
which  is  the  subject  of  the  transac- 
tion.' A  corollary  of  the  foregoing 
proposition  is  that  if  a  person  is  an 
officer  of  two  corporations,  and  these 
corporations  enter  into  dealings  with 
each  other,  the  knowledge  of  tbi- 
common  officer  cannot  be  attributed  to 
either  corporation  in  a  transaction  in 
which  he  did  not  represent  it." 

*  Duncan  r.  Jaudon.  15  Wall.  165. 

1  Vermont  Mining  Co.  r  Windbani 
County  Bank.  44  Vt.  4H9.  A*  to  the 
effect  u|M>n  the  teller  of  the  bank  of 
knowledge  of  a  cashier  that  a  note  ac- 
quired by  the  hank  was  fnni-lul-  nt!\ 
negotiated,  see  Fnll  River  Union  Bank 
r.  Sturtcvnnt.  (1858)  1'J  »  <i-|,  (Mass.) 
874.  An  to  the  declaration,  ,.f  officer* 
not  admissible  against  a  bank  to  pro\ . 
facts.  HOC  IVinigewaiwrtt  Rank  r. 
Roger*.  18  N.  II  It;  (Jrmfton 

I  lank  r.  Woodward    .1  X.  II.  801.  30& 


584  OFFICERS  OF  BANKS.  [§  310 

that  certain  shares  of  stock  in  an  investment  company  were  sold 
by  the  president  of  the  company,  in  payment  for  which  the 
cashier  gave  him  credit  on  the  books  of  the  bank  for  the  agreed 
price  of  the  stock.  The  shares  were  then  placed  in  an  envelope 
marked  and  figured  as  an  item  in  the  cash  account  for  a  sum  in 
excess  of  the  agreed  price.  The  cashier  afterwards  abstracted 
from  the  envelope  the  amount  in  excess  of  the  agreed  price  and 
appropriated  it  to  his  own  use.  Upon  this  fact  being  afterwards 
ascertained  on  an  examination  of  the  bank's  affairs,  an  action  was 
brought  by  the  bank  against  the  cashier  to  recover  this  amount. 
His  defense  was  that  it  was  his  private  transaction.  The  main 
question  presented  to  the  Supreme  Court  was  as  to  a  ratification 
by  the  bank  of  the  acts  of  the  cashier  by  which  he  claimed  that 
the  transaction  was  his  and  not  that  of  the  bank,  so  that  the 
profits  would  belong  to  him.  The  Supreme  Court  approved  the 
following  instructions  by  the  trial  judge  upon  this  point :  "  In 
regard  to  this  transaction  the  defendant  claims  that  he  purchased 
said  stock  as  an  individual  and  not  as  cashier,  for  himself  and  not 
for  the  bank,  for  eleven  thousand  dollars  ;  that  he  borrowed  the 
money  of  the  plaintiff  bank  to  pay  therefor,  and  that  thereafter 
he  sold  said  stock  to  plaintiff  for  fourteen  thousand  three  hundred 
and  fifty  dollars ;  and,  further,  that  March  31,  }891,  [after  he 
had  ceased  to  be  cashier]  a  final  settlement  between  the  plaintiff 
and  defendant  was  had,  and  that  the  facts  in  regard  to  said  trans- 
action were  fully  made  known  to  plaintiff,  and  that,  with  full 
knowledge  of  all  said  facts,  plaintiff  ratified  and  approved  the 
same,  and  that  thereby  plaintiff  is  estopped  from  claiming  there- 
upon. The  jury  are  instructed  that  if  they  find  that  at  said  time, 
or  at  any  time  subsequent  to  the  transaction,  the  plaintiff,  with 
full  knowledge  in  regard  to  all  the  facts  in  relation  thereto, 
acquiesced  in  and  adopted  and  ratified  said  transaction,  then  they 
are  estopped  from  now  recovering  thereon,  and  in  this  issue  you 
should  find  for  the  defendant.  And,  further,  you  are  instructed 
that  as  soon  as  the  facts  were  known  to  plaintiff's  directors,  if 
they  were  ever  known,  it  was  their  duty  to  either  adopt  the 
transaction  or  repudiate  it ;  and,  if  they  elect  to  repudiate  it,  they 
should  repudiate  it  altogether.  They  cannot  repudiate  it  in  part' 
and  adopt  it  in  part.  But,  as  to  all  acts  prohibited  by  law,  no 
affirmative  act  of  repudiation  is  necessary.  The  law  presumes 
that  they  are  repudiated,  and  will  not  presume  or  infer  an  affirm- 


§310] 


"I  !  I. -I  l:-  Q]     I:\NK-. 


586 


ance.  Such  acts,  to  estop  plaintiff  from  recovery  thereon,  muft 
ratified,  ami  with  full  knowledge  of  all  the  facts  in 
relation  thereto;  and  tin-  burden  of  proof  i*  upon  the  party 
who  relies  upon  a  ratification  of  such  unauthorized  and  unlawful 
act  to  prove  that  the  principal,  having  such  knowledge,  acquiesced 
in  and  adopted  and  ratified  such  acts  of  its  servants  and  agents.*' l 
The  Supreme  Court  of  Iowa  also  in  tliis  case  approved  the 
refusal  of  the  trial  judge  to  allow  the  defendant  to  show  a  ciw- 
tom  of  the  officers  of  the  bank  whereby  tin-  defendant,  its 
cashier,  had  been  permitted,  from  time  to  time  since  the  organiza- 
tion of  the  bank,  to  make  loans  to  himself,  giving  his  notes  or 
other  securities  as  he  thought  proper.* 


1  Iowa  State  Sav.  Rank  r.  Black, 
(Iowa,  1894)  59  N.  W.  Rep.  288.  It 
was  said  by  the  court:  "Appellant 
complains  of  the  instruction  in  that 
'  the  term  '  expressly  ratified  '  calls  for 
a  higher  degree  of  action  and  a  more 
definite  specific  performance  than  the; 
law  requires.'  A  purpose  of  the  in- 
struction was  to  inform  the  jury  as  to 
plaintiffs  rights  and  duties  in  matters 
where  the  acts  of  the  defendant  were 
prohibited  by  law,  and  that  as  to  such 
matters  the  law  will  presume  that 
they  were  not  acquiesced  in  or  up- 
proved  until  expressly  ratified.  The 
phrase  is  not  to  be  understood  as 
requiring  a  ratification  in  terms,  for 
i  lien-  is  no  evidence  of  such  a  ratifica- 
tion. As  a  matter  of  fact,  the  bank 
did  not  in  terms  ratify  defendant's  act, 
and  hence  the  jury  must  have  under- 
stood that  the  instruction  meant  that 
the  intent  to  approve  the  acts  must 
have  been  plain  or  clear.  With  that 
view  the  instruction  is  not  erroneous. 
It  is  said  that  it  is  error  to  say  of  such 
acts  that  the  law  '  presumes  that  they 
are  repudiated,  and  will  not  presume 
or  infer  an  affirmance.'  It  is  certain  in 
such  a  case  that  the  presumptions  of 
the  law  are  against  ratification.  The 
law  will  not  presume  that  one  person 
ratifies  the  unlawful  acts  of  another. 

74 


The  instruction  mean*  no  more  than 
that,  in  the  absence  of  proof  of  an  in- 
tent to  ratify  the  acts  of  defendant, 
tin-  presumptions  of  the  Inw  arc 
against  it.  The  law  dot's  not  require 
one  man  to  affirmatively  repudiate  the 
unlawful  acts  of  another  or  presume 
his  approval  or  affirmance  of  them." 

'Iowa  State  Sav.    Bank  r.   Black. 
(Iowa,  1894)  59  N.  W.  Hep.  283.    The 
mutt  said:   "The  object  of  the  testi- 
mony was  to  prove  that  the  officer*  of 
the  bank  allowed  defendant  to  make 
illegal  loans  to  himself  and  thus  estop 
the  bank  from  showing  that  the  loan, 
now  claimed  by  them,  was  not  legal. 
The  court,  speaking  of  the  defendant, 
said  to  the  jury:  '  He  had  no  right  or 
authority  as  such  cashier  to  loan  him 
self  as  an  individual  or  to  use  in  any 
manner  for  himself  the   funds  of  the 
bank,  and  till  such  arts  nre  wholly  un 
authorized  and  contrary  to  law.'     Thr 
instruction    is  but  expressive  of   the 
statute  law   of    the  state   regulating 
state  bunks,  and  tin-  policy  of  tin-  law- 
is  public.     It  cannot  by  any  custom 
of  the  officers  of  the  bonk  bo  disn- 
garded  with  impunity.     The  wcurm 
of  the  bank  against  such  practical  K 
in  a  very  important  aenw*.  the  security 
of    the    publir  in   denting    with    the 
bank.     A  design  of  the  law  was  to 


586  OFFICERS  OF  BANKS.  [§  .".1  1 

§311.  Act  of  cashier  binding  upon  the  bank — illustra- 
tion.—  The  cashier  of  a  national  bank  had  a  note  executed  by  a 
certain  party  payable  to  his  bank  discounted  by  another  bank, 
upon  the  usual  indorsement  of  his  bank  by  him  as  cashier.  Just 
before  this  note  was  falling  due,  the  same  party  executed  a  note 
for  a  larger  sum  payable  to  the  cashier  individually.  This  note 
he  indorsed  individually  and  then  placed  the  indorsement  of  his 
bank  by  him  as  cashier  in  the  usual  manner.  He  then  presented 
before  the  other  note  was  due  this  second  note  for  discount  to 
the  same  bank.  They  discounted  it  and  upon  his  request  applied 
a  part  of  the  proceeds  of  the  discount  to  the  payment  of  the 
other  note  and  gave  the  bank's  check  to  them  for  the  balance, 
The  bank  discounting  this  note  brought  its  action  in  a  Minne- 
sota court  against  the  receiver  of  the  bank  represented  by  this 
cashier,  such  bank  having  become  insolvent,  to  have  the  sum  due 
on  the  note  adjudged  a  legal  claim  upon  the  assets  of  the  bank 
in  his  hands.  Among  the  findings  of  the  court  below  was  one 
that  "  the  plaintiff  [meaning  its  officers]  in  good  faith  believed 
that  [the  negotiator  with  it  in  the  transactions]  was  acting  as 
cashier  of  said  bank  in  said  transaction,  and  had  no  evidence  to 
the  contrary,  and  no  reason  to  believe  anything  to  the  contrary, 
except  what  appeared  by  said  proceedings  and  said  notes  herein- 
before specified ;  that  said  plaintiff  gave  credit  to  said  [insolvent] 
bank,  and  to  said  [negotiator]  in  all  of  said  transactions."  Also 
this  finding :  "  Both  of  said  notes  were  made  by  said  [maker] 
and  by  her  delivered  to  said  [negotiator]  for  his  individual  use 
and  accommodation ;  but  plaintiff  had  no  notice  or  knowledge 
thereof,  except  as  shown  by  the  notes  themselves,  until  after  it 
had  discounted  them."  There  was  an  insistment,  on  behalf  of 
the  receiver,  that  the  plaintiff's  cashier,  who  discounted  the  note 
in  suit,  was  not  justified  upon  these  facts  in  supposing  that  the 
negotiator  was  acting  officially,  as  cashier  of  the  insolvent  bank, 
in  procuring  the  money  on  the  note ;  and  that  his  statements  or 
conduct  in  the  transaction  were  immaterial,  in  view  of  the  fact 
that  the  note  showed  on  its  face  that  it  appeared  to  be  his  individ- 
ual note,  and  he  had  no  authority  in  fact  to  make  an  accommo- 
dation indorsement  thereon  in  behalf  of  the  bank.  The  Supreme 

prevent  such  loans  being  in  any  way    would  defeat  a  principle,  if  not  the 
made    and    to    permit  the   proposed    entire  purpose,  of  the  law." 
showing  by  defendant  as  an  estoppel 


§312] 


OFFICERS  OP  It  AN  KM. 


Court  held  that  in  view  of  the  fact  t lint  tl.i-.  iicp.tintor  was  the 
acting  cashier  of  the  insolvent  hank,  entitle.!  t,,  make  indoree- 
nu-iits  in  this  form  of  paper  helonging  to  the  bank,  and  pro- 
himself  in  that  capacity  in  this  instance,  the  j>aper  itself  bore  no 
marks  of  suspicion  sufficient  to  affect  tin-  title  of  the  hank  a*  a 
purchaser  in  good  faith,  which,  upon  the  facts,  would  otherwise 
be  presumed.1 

§  312.  Promise  by  cashier  to  pay  draft  of  a  customer  to 
be  drawn  at  a  future  day  —  not  binding  on   the  bank. 

A  national  bank  is  empowered  by  United  States  lle\ 

utes  (§  5136)  "to  exercise   by   its   board  of  directors  or  dnlv 

authorized  officers  or  agents,  subject  to  law,  all  such  incidental 


'Merchants'  National  Bank  of  St. 
Paul  r.  McNeir,  (1892)  01  Minn.  128. 
The  court  said:  "  [The  negotiator] 
assumed  to  be  acting  in  his  official 
capacity,  and  appeared  to  be  engaged 
in  the  business  of  his  bunk.  He  pro- 
posed to  take  up  the  note  which  he 
had  before  rightfully  negotiated  in 
behalf  of  the  bank  as  cashier,  and  to 
substitute  another  executed  by  the 
same  party.  And  the  cashier  of  the 
plaintiff  bank,  as  the  court  finds,  in 
good  faith,  believed  that  [he]  was  act- 
ing officially  for  [his]  buuk,  and  the 
evidence  sustains  this  finding.  If  the 
new  note  had  been  of  the  same  amount 
as  the  old  one  taken  up,  tin-  fact  that 
it  ran  to  [the  negotiator]  would  hardly 
be  claimed  to  be  sufficient  to  excite 
suspicion.  And  so,  if  the  note  had  been 
subsequently  negotiated  by  plaintiff, 
and  had  passed  in  the  regular  course 
of  business  into  the  hands  of  a  remote 
indorsee,  it  would  hardly  be  claimed 
that  such  indorsee  was  not  a  bonn  fiilt 
purchaser,  either  on  the  ground  of 
notice  from  the  note  itself,  or  that  he 
was  bound  to  have  instituted  a  pre- 
liminary inquiry  as  to  the  authority 
of  [the  negotiator]  to  make  the  second 
indorsement  as  cashier.  The  fact  that 
[he]  appeared  to  be  the  first  indorscr, 
and  the  bank  the  second  indorser.  was 


not,  of  itself,  a  circumstance  10  extra 
ordinary  or  suspicious  M  lo  make  the 
case  one  of  gross  negligence  on  the 
part  of  the  plaintiff,  and  subject  it  to 
the  imputation  of  bad  faith  in  receiving 
the  paper.  Nor,  in  the  face  of  the 
finding  of  good  faith  of  the  officers  of 
the  plaintiff  in  the  transaction,  did 
the  circumstance  that  the  surplus, 
over  the  amount  due  upon  the  old 
note,  WHS  paid  directly  to  [the  MHO 
tiator]  either  in  currency  or  by  check 
running  to  him,  amount  to  notice  of 
[his]  intended  fraud  upon  his  bank. 
or  make  the  plaintiff  a  purchaser  nutta 
fitle  of  the  note.  It  is  not  suflicient. 
under  the  rule  applied  to  the  transfer 
of  negotiable  paper,  under  the  law 
merchant,  that  there  be  i-iministancea 
of  suspicion  such  as  would  put  a  cart- 
ful purchaser  upon  inquiry  The  cir- 
cumstances must  be  HO  pointed  and 
direct  as  to  amount  to  evidence  of 
mala  fide*,  in  the  absence  of  inquiry, 
or  such  as  to  bo  prima  faeit  incon- 
sistent with  any  other  view  than  that 
there  is  something  wrong  in  UK*  tide. 
and  thus  amount  to  const  r 
notice.  1  Dan.  Neg.  In*t  i  ttli  r.l  • 
S;  796;  2  Kami.  Com.  Paper,  gg  988. 
1001.  Tied.  Com.  Paper,  {I  989;  FVce- 
man's  Nat.  Bank  r.  Savery.  127 
78,  7»." 


588  OFFICERS  OF  BANKS.  [§  313 

powers  as  shall  be  necessary  to  carry  on  the  business  of  banking 
by  discounting  and  negotiating  promissory  notes,  drafts, 
and  other  evidences  of  debt,  *  *  *  by  loaning  money  on 
personal  security,"  etc.  It  was  held  in  the  United  States  Circuit 
Court  for  the  southern  district  of  California  that  under  no  pro- 
vision of  the  statute  above  referred  to  did  the  cashier  of  a  national 
bank  have  power  to  bind  the  bank  to  pay  the  draft  of  a  third 
person  on  one  of  its  customers,  to  be  drawn  at  a  future  day,  when 
it  expected  to  have  a  deposit  from  him  sufficient  to  cover  it,  and 
that  no  action  would  lie  against  the  bank  for  its  refusal  to  pay 
such  a  draft.1 

§  313.  Estoppel  of  a  bank  to  deny  the  validity  of  an  act 
of  its  cashier  in  drawing  drafts  on  its  correspondent,  and 
fraudulently  indorsing  them. —  In  a  very  recent  case  before 
the  New  York  Court  of  Appeals,  which  was  an  action  by  the 
receiver  of  an  insolvent  South  Carolina  bank  to  recover  a  deposit 

1  Flannagan  v.  California  Nat.  Bank,  authority  to  indorse  the  commercial 
(1893)  56  Fed.  Rep.  959.  The  court  paper  of  his  bank,  and  bind  the  bank 
said:  "In  Bank  v.  Dunn,  6  Pet.  51,  by  the  indorsement.  So,  too,  in  the 
the  court  would  not  permit  the  presi-  absence  of  restrictions,  if  he  has  pro- 
dent  and  cashier  of  the  bank  to  bind  it  cured  bonafide  rediscount  of  the  paper 
by  their  agreement  with  the  indorser  of  the  bank,  his  acts  will  be  binding 
of  a  promissory  note  that  he  should  because  of  his  implied  power  to  trans- 
not  be  liable  on  his  indorsement.  It  is  act  such  business;  but  certainly  he  is 
said  it  is  not  the  duty  of  the  cashier  not  presumed  to  have  power,  by  reason 
and  president  to  make  such  contracts,  of  his  official  position,  to  bind  his  bank 
nor  have  they  power  to  bind  the  bank,  as  an  accommodation  indorser  of  his 
except  in  the  discharge  of  their  ordi-  own  promissory  note.  Such  a  trans- 
nary  duties'."  The  court  then  referred  action  would  not  be  within  the  scope 
to  U.  S.  «.  City  Bank  of  Columbus,  21  of  his  general  powers;  and  one  who 
How.  356,  and  afterwards  said  :  In  accepts  an  indorsement  of  that  charac- 
West  St.  Louis  Sav.  Bank  v.  Shawnee  ter,  if  a  contest  arises,  must  prove 
County  Bank,  95  TJ.  S.  557,  where  it  actual  authority  before  he  can  recover, 
was  attempted,  but  unsuccessfully,  to  There  are  no  presumptions  in  favor  of 
bind  a  bank  as  an  accommodation  in-  such  a  delegation  of  power.  The  very 
dorser  on  the  individual  note  of  its  form  of  the  paper  itself  carried  notice 
cashier,  the  court  said:  "Ordinarily  to  a  purchaser  of*  a  possible  want  of 
the  cashier,  being  the  ostensible  execu-  power  to  make  the  indorsement,  and 
tive  officer  of  a  bank,  is  presumed  to  is  sufficient  to  put  him  on  his  guard, 
have,  in  the  absence  of  positive  restric-  If  he  fails  to  avail  himself  of  the  notice, 
tions,  all  the  powers  necessary  for  such  and  obtain  the  information  which  is 
an  officer  in  the  transaction  of  the  thus  suggested  to  him,  it  is  his  own 
legitimate  business  of  banking.  Thus  fault,  and,  as  against  an  innocent  party, 
he  is  generally  understood  to  have  he  must  bear  the  loss." 


§  3 1 3]  OFFICERS  OF  BANKS. 

of  that  bank  in  a  bank  in  tin-  city  of  New  York,  it  appeared  that 
the  latter  had  debited  the  former  with  certain  checks  which  tin- 
cashier  of  the  insolvent  bank  liad  drawn  upon  the  New  York 
bank,  payable  to  certain  customers  of  the  bank  of  which  he  was 
the  cashier,  and  then  indorsed  the  names  of  these  payees  UJN.M 
the  checks,  making  them  payable  to  the  order  of  a  New  York  firm 
of  brokers,  who  collected  the  amount  of  these  checks  from  t  he- 
bank  upon  which  they  were  drawn.  The  New  York  Court  of 
Appeals  in  its  opinion  referred  to  the  discussion  of  the  trial  judge 
of  the  question  of  what  the  act  of  the  cashier  of  the  bank 
amounted  to  in  law,  as  follows:  "In  his  judgment,  the  cashier's 
indorsement  of  the  checks  in  the  name  of  the  payer,  which  lie 
had  written  in  the  body  of  the  check,  was  not,  in  a  legal  sense, 
forgery.  He  said  that  act  did  not  defraud  the  persons  whose 
names  were  used  as  payees,  nor  the  bank  in  New  York,  nor  his 
own  bank,  but  that  the  fraud  consisted  in  the  unlawful  drawing 
of  the  check  for  his  own  purposes,  with  the  intent  to  convert  hw 
own  bank's  funds.  Regarding  the  transaction  in  that  light,  and 
the  indorsement  as  a  part  of  one  continuous  act  of  preparing  the 
check  so  that  the  New  York  bank  should  pay  the  funds  drawn 
upon  to  the  indorsees,  he  very  properly  reached  the  conclusion 
that,  so  far  as  the  New  York  bank  was  concerned,  the  cashier's 
intent  was  the  intent  of  his  bank,  and,  hence,  the  payment  of  the 
checks  was  conclusive  upon  it."  Then  it  is  said  of  the  review  of 
the  legal  questions  by  the  General  Term,  sustaining  the  judg- 
ment of  the  trial  judge  dismissing  the  complaint :  "  Upon  the 
question  of  the  effect  upon  the  transaction  of  the  use  by  [the 
cashier]  of  names,  as  payees,  of  persons  who  were  the  customers 
of  the  bank,  it  is  said  in  the  opinion  that  that  fact  did  not  pre- 
vent the  application  of  the  principle  which  would  govern  if 
fictitious  names  had  been  selected  and  used  for  payees.  They 
held,  in  substance,  that  the  bank,  through  its  authorized  ohVer. 
had  put  in  circulation  paper,  with  knowledge  chargeable  to  it,  that 
the  names  of  the  payees  did  not  represent  real  persons,  and  with 
the  intention  to  indorse  thereon  the  names  of  the  payees,  who. 
for  all  intents  and  purposes,  were  fictitious  payees,  and  whose 
names  were  adopted  and  resorted  to  as  a  device  to  avoid  suspicion." 
The  Court  of  Appeals  approved  these  two  judgments.1  A 

1  Phillips    v.    Mercantile     National    140  N.  Y.  556.  559.  560.  afflrraing  67 
Bank  of  the  City  of  New  York.  (1894)   Hun,  878.  The  Court  of  Appeals  in  their 


590 


OFFICERS  OF  BANKS. 


[§313 


national  bank  of  the  city  of  New  York  was  the  correspondent  of 
a  country  national  bank.  One  who,  during  the  time  in  which 
the  transaction  in  controversy  in  this  case  took  place,  was  cashier, 
and  during  the  remainder  of  the  time  was  president  of  the 
country  bank,  all  the  time  practically  managed  the  bank,  and 
his  codirectors  and  other  officers  had  little  or  no  oversight  of 


opinion  distinguished  Shipman  v.  Bank 
of  the  State  of  New  York,  126  N.  Y. 
318,  in  these  words:  "There  it  had 
been  found  that  the  checks  were  signed 
by  the  firm,  in  the  belief  that  the 
names  of  the  payees  represented  real 
persons  entitled  to  receive  the  amount 
of  the  checks,  and  with  the  intention 
that  they  should  be  delivered  to  real 
payees  and  should  not  go  into  circula- 
tion otherwise  than  through  a  delivery 
to  and  an  indorsement  by  the  payees 
named.  [The]  employment  [of  their 
clerk]  did  not  comprehend  the  draw- 
ing or  indorsement  of  checks  or  drafts, 
and  in  indorsing  upon  the  checks  the 
names  of  the  payees  he  committed 
the  crime  of  forgery,  because  he  was 
without  authority  in  that  respect  and 
did  so  with  the  intention  to  deceive 
his  employers,  the  makers,  and  to  put 
their  checks  in  circulation  for  his  ac- 
count. That  was  a  case  wholly  other 
than  was  made  out  here.  It  was  stated 
in  the  Shipman  case  that  the  maker's 
intention  is  the  controlling  considera- 
tion, which  determines  the  character 
of  the  paper,  and  that  the  statutory 
rule,  which  gives  to  paper  drawn  pay- 
able to  the  order  of  a  fictitious  person, 
and  negotiated  by  the  maker,  the  same 
validity  as  paper  payable  to  bearer, 
applies  only  when  such  paper  is  put 
into  circulation  by  the  maker  with 
knowledge  that  the  name  of  the  payee 
does  not  represent  a  real  person.  The 
principle  of  that  decision  is  quite  ap- 
plicable to  the  case  at  bar.  Though 
[this  cashier]  selected,  for  the  execu- 
tion of  his  dishonest  purposes,  the 
names  of  persons  who  were  dealers 
with  his  bank,  it  was  in  legal  effect  as 


though  he  had  selected  any  names  at 
random.  The  difference  is  that,  by 
the  methods  resorted  to,  he  averted 
suspicion  on  the  part  of  the  directors 
or  other  officers  of  his  bank.  The 
names  he  used  were,  for  his  purposes, 
fictitious,  because  he  never  intended 
that  the  paper  should  reach  the  per- 
sons whose  names  were  upon  them. 
The  transaction  was  one  solely  for  the 
fraudulent  purpose  of  appropriating 
his  bank's  moneys  by  a  trick  which  his 
position  enabled  him  to  perform.  Con- 
cededly,  if  the  names  of  the  payees 
were  of  fictitious  persons  [the  bank 
whose  cashier  drew  these  checks] 
would  have  had  no  claim  upon  the 
defendant;  how,  then,  can  the  trans- 
action be  said  to  assume  a  different 
aspect  because  the  names  adopted 
were  of  known  persons?  As  cashier, 
invested  with  the  authority  to  draw 
checks  upon  the  bank's  accounts  with 
its  correspondents,  instead  of  drawing 
them  directly  to  the  order  of  the  part- 
ies, who  he  intended  should  get  the 
moneys,  he  drew  them  to  the  order  of 
persons  who  had  no  interest  in  them, 
and  thereupon  wrote  their  names 
under  a  direction  to  pay  to  the  real 
parties,  who  were  intended  to  be  the 
recipients  of  the  funds  drawn  upon. 
If  the  checks  had  been  drawn  directly 
to  the  order  of  the  real  parties,  the 
defendant  would  undoubtedly  have 
been  protected  in  paying  them.  As  it 
was,  the  payees  were  fictitious  per- 
sons in  the  eye  of  the  law,  and  the 
only  real  parties  were  the  firms  in  New 
York,  to  whom  the  cashier  sent  them 
in  such  form  as  that  they  could  draw 
the  moneys  upon  them.  The  fictitious- 


.-     -13]  OFFICERS  OF  BANKS.  'I 

its  affair.-.  He  \vns  engaged  in  stock  speculation*  <>n  his  own 
account  in  New  York,  and  drew  from  time  to  time,  for  hw 
own  purposes,  in  favor  of  a  firm  in  NYw  York,  his  broken,  on 
the  liank  balance  with  the  New  York  bank.  IIi«  brokers  front 
time  to  time  returned  to  that  hank  sums  to  In-  credited  to  the 
country  hank.  The  latter,  being  ruined  by  fraudulent  ojicratioiis 
of  its  officer  before  mentioned,  who  disapj>eared,  IH?<  •  I  vent 

and  was  placed  in  the  hands  of  a  receiver.  This  receiver  brought 
his  action  against  the  firm  of  New  York  brokers  to  recover  the 
sums  so  paid  to  them  by  this  officer  of  the  country  bank  out  of 
the  balance  to  the  credit  of  the  bank  with  the  New  York  bank. 
The  brokers  claimed  the  right  to  offset  the  return  payments  made 
by  them  to  the  New  York  bank.  The  trial  court  ruled  that  they 
were  not  entitled  to  do  it,  and  no  question  in  respect  of  them  was 
submitted  to  the  jury.  For  this  error  the  United  States  Supreme 
Court  reversed  arid  remanded  the  case  for  a  new  trial,  holding 
that,  at  the  least,  it  was  a  question  to  go  to  the  jury  whether  the 
officers  of  the  bank,  other  than  the  dishonest  official,  in  the  exer- 
cise of  reasonable  and  proj>er  care,  could  have  ascertained  tliat 

ness  of  the  maker's  direction  to  puy  fall  upon  the  bunk,  whose  (lira-tore, 

does  not  depend   upon  the  idenlitkit-  by  their  misplaced  confidence  and  gift 

tion  of  the  name  of  the  payee   with  of  powers,   made  them  possible,  and 

some  existent   person,  but  upon   the  not  UJMHI  others  who.  themselves  act- 

intention     underlying     the     act     of  ing  innocently  and  in  good  faith,  wen? 

the    maker    in    inserting    the   name,  warranted  in  believing  the  transaction 

Where,  as  in  this  case,  the  intent  of  to  have  been  one  coming  within  the 

the  act  was,  by  the  use  of  the  names  cashier's   powers.     It   may   be    quite 

of    some    known    persons,    to   throw  true  that  the  cashier  was  not  the  agent 

directors  and  officers  off  their  guard,  of  the  bank  to  commit  a  forgery,  or 

such  a  use  of  names  was  merely  an  any  other  fraud  of  such  a  nature,  but 

instrumentality  or  a  means  which  the  he  was  authori/cd  to  draw  or  check 

cashier  adopted,  in  the  execution  of  upon  the  bunk's  funds      If  he  ahuwd 

his  purpose,  to  defraud  the  bank,  in  an  his  authority  and  robbed  his  bank  it 

apparently  legitimate  exercise  of  his  must  suffer  the  loss.     The  distinction 

authority.     The  cashier,   through  his  between  such  a  case  and  the  many 

office  and  the  powers  con  tided  to  him  other  cases  which  the  plaintiff's  coun 

for  exercise,    was  enabled  to   perpe-  sel  cited  from,  is  in  the  fact  that  it  wu 

trate  a  fraud  upon  his  bank,  which  a  within    the    acope    of    this    ouhier'» 

greater  vigilance  of  its  officers  might  powers  to  bind  the  bank  by  bU  check* 

have  earlier  discovered,   if  it  might  In  transmitting  them,   made  out  and 

not   have  prevented.     If  his  position  indorsed  as  they  were,  the  bank  wa» 

and    the   confidence  reposed   in    him  so  far  concluded  by  hU  acU  aa  to  be 

were  such  as  to  enable  him  to  escape  estopped    from    now     denying    their 

detection  for  the  while,  then  the  con-  validity." 
sequences  of  his  fraudulent  acts  should 


592  OFFICERS  OF  BANKS.  [§313 

these  moneys  had  been  deposited  to  the  account  of  the  insolvent 
bank,  and  would  or  would  not  have  accepted  such  deposits  as  the 
return  of  the  moneys  to  the  bank.1  It  appeared  in  a  case  that 
a  bank  clerk,  the  duty  of  whom  it  was  to  prepare  exchange  for 
the  cashier's  signature,  so  drew  a  draft  for  twenty-five  dollars  to 
his  own  order  that  the  amount  could  be  readily  altered.  After 
procuring  the  signature  of  the  cashier  to  the  draft  by  pretending 
that  he  wished  to  make  a  remittance  of  that  amount,  the  clerk 
altered  the  draft  so  that  it  presented  the  appearance  of  a  genuine 
draft  for  $2.500,  indorsed  it  and  had  it  discounted.  It  was 
sought  in  the  action  to  hold  the  bank  liable  on  this  draft.  The 

1  Kissam  ®,  Anderson,  (1892)  145  U.  parties.  If  it  be  said  that  no  officer 
S.  435.  Mr.  Justice  BREWER,  speak-  of  [this]  bank  knew  of  these  deposits 
ing  for  the  court,  arguendo,  said:  "We  except  [its  cashier],  the  wrongdoer, 
think  [the  principle  upon  which  the  and  that  he  subsequently  drew  out 
trial  court  acted,  which  was  stated  by  most  of  these  moneys  in  drafts  to 
counsel  for  plaintiff  in  his  brief,  as  further  other  wrongs,  the  reply  is  that 
follows:  'It  is  settled  by  abundant  the  other  officers  and  directors  of  [this] 
authority  that  where  one  has  taken  bank  were  chargeable  with  knowledge 
the  property  of  another  damages  are  of  these  deposits.  If,  through  their 
not  mitigated  by  showing  merely  that  negligence,  they  did  not  in  fact  know, 
the  wrongdoer  returned  the  property  that  is  a  matter  for  which  [this]  bank 
without  the  consent  of  the  owner  or  and  not  the  defendants  were  responsi- 
applied  it  upon  the  owner's  debts.  It  ble.  [Defendants]  had  no  supervision 
must  appear  still  further  that  the  over  its  affairs,  no  knowledge  as  to 
owner  consented  to  such  action  or  that  how  those  affairs  were  managed, 
the  proceeds  were  so  applied  under  They  were  not  called  upon  to  go  to  [the 
legal  process  without  connivance  of  place  of  its  location]  and  hunt  up  the 
the  wrongdoer,  *  *  * ']  does  not  various  officers  and  directors,  and  in- 
control  in  this  case.  Defendants  re-  form  them,  one  by  one,  personally, 
turned  this  money  to  the  [country]  that  these  moneys  had  been  deposited 
bank.  They  deposited  it  with  the  to  their  credit  in  the  [New  York] 
[New  York]  bank,  the  correspondent  bank.  It  was  enough  that  they  de- 
of  the  [former],  and  the  bank  from  posited  them,  and  that  that  bank,  in 
which  they  received  the  money  or  the  the  regular  course  of  business,  by 
checks  from  the  [former].  In  fact,  monthly  statements,  informed  the 
therefore,  the  money  was  placed  where  [country]  bank  that  it  received  and  held 
it  was  before  it  was  taken  —  in  the  those  moneys.  The  learned  circuit 
possession  and  under  the  control  of  judge  seemed  to  be  of  the  opinion 
the  [country]  bank.  Not  only  that;  the  that,  as  they  had  assisted  [this  cashier] 
[New  York]  bank,  in  its  due  course  of  in  withdrawing  these  funds  from  the 
business,  by  monthly  reports,  in-  bank,  they  could  not  escape  responsi- 
formed  the  [country]  bank  that  they  bility,  unless  the  sum  total  of  his  de- 
had  received  this  money,  and  held  it  falcation  was  reduced  by  their  deposits 
subject  to  its  order,  and  it  was  subse-  to  an  amount  less  than  that  received 
quently  used  by  the  [country]  bank  in  from  him.  In  his  opinion  overruling 
drafts  drawn  by  it  in  favor  of  other  the  motion  for  a  new  trial  he  thus  ex- 


§  '°>14]  OFFICERS  OF  HANKS. 

United  States  Circuit  Court  of  Appeals  for  the  seventh  circuit 

affirmed  the  judgment  rendered  in  the  Circuit  Court  in  favor  of 
the  bunk,  holding  that  the  forgery  hy  the  clerk,  and  not  tli- 
ligencc  of  the  hank,  being  the  proximate  cause  "f  the  lues,  the 
bunk  was  not  liable.  Further,  the  bank  was  not  liable  on  tin- 
ground  that  the  forgery  was  committed  by  its  confidential 
employee,  because  in  this  transaction  he  acted  as  a  purchaser, 
and  not  as  an  employee,  and  the  purchase  of  the  draft  being  com- 
plete, he  was  the  owner  of  it  when  the  forgery  was  committed.1 

§  314.  Teller  and  bookkeeper  —  their  powers  and  duties. 

—There  is  no  inherent,  original  power  expressly  conferred  Ujx»n 
the  teller  of  a  bank,  in  the  powers  and  duties  usually  eoni 
upon  such  officer  and  to  be  exercised   by  him,  to  enable  him  t«i 
certify  that  the  checks  of  the  depositors  of  the  bank  will  be  good 
when  presented  for  payment  at  some  future  time ;  nor  is  such 

pressed  himself:  '  Here  all  the  money  chargeable  with  his  after  miscondm  t. 
returned  by  [the  wrongdoer]  was  in-  in  respect  to  which  they  had  no  part, 
sufficient  to  replace  his  defalcation  by  It  will  not  do  lo  say  that  they  put  the 
an  amount  much  larger  than  the  sum  money  where  he  could  check  it  out 
sought  to  be  recovered  of  the  defend-  and,  therefore,  are  responsible  for 
ants,  and  the  bank  had  no  knowledge  what  he  did  with  it.  They  departed 
that  he  had  returned  anything  to  re-  it  to  the  credit  of  the  [country]  bank, 
place  what  he  had  misapplied  until  he  and  it  was  for  the  officers  and  direct- 
had  again  misappropriated  it.  It  is  ors  of  that 'iank  to  take  care  of  its  dc- 
not  unjust  or  unreasonable  to  compel  posits.  The  rule  miirht  be  different  if 
the  defendants  to  restore  such  of  the  [the  wrongdoer],  the  cashier  of  th« 
funds  of  the  bank  as  they  received  [country]  bank,  was  the  only  ofllcrr 
when  they  are  unable  to  prove  that  authorized  to  draw  on  the  [New  York) 
the  bank  was  not  directly  or  ultimately  bank,  or  cliarged  with  knowledge  of 
a  loser  in  consequence  of  their  acts,  the  state  of  the  account;  but  the*  prod- 
It  may  be  that  [the  wrongdoer]  would  dent  and  teller  Imd  equal  authority,  and 
have  misappropriated  the  money  of  were  equally  chargeable  with  knowl- 
1  IK-  hunk  in  other  ways  if  they  had  re-  edge;  in  fact,  it  appears  that  th*M 
fii-i'l  to  receive  the  checks,  but  cer-  officers  did  dmw  drafts  on  the  New 
tainly  one  temptation  would  not  have  York  bank  and  thus  diminished  the 
been  in  his  path  if  he  had  found  that  total  of  deposits,  and  the  other  dinvt 
ho  could  not  use  the  paper  of  the  bank  ore,  also,  were  under  Home  obligations 
for  his  speculations  with  the  same  to  know  the  affairs  of  tbc  bank 
facility  as  though  it  were  his  own  it  will  not  do  to  say  that  the  bank  can 
money.'  But  surely  they  cannot  be  ignore  the  negligence  of  nil  it*  officer* 
held  for  his  subsequent  wrongdoing,  and  profit  by  their  omUwion  of  dut> 
If  they  have  returned  a  part  of  that  »  Exchange  Nat.  Bank  of  Spokane 
they  assisted  him  in  wrongfully  with-  r.  Bank  of  Little  Rock,  (18W)  98  Fed. 
drawing,  they  arc  pro  tanto  relieved  Rep.  140. 
from  responsibility,  and  are  not  to  be 

75 


-594:  OFFICERS  OF  BANKS.  [§  3  1 1 

power  incident  to,  ,or  necessary  to,  the  faithful  discharge  of  any 
of  his  duties.1  The  court  further  held  that  a  jury  would  not  be 
warranted  to  infer  such  a  power  in  a  teller  from  evidence  that 
the  teller  of  the  bank  during  all  the  time  of  his  holding  office 
whenever  the  convenience  of  the  bank  or  of  its  customers 
required  it,  certified  that  checks  were  "good  "  which  were  drawn 
on  the  bank  by  its  customers  when  funds  to  the  amount  of  such 
checks  were  to  the  credit  of  the  drawers,  and  his  so  doing  was 
in  some  instances  known  to  the  bank  and  was  not  forbidden, 
or  that  it  was  the  usage  of  the  tellers  of  other  banks  to  do  the 
same ;  further,  that  the  usage  of  issuing  certificates  of  deposit  by 
a  teller  of  a  bank  was  not  evidence  to  prove  a  usage  of  certifying 
checks.2  The  teller  of  a  bank  in  New  York  had  general  authority 
to  certify  checks,  qualified  by  directions  not  to  do  so  without 
funds,  and  to  enter  them  in  the  books.  He  certified  checks  in 
violation  of  these  instructions  under  a  fraudulent  arrangement 
with  the  drawer.  The  bank  was  held  liable  to  a  bonajide  holder 
for  value  of  the  checks.  The  court  further  held  that  the  delay 
of  a  year  in  presenting  the  checks  for  payment  did  not  impair 

'Musseyr.  Prest.,  etc.,  Eagle  Bank,  notes  discounted;  and  to  redeem  the 
(1845)  9  Met.  (Mass.)  306.  In  the  bills  of  the  bank  with  specie  when  the 
opinion  the  usual  duties  of  such  officer  same  is  demanded.  This  is  his  official 
are  thus  stated:  "The  office  of  the  employment;  and  in  the  discharge  of 
teller  is  implied  in  the  word  used  to  these  duties  he  is  regularly  to  account 
designate  it  —  to  tell  or  count  the  for  the  moneys  he  has  received  and 
moneys  of  the  bank,  which  are  re-  paid  out,  not  only  to  prevent  mistakes, 
ceived  or  paid  out.  The  office  is  often  but  to  charge  him  when  short  or  de- 
divided  into  two  branches,  that  of  re-  linquent;  and  he  is  also  made  respon- 
cciving  teller  and  of  paying  teller,  sible  for  the  payment  of  a  check  when 
where  the  business  of  the  bank  is  large  the  drawer  has  not  a  like  amount  to 
and  the  duties  cannot  conveniently  be  his  credit  unless  he  applies  to  the  book- 
united  in  one  person.  When  united,  keeper  for  information  as  to  the  state 
the  duty  of  the  teller  is  to  receive  all  of  the  drawer's  account;  and  then,  if 
moneys  offered  at  the  bank  in  pay-  an  overpayment  is  made  through  the 
ment  of  notes  and  bills  previously  dis-  mistake  or  fault  of  the  bookkeeper,  he 
counted  or  lodged  for  collection  as  and  not  the  latter  is  responsible  for  tho 
they  severally  full  due,  and  all  moneys  loss.  And  when  checks  on  other 
offered  by  customers  of  the  bank  to  be  banks  are  received  in  payment  or  on 
deposited  to  their  credit  on  account,  deposit  (as  is  the  usage  among  the 
whether  arising  from  moneys  brought  banks  of  the  city),  it  is  made  his  duty 
by  them  to  the  bank,  or  the  proceeds  to  attend  to  their  collection  by  a  given 
of  discounts  made  for  them;  to  pay  hour  of  the  day." 
the  checks  of  depositors  as  the  money  8Mussey  r.  Prest.,  etc.,  Eagle  Bank, 
is  from  time  to  time  drawn  out,  or  for  (1845)  9  Met.  (Mass.)  306. 


OFFICERS  OF  BANKS.  ,', 

the.  holder's  right.1  A  bank  will  be  estopped  by  its  teller,  upon 
the  presentation  of  ii  check  U-aringa  forged  certification,  he  beiriLr 
the  officer  whofle  certification  it  i»urjM»rta  to  be,  pronouncing  the 
certification  genuine.2  In  a  New  York  caw- 
after  the  certification  of  a  check  it  was  raised  and  the  nu: 
the  payee  changed.  The  check  was  then  tendered  to  the  plain- 
tin's  in  this  case,  who  sent  it  to  the  certifying  lank  durini;  the 
busy  part  of  the  day,  and  its  teller  was  asked  if  the  chock  was 
good.  Before  thia  inquiry  the  drawer  of  the  check  had  requested 
the  hank  to  stop  payment.  The  teller,  however,  responded 
affirmatively  to  the  inquiry  made  as  to  the  check  being  good. 
The  Court  of  Appeals  of  New  York  held  that  the  failure  of  tin- 
paying  teller  to  call  attention  to  the  fact  that  the  bank  had  been 
notified  that  the  check  had  been  lost  in  transit  to  the  payee  and 
that  its  payment  had  been  stopped,  which  facts  were  entered 
upon  the  bank's  register  of  certified  bills,  amounted  to  negligence 
which  would  authorize  a  recovery  against  the  bank ;  further, 
that  the  fact  that  the  teller  did  not  know  that  the  draft  pre>> 
was  the  one  the  payment  of  which  had  been  stopped,  and  his 
good  faith  in  making  the  answer  would  not  prevent  a  recovery.* 
Should  the  teller  of  a  bank  enter  a  check  purporting  to  be  drawn 
up- ui  the  bank  in  the  bank  book  of  a  depositor  as  cash,  and  it 
should  turn  out  that  the  check  was  forged,  the  bank  would  have 
to  bear  the  loss.4  Should  the  teller  of  a  bank,  after  receiving,  as 
cash,  an  invalid  check  upon  another  bank,  consent  to  take  it  as 
his  own  and  look  to  the  drawer  of  the  check  for  its  iwymcnt,  ho 
cannot,  afterward,  without  the  consent  of  the  Imnk  authorities, 
return  it  to  the  bank.5  A  paying  teller  of  a  national  tank  has  no 
power,  without  the  sanction  of  its  directory,  to  receive  after  tank- 
ing hours  a  post-dated  check  and  to  agree,  for  the  convenience  of 
the  holder  of  the  check,  that  he  will  hold  it  until  the  day  it  is 
piv-entablc  and  will  then  cause  an  account  to  be  oj>ened  by  the 
bank  with  the  holder  and  the  amount  of  the  check  placed  to  hU 
credit  so  that  it  can  be  drawn  against.'  The  functions  of  a  note 

1  Farmers'    &    Mechanics'   Bank  P.  *  Levy  r.  Bank  of  the  United  SUtm. 

Butchers'  &  Drovers'  Bank,  (1855)  4  4  Dull.  234;  8.  r.,  1  Binn.  (Pa.)f7. 

Duer.  219;  affirmed  in  16  N.  Y.  125.  •  Union    Bank    of    Ocorgctown    r. 

•Continental      National      Bank     r.  Mackall.  2  Cranrh  Cir.  (1.  OM. 

National   Bank  of  the  Commonwealth.  •  Aven-H  r.  Second  National  Bank. 

(1872)  50  N.  Y.  575.  (1890)  8  Mack.  (D.  C.)  846.     A»  to  a 

•  Clews  v.  Bank  of  New  York.  (1889)  post-dated  check  the  court  mid:  "II 

114N.Y.  70;s.c.,22N.Y.  8t.Repr.897.  should  in  due  course  of  businc*  be 


596  OFFICERS  OF  BANKS.  [§  314r 

teller  of  a  bank  do  not  extend  to  the  erasure  of  the  name  of  one 
of  several  makers  of  a  note,  simply  upon  his  request.1  A  bank 
will  not  be  bound  by  the  statement  of  its  teller  that  the  indorse- 
ment upon  a  check  is  genuine.2  It  is  a  gross  violation  of  duty 
for  the  officers  of  a  bank  to  honor  a  check  or  draft  beyond  the 
drawer's  deposits.3  A  bank  will  not  be  bound  by  an  agreement 
of  one  of  its  officers  to  give  notice  to  a  surety  in  case  of  a  default 
on  the  part  of  the  makers  of  a  note  pledged  as  collateral,  in  the 
absence  of  proof  that  authority  was  conferred  upon  the  officer  to 
make  it.4  In  paying  a  debt  due  to  a  bank  in  good  faith  upon 
demand  of  one  whom  he  finds  as  one  of  its  officers  employed  in 
its  business  behind  its  counter,  without  any  knowledge  that  the 
officer's  authority  is  so  limited  that  he  has  no  right  to  receive  it, 
the  bank  will  be  bound  by  the  payment.5  The  bookkeeper  of  a 
bank  or  his  sureties  will  not  be  relieved  from  liability  on  his 
bond  which  provides  that  he  would  strictly  account  for  all  moneys 
belonging  to  the  bank  and  apply  its  funds  to  their  proper  uses,  by 
the  consent  of  the  cashier  to  the  taking  by  the  bookkeeper  of 
money  of  the  bank  not  due  him  and  applying  it  to  his  own  use.6 
If,  in  receiving  as  cash  the  check  of  an  individual  of  good  credit 
upon  another  bank,  in  which  it  afterwards  appeared  that  he  had 
no  funds,  the  teller  of  a  bank  does  only  what  is  usual  in  the 
ordinary  course  of  trade  and  business  of  banking  and  the  usage  of 
banks  in  like  circumstances,  his  so  taking  it  would  not  be  a  breach  of 
the  condition  of  his  official  bond  to  make  good  to  the  bank  all  dam- 
ages it  should  sustain  through  his  unfaithfulness  or  want  of  care.7 

presented  by  the  holder  on  the  day  of  might  be  presented  in  the  meantime, 

its  date.     It  is  payable  only  on  that  although  such  payments  would  leave 

day  or  after.     The  duty  of  the  banker  nothing  to  meet  the  post-dated  checks." 

is  simply  to  pay  his  customers'  checks  l  Marine  Bank  of  Chicago  v.  Ferry's 

over  the  counter  when  presented  on  or  Admr.,  (1860)  40  111.  255. 

after  their  date.     It  is  no  part  of  his  s  Walker  v.  St.  Louis  National  Bank, 

business  to  receive  post-dated  checks  (1878)  5  Mo.  App.  214. 

before  they  are  payable  and  to  engage  3  Eichelberger  r.  Finley,  7  H.  &  J. 

to  present  them  to  himself,  or,  in  other  (Md.)  381. 

words,  to  consider  them  as  presented  4  New  Hampshire  Savings   Bank  0. 

to  him  for  payment  on  the  day  when  Downing,  16  N.  H.  187. 

they  are  payable.     Still  less  is  it  his  5  East  River  National  Bank  v.  Gove, 

business  to  engage  in  advance  to  pay  (1874)  57  N.  Y.  597. 

checks  which  are  post  dated  as  before  8  Chew  v.  Ellingwood,  (1885)  86  Mo. 

mentioned.     If    he   should    do    so  it  260. 

would  be  at  his  own  risk,  for  he  could  *  Union     Bank    of    Georgetown    u. 

not  refuse  to  pay  other  checks  that  Mackall,  2  Cranch  Cir.  Ct.  695. 


CHAPTER  XI. 


DEPOSITS  AND  CHECKS. 


i  815.  General  deposits. 

816.  Depositors  —  duty  and  rights. 

817.  When  I  In-  ownership  of  a  de- 

posit  is   ([iirstioned —  rules. 

818.  Passing  of   title-  by  deposit  of 

check. 

819.  Deposits  in  suviugs  banks. 

820.  Receiving  deposits   by  a  bunk 

knowing  its  insolvency. 

821.  Certificate*  of  deposit, 
-peciftl  deposits. 

823.  The  duty  of  a  bank  as  to  de- 
posits and  its  right  as  to  their 
application. 


§  824.  Check*  generally. 

825.  Certification  of  checks. 

826.  Acceptance  of  a  check  by  a 

bank  —  illustration. 

327.  Presentment     of     check*     for 

payment. 

328.  When  a  draft  on  a  bank  faiU  to 

bind  the  fund  in  bank. 

329.  Forged  checks  —  rale*. 

330.  Payment  of  forged  cheeks  or 

payment  of  checks  on  forged 
indorsements. 

331.  Payment  of  raised  checks. 


§  315.  General  deposits. —  It  is  now  perfectly  well  settled 
that  the  relation  between  banker  and  customer  who  pays  money 
into  the  bank,  or  to  whose  credit  money  is  received  there  on 
deposit,  is  the  ordinary  relation  of  debtor  and  creditor;  -and  that 
when  the  bank  receives  the  money  as  an  ordinary  de]x>sit  and 
gives  credit  to  the  depositor,  the  money  Incomes  the  funds  of  the 
bank  and  may  be  used  by  it  as  any  other  funds  to  which  it  may 
be  entitled.  It  is  accountable  for  the  deposits  that  it  may  receive 
as  debtor;  and  in  respect  to  ordinary  deposits,  there  is  an  implied 
agreement  between  the  bank  and  the  depositor  that  the  checks  of 
the  latter  will  be  honored  to  extent  of  the  fund  standing  to  his 
credit.1  A  deposit  is  general,  unless  made  special  by  the  depoa- 


1  Hardy  &  Bros.  r.  Chesapeake  Rank, 
<1879)  51  Md.  562,  585:  Horwitz  v. 
Ell'ingcr,  31  Md.  492,  508;  Foley  r. 
Hill,  2  H.  L.  Cas.  28;  Thompson  r. 
Riggs.  5  Wall.  668;  Bank  of  the  Re 
pul.lie  r.  Milhml,  10  Wall.  152,  155. 
As  to  the  relation  between  general  de- 
positors and  a  bank,  see  Marine 
Bank  r.  Fulton  Bank.  2  Wall.  252; 
Plurnix  Bank  r.  Risley,  111  U.  8.  125; 
Planters'  Bank  r.  Union  Bank,  16 
Wall.  483;  Boyden  r.  Bunk  of  Cape 


Fear.  65  N.  C.  18;  McOrrgor  ». 
I.,oom  is,  1  Disney  (Ohio).  247;  Periey 
r.  Muskegon  County,  82  Mich.  188; 
Neely  v.  Rood.  54  Mich.  UM;  I 
r.  United  States  Saving*  Institution. 
(1876)  2  Mo.  App.  568;  Union  Bank  r. 
Tutt,  (1878)  5  Mo.  App.  842;  State  r. 
Kcim,  8  Neb.  68.  67;  First  National 
Rank  r.  Gandy.  11  Neb.  481.  484;  Sow 
aid  County  r.  (attic.  14  Neb.  149;  Long- 
bottom's  Ex  re.  r.  Hancock.  9  La,  50; 
Grant  r.  Fid.  17  La.  168;  Wall  r.  Spur- 


598  DEPOSITS  AND  CHECKS.  [§  315 

itor,  or  it  is  made  expressly  in  some  particular  capacity  by  him. 
On  a  general  deposit  there  will  be  an  implied  promise  on  the  part 
of  the  bank  receiving  it  to  restore  not  the  same  funds,  but  an 
equivalent  sum  when  demanded.1  This  liability  to  pay  out  the 
same  on  the  checks  of  the  depositor  is  implied  by  the  law,  with- 
out a  special  contract  to  that  effect.2  The  law  implies,  also,  that 
where  a  bank  receives  bank  notes  for  deposit,  in  the  absence  of 
any  agreement  to  the  contrary,  that  the  bank  takes  them  at  its 
own  risk.3  And  even  though  a  bank  should  take  bank  notes  with 
the  understanding  that  the  risk  of  their  being  good  was  to  rest 
upon  the  depositor,  yet,  it  is  the  duty  of  the  bank,  upon  knowl- 
edge of  the  insolvency  of  the  bank  issuing  the  notes,  to  give  legal 
notice  of  the  fact  to  the  depositor ;  and  a  failure  to  notify  him 
will  not  be  excused  by  the  depositor's  having  knowledge  of  the 
fact.4  A  bank  receiving  a  sum  of  money  on  deposit  generally, 
must  account  to  the  depositor  for  the  amount  in  good  funds,  and 
a  local  custom  of  bankers  would  not  be  admissible  in  evidence,  to 
change  the  liability  of  the  bank.5  "Whenever  the  relation  of 
debtor  and  creditor  exists  between  the  bank  and  a  depositor,  the 
bank  will  be  liable  for  any  depreciation  of  the  currency.* 
"Where  money  is  collected  and  mixed  up  with  the  general  funds 

lock,    10  La.    342;     In    re    Louisiana  3  Corbit  v.  Bank  of  Smyrna,  2  Hair. 

Savings  Bank,  40  La.  Ann.  514.    That  (Del.)  235. 

money,  checks  or  bill  deposited  by  a  4Ibid. 

general  depositor  in  a  bank  become  the  5  Marine  Bank  of  Chicago  v.  Birney, 

property  of  the  bank,  and  the  relation  28  111.  90. 

of  debtor  and  creditor  between  the  bank  8  Marine  Bank  of  Chicago  v.  Chand- 

and  depositor  is  thereby  created,  see  ler,  27  111.  525.     In  Kupfer  v.  Bank  of 

Matter    of    Franklin    Bank,    (1828)  1  Galena,  (1864)  34  111.  329,  a  deposit  of 

Paige  Ch.  249;    Chapman   T.   White,  gold  coin  had  been  made  in  the  bank 

(1852)6  N.  Y.  412;  Commercial  Bank  prior  to  the  passage  of    the    "legal 

of  Albany  v.  Hughes,  (1837)  17  Wend,  tender "  laws  by  congress,  and   had 

94;    Marsh  v.    Oneida  Central    Bank  been  drawn  out   by   checks  paid  in 

(1861)  34  Barb.  298;    .(Etna  National  treasury  notes.     The  Supreme  Court 

Bank  v.  Fourth  National  Bank,  (1871)  of    Illinois    held  that  the  bank  was 

46  N.  Y.   82.     Under    what    circum-  responsible  for  the  value  of  the  coin 

stances  the  trustee  of  a  school  district  as  compared  with  the  notes  in  which 

by  a  deposit  in  bank  becomes  the  cred-  the  drafts  or  checks  on  this  deposit 

itor  of  the  bank,  see  Union   School  were  paid.     As  to  the  right  to  pay  in 

Township    v.    First    National    Bank,  treasury  notes  of    the  United  States 

(1885)  102  Ind.  464.  where  the  deposit  was  made  in  gold  or 

1  Brahm  v.  Adkins,  77  111.  263;  Me-  other  coin,  see  Thompson  v.  Riggs,  6 

Ewen  v.  Davis,  39  Ind.  109.  D.  C.  99. 

s  Thompson  v.  Riggs,  6  D.  C.  99. 


§  315]  DEPOSITS  AND  rii KCU.  •' 

of  a  bank  it  becomes  a  general  deposit  to  tin-  m-dit  of  tin-  party 
for  whom  the  collection  was  made,  and  is  governed  by  the  rule* 
which  obtain  in  ordinary  cases  of  deposit  of  niom-v  with  lunik*.1 
hi  such  case,  therefore,  should  the  fund*  aft«-r  Mi«-h  inin^Iiri^ 
become  depreciated,  the  bank  must  Mi>t;iin  tin-  loss  und  not  th.r 
one  for  whom  the  collections  were  made.1  Where  a  depositor 
makes  a  deposit  with  a  bank  to  his  credit,  with  in»t  ruction*  to 
apply  it  to  the  payment  of  a  claim  against  him  held  for  collection, 
there  must  be  an  actual  appropriation  of  the  money  for  that  pur- 
pose before  it  will  operate  a  payment  of  the  claim.  Until  this  i* 
done  the  instructions  may  be  countermanded.  The  money  depos- 
ited is  the  money  of  the  bank  and  the  depositor  may  draw  upon 
it  or  direct  its  appropriation  in  some  other  way.8  When  a  bank, 
in  the  ordinary  transaction  of  its  business,  receives  money  on  gen- 
eral deposit,  the  money  thereby  becomes  the  property  of  the 
bank  and  the  bank  becomes  debtor  to  the  depositor  for  the 
amount  as  so  much  money  had  and  received,  and  anj  subsequent 
loss  of  the  money  or  destruction  of  its  value,  falls  on  the  bank. 
The  depositor  is  only  a  creditor  of  the  bank.4  If  the  bank  fail, 
and  be  unable  to  pay  its  debts  in  full,  the  depositor  comes  in  only 
as  a  general  creditor  and  can  only  receive  his  pro  rata  share  of 
the  assets.5  Where  money  is  deposited  with  a  bank  by  a  board 
of  officials  in  their  official  relation,  when  superseded  by  the 
appointment  of  a  new  board,  the  money  becomes  subject  to  the 
check  of  the  new  board.6  A  banking  corporation  taking  from 
another  an  assignment  of  all  of  its  property,  on,  as  a  considera- 
tion, agreeing  to  pay  all  of  the  debts  and  liabilities  of  this  other, 
and  proceeding  to  conduct  the  business  of  banking,  and  crediting 
a  depositor  of  the  former  with  the  amount  of  his  dej>osit  upon  its 
own  books  of  account,  thereby  assumes  the  relation  to  the  depos- 
itor which  the  former  owes  to  him.7  The  receipt  of  a  cashier  of 
a  bank  is  evidence  of  a  deposit  in  a  bauk.s  In  a  New  York  case 
where  a  lxx>kkeeper  in  the  bank,  as  well  as  liookkccper  for  one  of 

'Marine  Bunk  of  Chicago   r.  Hush-  (1888)  61   Mtl.  487.     The  court  refer* 

more,  28  111.  463.  to  ami  i-omment*  upon  Lewi*  r.  I\u* 

»Ibid.  Rank.  42  X.  Y.  463.  and  Swartwoulr. 

3  Moore  r.  Meyer,  57  Ala.  20.  Mcclwnica'    Bunk    of    Xew    York.  5 

4 Henry  r.  North.  Bank  of  Ala.,  68  Dcnio.  555. 

Ala.  527.  '  Green  r   <  kid   Fellow*'  Saving*  Jt 

»  Ibid.  Commercial  Hunk.  ( 1«H)  65  Cal.  71 

•Carman    r.  President  &  Dim-tors  "State  Bank   r.  Kain,  Bree*e  (111.), 

of   the  Franklin  Bank  of  Baltimore,  75. 


GOO  DEPOSITS  AND  CHECKS.  [§315 

the  bank's  depositors,  received  from  the  latter  money  for  the 
purpose  of  depositing  it  in  bank,  entered  the  amount  in  the  led- 
ger of  the  bank  and  in  the  depositor's  bank  book,  but  the  money 
was  not  received  by  the  latter  nor  entered  in  the  cash  book,  it 
was  held  that  in  making  the  deposit  the  bookkeeper  was  the  agent 
of  the  depositor  and  not  of  the  bank,  and  that  the  bank  was  not 
accountable  for  the  money  intrusted  by  the  depositor  to  the  book- 
keeper for  deposit.1  A  credit  on  the  books  of  a  bank  for  a  gen- 
eral deposit  is  an  acknowledgment  of  the  receipt  of  so  much 
money.2  A  paper  headed  with  the  names  of  bankers,  showing 
that  a  party  had  made  a  deposit  with  them,  stating  the  amount 
thereof,  and  signed  by  them,  has  been  held  to  be  bona  fide  evi- 
dence of  a  general  deposit  against  the  bankers.3  A  pass  book, 
given  by  a  bank  to  a  depositor,  is  not  a  written  contract  but  is 
prima  facie  evidence  that  the  bank  has  received  the  amounts  on 
the  dates  therein  stated,  and  binds  the  bank  like  any  other  form 
of  receipt,  and  is  open  to  explanation  by  evidence  aliunde.* 
Should  a  bank  receive  the  deposit  of  a  minor  it  must  honor  his 
checks.5  Should  a  bank  credit  a  depositor  with  the  amount  of  a 
check  drawn  upon  it  by  another  of  its  customers,  and  there  be 
no  want  of  good  faith  upon  the  part  of  the  depositor,  the  act  of 
crediting  would  be  equivalent  to  a  payment  in  money.  And  a 
bank,  it  has  been  held,  could  not  recall  or  repudiate  the  payment, 
because,  upon  an  examination  of  the  accounts  of  the  drawer,  it 
was  ascertained  that  he  was  without  funds  to  meet  the  check, 
though  when  the  payment  was  made  the  officer  making  it 
labored  under  the  mistake  that  there  were  funds  sufficient.6 
A  check  left  with  a  bank  for  collection  and  credited  to  the  depos- 

1  Manhattan   Co.    t.    Lydig,    (1809)  Law    J.  43 ;    Anderson    u.    Leverick, 

4  Johns.  377 .  (Iowa)  30  N.  W.  Rep.  39.     The  court 

'Corbit    v.    Bank     of     Smyrna,    2  distinguished  Jassoy  D.  Horn,  64  111. 

Harr.  (Del.)  235.     Whether  a  bank  can  379,  aud  Long  t.  Straus,  107  Ind.  94; 

go  behind   its    cashier's    entry   on  a  s.  c.,  6  N.  E.  Rep.  123,  and  7  N.  E. 

depositor's  bank  book  to  prove  that  Rep.  763. 

the  amount  deposited  was  a  smaller  5Bank    v.   Headley,    17    W.  N.  C. 

sum  has  been  queried  in  Johnaon  v.  (Pa.)  557. 

Farmers' Bank,  1  Harr.  (Del.)  117.  6City    National     Bank     n.    Burns, 

3  Brahm  r.  Adkins,  77  111.  263.  (1880)  68  Ala.  267;  citing  Chambers  v. 

*  Talcott    v.    First    Nat.     Bank    of  Miller,  13  C.  B.  (N.  S.)  125;  Levy  t>. 

Larned,  (Kans.  1894)36Pac.  R^p.  1066.  U.  S.  Bank,  4  Dall.  234;  Oddie  v.  Na- 

See  Davis  r.  Bank,  53  Mich.  163;  s.  c.,  tional  Bank,  45  N.  Y.  735;  s.  c.,  6  Am. 

18  N.  W.  Rep.   629;  Bank  T.  Smith,  Rep.  160;  Bolton  r.  Richard,  6  Term 

19  Johns.  116;  Asher  r.  Bank,  7  Alb.  Rep.  139;  National  Bank  T.  Burkhardt, 


!•">]  DEPOSITS  AXI>  CHECKS.  601 

itor  may  IK-  charged  back  to  him  in  CUM-  the  check  proves  a 
fraudulent  <>m-.'  Where  commercial  J»HJM.T  is  delivered  to  a 
l>;mk  under  an  urrangem«Mit  that  tin-  dep.^itor  lie  allowed  to 
dra\v  a^ain.-t  it,  tin-  paper  !«•<•.  pr.ijK-rtv  «.f  tin-  Umk,  and 

tin-  depositor  cannot  then-after  claim  it.7  The  mere  diK-ountin^ 
<»f  paper  and  placing  the  amount  thereof  to  the  credit  of  u 
depositor  who  already  lias  a  large  l*alanee  to  hi.-,  credit,  will  not 
make  the  hank  a  purchaser  for  value  BO  as  to  protect  it  against 
infirmities  in  the  paper.  Entering  the  amount  of  t!i«-  discount 
to  the  credit  of  the  depositor  simply  creates  the  relation  between 
the  hank  and  depositor  of  debtor  and  creditor ;  and,  as  long  as 
that  relation  remains  and  the  deposit  is  not  drawn  out,  tlic  hank 
has  simply  promised  to  pay  ;  the  depositor  has  parted  with  no 
value  and  would  not  be  entitled  to  the  protection  of  a  bona  jid* 
holder  of  paper.3  But  while  the  mere  discounting  of  paper  by  a 
hank  and  placing  the  amount  thereof  to  the  credit  of  a  depositor 
having  already  a  balance  to  his  credit  will  not  constitute  the  bank  a 
purchaser  for  value  so  as  to  cut  off  equities,  yet,  as  by  the  dis- 
count and  credit,  it  becomes  a  debtor  to  the  depositor  if  before 
receiving  notice  of  any  infirmity  in  the  paper  it  pays  out  on  the 
checks  of  the  depositor  the  full  amount  due  him,  including  the 
discount,  the  bank  thereby  will  become  a  purchaser  for  value  to 
as  to  be  entitled  to  full  protection.4  This  rule  would  obtain 
though  the  depositor,  by  subsequent  deposits  or  discount*,  pre- 
serve a  constant  balance  to  his  credit,  for,  in  the  absence  of 
special  facts  demanding  a  different  rule,  payments  are  applied  to 
the  oldest  debts.5  The  fact  that  the  depositor  lie  itself  a  l»ank 
and  the  regular  correspondent  of  the  discounting  bank  would 
not  change  the  rules  as  already  stated.8 

100  U.  8.  688.  The  Alabama  court  Btillcnc  r.  Coates,  (1883)  79  Mo.  498; 
distinguished  Boy  dr.  Em  mcrson,  2  Ad.  Armstrong  r.  Exchange  National 
&  Ell.  184,  and  Kilsby  r.  Williams,  5  Bunk,  1*1  U.  S.  483.  When  hanki-n. 
Barn.  &  Aid.  815.  See  on  the  subject  will  not  In-  held  liable  MfOaHBtoroof 
of  drawing  checks,  Martin  r.  Morgan,  adojxw.it  madr  with  other  banker*,  •in- 
flow, 128;  8.  c.,  8  J.  B.  Moore,  035;  Dustin  &  Miwick  r.  Hodgen.  (1888)  4? 
Peterson  r.  Union  National  Bank,  52  III.  12-V 

Pa.   Ht.  206;   National  Gold  Bank  &  »Munn   r.    S-roml    National    Bank. 

Trust  Co.  r.  McDonald,  51  Cal.  64;  ».  (1888)  SO  Kaon.  412. 

c ..  21  Am.  Rep.  607.  4  Fox  r.  Bank  of  Kan***  City.  (1889) 

»  Kapp  r.  Bank,  26  \V.  N.  C.  (Pa.)  80  Kann.  441. 

458.  '  n»id. 

*  Flannery  r.  Coates,  (1888)  80  Mo.  « Ibid.      As  to  wh*<                 u»    a 

444;  Ayres  c.  Bank,  (1888)79  Mo.  421;  It-gal  deposit  of  money  in  a  bmnk 
76 


G02  DEPOSITS  AND  CHECKS.  [§';1'; 

§  316.  Depositors  —  duty  and  rights. —  Depositors  must 
know  and  conform  to  the  ordinary  usage  of  business  of  the  bank.1 
Where  one  of  two  partners  carrying  on  business  in  his  own  name 
deposits  moneys  of  the  firm  in  his  own  name  in  bank,  the  other 
partner  will  have  the  right,  during  the  lifetime  of  his  partner,  to 
change  the  account,  placing  it  to  the  credit  of  the  firm,  and  after 
his  death  to  draw  against  it  as  surviving  partner.2  Though  a 
depositor's  account  may  be  deemed  balanced,  and  the  lapse  of 
time  be  such  that  as  a  whole  account  it  cannot  be  opened,  yet 
particular  items  may  be  shown  to  be  false.3  A  depositor  is  not 
precluded  by  a  rule  of  a  bank,  that  all  payments  made  and  received 
must  be  examined  at  the  time,  from  showing  afterwards  that 
there  was  a  mistake  made  in  the  entry  of  his  deposit.4  Neither 
will  he  be  concluded  by  entries  made  in  his  deposit  book  by  the 
bank  in  writing  up  his  account  if  he  has  made  objection  to  it 
within  a  reasonable  time  after  the  account  was  written  up.5 
Where  the  entry  of  a  deposit  was  made  by  the  teller  of  a  bank, 
and  the  amount  was  erroneously  stated  to  him  by  the  depositor's 
clerk,  and  the  depositor  questioned  its  correctness  on  the  day  of 
the  deposit,  as  soon  as  he  discovered  a  mistake  had  been  made, 
the  Supreme  Court  of  New  York  held  that  the  depositor  should 
be  allowed  to  recover  from  the  bank  the  difference  between  the 
amount  entered  and  the  true  amount.6  The  United  States 
Supreme  Court  has  held  that  a  depositor  in  a  bank  was  estopped 
to  question  the  correctness  of  his  bank  account  by  omission  to 
examine  entries  in  his  pass  book  and  vouchers  returned,  and  to 
report  errors.7  They  also  held  that  a  depositor  intrusting  exami- 

the  bank's  liability,  see  Jackson  Insur-  5  Schneider  t.  Irving  Bank,  (1865)  1 
unce  Co.  v.  Cross,  (1872)  9  Heisk.  Daly,  500;  s.  c.,  30  How.  Pr.  190.  See 
(Tenn.)  283.  Godin  v.  Bank  of  the  Commonwealth, 
'American  National  Bank®.  Bushey,  6  Duer,  76,  as  to  what  amounts  to  an 
45  Mich.  135.  As  to  the  effect  of  accounting  between  a  bank  and  a  de- 
usage  of  the  bank  upon  other  par-  positor  which  will  bind  the  latter, 
ties,  see  Leavitt  v.  Simes,  3  N.  H.  6  Mechanics  &  Farmers'  Bank  ». 
14;  Piscataqua  Bank  t».  Carter,  20  N.  Smith,  (1821)  19  Johns.  115.  In  Win- 
H.  246,  248;  Moore  «.  Waitt,  13  N.  H.  ter  v.  Bank  of  New  York,  2  Caines, 
415;  Crosby  v.  Wyatt,  10  N.  H.  318.  337,  a  bank  was  held  liable  to  the  true 

2  Commercial  National  Bank  r.  Proc-  depositor,  though  the  deposit  had  been 
tor,  (1881)  98  111.  558.  partly  credited    to    one    who  falsely 

3  Manhattan  Co.  v.  Lydig,  (1809)  4  claimed  to  be  the  depositor,  and  the 
Johns.  377.  bank  had  parted  with  value  to  him  on  it. 

4 Mechanics    &    Fanners'    Bank    v.       'Leather    Manufacturers'    Bank    v. 
Smith,  (1821)  19  Johns.  115.  Morgan,  117  U.  S.  96. 


§  3H»]  DEPOSITS  AND  CHECKS. 

nation  of  his  bank  account  ami  \oin-hrrs  to  hi*  clerk,  without 
proper  supvrvi>ion,  was  liable  for  low  by  tin-  clerk's  forgerie*, 
win-re  the  bank  had  used  due  care.1  A  check  drawn  by  a  depos- 
itor, never  accepted  and  not  accounted  for,  would  be  no  obstacle 
to  a  suit  for  the  deposit.2  In  an  action  against  a  depositor  for  an 
overdraft  lie  may  set  off  COUJMWS,  payable  to  bearer,  f«»r  which 
the  l.ank  may  be  liable.8  Should  a  depositor  on  the  same  day  of 
his  deposit,  and  before  it  is  placed  to  his  credit  «»n  the  books  of 
the  bank,  direct  the  cashier  to  change  the  deposit  to  the  credit  of 
another,  which  is  done,  and  the  money  be  drawn  out  on  the  <• 
of  the  latter,  the  depositor  will  not  be  allowed  to  recover  the 
amount  of  the  deposit  from  the  bank.4  As  a  gene  ml  rule, 
deposits  of  money  in  bank,  subject  to  the  checks  of  the  depositor, 
draw  no  interest.  It  seems  that  if  there  should  be  unreasonable 
and  vexatious  delay  in  payment  the  depositor  may  demand  inter- 
est.9 In  an  Illinois  case  it  appeared  that  a  dc]x>sitor  in  a  bank, 
expecting  to  be  absent  for  a  short  time,  gave  his  clerk  and  book- 
keeper a  power  of  attorney  to  draw  checks  on  the  bank  ai: 
deposits  for  fifteen  days  only,  and  placed  the  power  of  attorney 
with  the  bank.  After  his  return  he  resumed  drawing  his  own 
checks.  But  after  the  expiration  of  fifteen  days  the  clerk  con- 
trived to  draw  checks  without  the  knowledge  of  the  depositor,  a 
part  of  which  he  applied  to  the  business  of  his  employer  and 
appropriated  the  balance  to  his  own  use.  In  the  depositor's  suit 
against  the  bank  to  recover  his  deposits,  the  Supreme  Court  held 
that  the  bank  was  liable  to  the  depositor  for  the  moneys  |>aid  out 
on  the  checks  drawn  by  the  clerk  after  his  agency  ceased,  so  far 

1  Leather    Manufacturers'    Bank    r.  of   proceeding  against  him.     Sammto 

Morgan,  117  U.  8.  96.  t>.  Clark,  13  III.  544;  Hill  r.  Allen.  IS 

*  Jackson    Insurance  Co.    r.    Cross,  111.  592.     And  the  defending  in  good 

(1872)  9  HeSsk.  (Tenn.)  888.  faith  of  a  suit  drought  for  the  recovery 

'Bank  of  the  United  States  r.   Mac-  of  the  money  is  not  a  vexatious  delay. 

alester,  9  Pa.  St.  475.  Aldrich  r.  Dunliain,  10  III.  403."     In 

«Neff    ft    Greene  County  National  Jassoy   r.    Horn.   (1K72)   61    III  HI. 

Bank,  (1886)  89  Mo.  581.  where   payment   of   an   account 

4  First  National  Bank  of  Springfield  denced  dy  the  entries  in  a  depositor'* 

v.  Colcman,  (1882)  11  Bradw.  (111.)  508.  book  had  bren  repeatedly   drmandrd 

The  court  said:  "  It  cannot  de  said  that  and  ten  year*  had  rlapM-d  after  toe  dc 

there  has  deen  any  unreasonable  and  posit  of  tin-  money,  the  IllinoU  Suprrou- 

vexatious  delay,  unless  the  debtor  has  Court  held  tliat  the  delay  of  payment 

thrown  some  obstacle  in  the  way,  or,  was  vexatious  and   unreasonable  ami 

by  some  management  of  his  own,  in-  that  interest  should  be  allowed  on  the 

duccd  the  creditor  to  prolong  the  term  account. 


(•04  DEPOSITS  AND  CHECKS.  [§  316 

as  he  had  appropriated  them  to  his  own  use.1  It  was  insisted 
before  the  court  that  the  court  before  which  this  case  was  tried 
had  erred  in  rendering  judgment  for  any  greater  sum  than  the 
amount  checked  out  by  the  clerk  before  the  bank  book  or  pass 
book  of  the  depositor  was  written  up  the  first  time,  when  all  the 
checks  were  returned  to  the  depositor.  It  was  claimed  that  from 
that  date,  at  least,  the  bank  had  the  right  to  presume  that  the 
clerk  had  authority  to  draw  checks.  The  Supreme  Court,  how- 
ever, affirmed  the  judgment.2  In  a  case  where  a  bank  received 
a  deposit  of  a  check  under  an  agreement  that  the  check  should  be 
paid  out  of  the  first  unappropriated  funds  of  the  drawer  that 
came  in,  and  large  sums  came  in  from  the  drawer,  but  all  appro- 
priated, the  bank  was  held  not  liable  upon  its  agreement.3  There 
must  be  a  demand  for  payment  before  a  suit  can  be  brought 
against  a  bank  for  a  deposit.4  And  this  demand  previous  to  a 
suit  is  indispensable  to  the  maintenance  of  a  suit  for  such  deposit, 
unless  circumstances  are  shown  which  amount  to  a  legal  excuse 
for  not  making  such  demand.5  A  depositor,  however,  would 
have  an  immediate  cause  of  action  against  a  bank  and  its  stock- 
holders for  the  amount  of  his  deposit  upon  stoppage  of  payment 
by  the  bank.6  An  action  against  the  bank  cannot  be  maintained 

1  Manufacturers'   National  Bank  v.  thority  with  the  bank,  in  pursuance  of 

Barnes,  (1872)  65  111.  69.  a   previous  arrangement,   were  suffl- 

8  Ibid.     The  court  said:  "  The  same  cient  to  show  the  bank  that  the  plain - 

question  arose  in  the  case  of  Weisser  v.  tiff  had  no  intention  of  giving  to  the 

Denison,  10  N.  Y.  68.     There,  as  here,  clerk  a   general    authority  to    draw, 

a  clerk  had  drawn  checks  in  the  name  The  bank  was  guilty  of  great  negli- 

of  his  employer,   and  the  pass  book  gence  in  paying  checks  of  the  clerk 

had  been  several  times  written  up  and  drawn  after  that  period,  and  cannot  be 

the  checks  returned  before  discovery  excused  merely  because  the  plaintiff 

of  the  fraud.     The  court  held  that  the  failed  to  examine  the  returned  checks, 

balancing  of  the  pass  book  and  the  re-  which  he  had  a  right  to  presume  had 

turn  of  the  checks  are  for  the  protec-  been  drawn    by  himself  alone.     We 

tion  of  the  depositor,  and  not  for  that  consider  the  reasoning  of    the   New 

of  the  bank,  and  the  failure  of  the  de-  York  Court  of  Appeals,  in  the  case 

positor  to  examine  the  checks  is  not  cited,  very  satisfactory,  and  adopt  its 

such  negligence  on  his  part  as  to  ex-  decision  as  the  better  rule." 

onerate  the  bank  from  liability  for  the  3  Johnston  T.  Bank,  101  Pa.  St.  600. 

continued  payment  of  checks  improp-  4  Downes  r.  Phoenix  Bank,  (1844)  6 

erly  drawn.     *    *    *    The  facts  that  Hill,  297. 

the  plaintiff  [in  the  case  before  us]  had  5  Brahm  v.  Adkins,  77  111.  263. 

been  thus  careful  to  give  the  clerk  ex-  *  Mitchell  v.  Beckman,  (1883)  64  Cal. 

press  written  authority,  and  to  limit  it  117. 
to  fifteen  days,  and  to  lodge  this  au- 


§  31  <'•  |  DEPOSITS  AND  CHECKS.  •       . 

upon  a  certificate  of  drjKisit  issued  to  one,  "  subject  to  order  of 
himself  *      *      and  payable  on  return  of  thw  eertitiotle" 

before  a  demand  for  payment  and  a  refusal  to  pay.1  A  .1.  IH.-H 
will  bo  ivlk'ved  from  demanding  the  payment  of  l.i- ij.-|.,Hiit  a* 
preliminary  to  the  right  to  sue,  by  a  notirr  fnun  the  bank,  or  by 
an  advertisement,  that  his  claim  would  not  be  paid  at  tin-  | 
ter.3  Upon  the  suspension  of  a  national  bank  and  tin-  apjM>int 
ment  of  a  receiver,  a  depositor  in  the  bank,  from  the  date  of  hi* 
demand  for  it,  will  be  entitled  to  interest  on  his  deposit.*  Where 
money  may  be  deposited  by  the  drawee  in  a  bank  to  pay  n 
tain  draft,  not  there  at  the  time,  the  drawers  would  have  no 
interest  on  the  money  until  the  application  to  their  draft 
The  drawee  may  revoke  his  direction  at  any  time  before  tins 
money  is  so  applied.4  In  an  Indiana  case  one  who  wished  a  loan 
of  money  employed  a  firm  to  negotiate  it  for  him.  They  apjilir.1 
to  another  firm,  who  procured  the  money  from  their  principal,  a 
security  company,  and  deposited  it  in  bank.  Soon  afterwards  tin- 
first  party  executed  his  note  and  mortgage  for  the  amount  mid 
delivered  them  to  the  firm  who  hail  procured  the  money,  ami 
they,  in  turn,  left  a  check  on  the  bank,  with  one  of  the  firm  first 
named,  to  be  delivered  to  the  first  party  when  he  obtained  t!u» 
release  of  prior  incumbrances  on  his  land,  which  he  agreed  to  d«» 
at  a  certain  time.  lie  did  not  carry  out  the  agreement  at  the 
time  fixed,  nor  subsequently,  and  ten  days  later,  while  the  check 
was  still  in  the  keeping  of  others,  the  bank  on  which  it  was  drawn 
failed.  The  court  held  that  the  loss  was  not  his,  and  that  ho 
could  maintain  an  action  against  the  security  company  for  the 
surrender  and  cancellation  of  the  note  and  mortgage.1  One  keep- 
ing  an  account  with  a  bunking  house,  depositing  funds  which  an? 
at  the  time  current,  has  a  right  to  insist  upon  payment  in  current 
funds,  although  the  funds  deposited  may,  in  the  meantime,  have 
depreciated  in  value.'  There  has  been  a  ease  before  the  Supreme 

•Brown  t>.  McElroy,  (1876)  53  Ind.  'National  Bank  ».   Mechanic.'  Na 

404.  tionnl  Hank.  04  U.  8.  487. 

'Farmers   &   Mechanics'    Bank    i».  'Bank   r.  lligbre.  10U  IV  8t   ISO. 

Planters'  Bank,  10  G.  &  J.  (Md.)  488.  » Security   Company   r.  Bail.  (lw«. 

That  demand  must  be  made  for  pay-  107  Ind.  186. 

ment  of  deposit  before  action  to  re-  •  WUIetU  ».    Pfcine.    (1887)  4S   III. 

cover  it,  see  National  Bank  of  Fort  Ed-  481. 
ward  r.  Washington  County  National 
Bank,  (1875)  5  Hun,  006. 


606 


DEPOSITS  AND  CHECKS. 


[§  316 


Court  of  Michigan  in  which  it  appeared  that  the  two  members  of 
a  firm  joined  in  a  letter  to  the  bank,  in  which  the  firm  kept  an 
account,  instructing  it  to  pay  no  checks  on  the  part  of  the  firm 
unless  they  were  countersigned  by  a  son  of  one  of  the  partners, 
who  was  the  bookkeeper  of  the  firm.  The  other  partner  made 
an  arrangement  with  the  bank  by  which  he  was  to  get  money  for 
their  business  at  another  point  where  he  conducted  it.  He  drew 
a  number  of  checks  in  the  name  of  the  firm  at  different  times 
which  were  not  countersigned  by  the  bookkeeper.  A  check 
drawn  in  this  way  finally  came  back  to  the  bank  not  paid,  and 
was  charged  up  to  the  firm.  For  overdrafts  on  this  account 
the  bank  brought  its  action  against  the  firm.  On  the  trial  of  this 
action  there  was  no  showing  by  the  bank  that  the  firm  derived 
any  benefit  from  the  moneys  received  upon  these  checks,  it  rest- 
ing its  claim  upon  the  contract  implied  from  the  signing  of  the 
checks  in  the  firm  name.  The  majority  of  the  court  affirmed  the 
judgment  of  the  trial  court  in  favor  of  the  firm.1  A  person 


1  Gladstone  Exchange  Bank  v.  Keat- 
ing, (1892)  94  Mich.  429.  MONTGOM- 
ERY, J.,  speaking  for  the  majority, 
said:  "  It  is  suggested  that  the  burden 
of  proof  would  rest  upon  the  defend- 
ants to  show  that  the  moneys  did  not 
go  to  the  benefit  of  the  firm.  In  ray 
judgment,  this  is  not  the  correct  rule 
in  such  a  case.  The  [bank]  seeks  to 
recover,  notwithstanding  it  appear? 
affirmatively  that  the  money  was  paid 
out  by  it  upon  checks  which  were 
drawn  without  the  requisite  authority 
of  the  firm.  There  can  be  no  doubt 
about  the  power  of  either  member  of 
a  copartnership  to  protect  himself  by 
stipulating  that  the  other  member  shall 
not  have  the  authority  to  bind  the  firm 
by  signing  checks,  if  notice  is  given 
to  the  bank  which  is  the  depository 
of  the  firm;  and  when,  on  the  affirma 
tive  showing  of  the  bank,  as  in  this 
case,  it  appears  that  the  bank  has  dis- 
regarded the  notice,  how  can  it  be  said 
that  a  prima  facie  case  is  shown,  with- 
out further  showing  that  some  benefit 
was  derived  by  the  firm  from  the  pay- 
ment of  the  money?  It  is  suggested 


in  the  case  that  the  defendants  are 
estopped  from  relying  upon  this  de- 
fense, for  the  reason  that  there  was  an 
opportunity  for  an  examination  of  the 
account  and  checks,  and  that  the  de- 
fendants should  have  examined  these 
checks,  and  notified  the  [bank]  of  the 
excess  of  authority  and  of  the  inva- 
lidity of  the  checks."  The  case  of 
Bank  «.  Morgan,  117  U.  8.  96,  cited  to 
sustain  this  position,  was  distinguished 
in  the  opinion  of  the  Michigan  Su- 
preme Court,  as  follows:  "But  in  the 
case  cited,  the  party  drawing  the  check 
had  prima,  facie  authority  to  draw  it; 
the  bank  acted  in  good  faith  in  making 
the  payment;  the  check  passed  back 
into  the  hands  of  the  drawer,  with 
opportunity  to  examine  and  observe 
the  error;  it  appeared  charged  in  the 
account  of  the  drawer.  Under  these 
circumstances,  it  was  held  that  there 
was  a  duty  to  notify  the  bank,  in  order 
that  it  might  protect  itself.  But  what 
notice  was  requisite  in  this  case  to 
enable  the  bank  to  protect  itself?  The 
moment  it  paid  one  of  these  checks, 
its  officers  knew  from  direct  notifica- 


17J  HKI'oSlTJi    AM.   •   lit.   D,  '-."7 

depositing  money  with  on.-  hank,  to  !*•  tranMiutted  for  hie  me 
and  benefit  to  another  hank,  which  refit***  or  is  unable  to  receive 
it,  and  cannot  be  compelled  t..  receive  it,  tin-  purpose  of  the 
depo.,jt  failing,  the  hank  s<>  receiving  tin-  MHIH-  will  hold  it  to  tlio 
use  of  the  depositor,  and  must  account  t.>  him  for  it.  Money  BO 
deposited  and  expressed  in  the  certilicut.- of  deposit,  to  be  for- 
warded in  the  usual  course  of  business,  cannot  be  regarded  as 
assets  of  the  bank  to  which  it  was  to  be  remitted,  and  the  bank 
receiving  the  deposit  cannot  apply  the  same  in  payment  of  debts 
due  from  the  correspondent  bank,  nor  would  such  money  be  sub- 
ject to  garnishment  at  the  suit  of  creditors  of  that  bank.1 

§  317.  When  ownership  of  deposit  is  questioned  -  rules. 
In  a  controversy  over  the  right  to  a  bank  deposit  where  it  i- 
denied  that  the  depositor  was  the  owner  of  the  fund,  and  entitled 
to  draw  the  same  from  the  hank,  it  may  be  shown  that  tin- 
ownership  of  the  deposit  is  in  another,  and  that  a  payment  to 
him  releases  the  bank  from  liability.*  A  receiver  of  a  corpora- 
tion appointed  upon  the  removal  of  a  former  receiver  drawing  a 
check  upon  the  bank,  where  the  receiver's  deposits  of  funds  had 
l>een  made  for  a  supposed  balance  due  on  that  account,  the  bank 
declined  to  pay  it  on  the  ground  that  there  was  no  such  balance. 
The  evidence  showed  the  payment  of  a  check  by  the  former 
receiver  drawn  to  an  individual  for  the  amount  of  money  received 
by  him  belonging  to  her  and  deposited  to  the  credit  of  the 
receiver's  account.  In  an  action  upon  the  protested  check  the 
bank  had  judgment  in  its  favor.  Upon  ap|>cal  the  Maryland 
Court  of  Appeals  affirmed  this  judgment,  holding  that  where 
such  a  receiver  had  deposited  to  his  credit,  as  receiver,  money 
belonging  to  an  individual,  the  corporation  was  under  obligation 
to  repay  such  person,  and  was,  therefore,  not  prejudiced  by  the 

tion  that  they  were  violating  the  ex-  which  the  Imuk.  a*  well  a*  the  defend 

press    instructions   and   directions  of  ants,  was  apprised."     (tRA\T.  .1 

defendants.     Why  notify  them  of  what  sentod    on    inch  of    the   poinU    ju*t 

they  already  knew?     If  either  party  discussed. 

was  entith-d  to  notice  of  this  transac-       '  Drovers'  National  Bank  r.  O'lUrr. 

tion  from  the  other,  it  was  certainly  (1887)  119  111.  M8;  s.  c.,  10  ' 

the    two  defendants,   as  individuals,  860;   followed   in  Union  St«»rk  Yanl« 

who  were  entitled  to  notice  from  the  Nat.  liank  r.  Dumond.  (1HW)  150  III 

bank  that  some  person  connected  with  501;  *.  r..  37  N.  E.  Hep.  WW 

the  firm  was  assuming  to  violate  the       MVirhita     Nat.     Bank    r.    Maltby, 

express  instructions  of   the  firm,   of  (Kans.  1*04)  »l  Par.  Rep.  U«0. 


608  DEPOSITS  AND  CHECKS.  [§  317 

giving  of  a  check  by  the  receiver  to  the  individual  in  payment  of 
the  obligation.1  Neither  the  bank  nor  the  attorney  can  dem 
that  money  deposited  by  the  depositor  as  attorney  for  another 
belongs  to  the  latter.2  Money  credited  to  a  depositor  may  be 
shown  to  be  the  property  of  a  third  person  and  be  reached  by 
attachment  against  the  latter,  or  he  may  stop  payment  by  proper 
notice.  In  the  absence  of  any  extrinsic  claim,  however,  to  the 
money  the  bank  would  be  bound  to  honor  the  depositor's 
check.3  In  the  absence  of  proof  of  fraud  a  deposit  in  the  name 
of  a  third  person  is  prima  facie  a  payment  of  a  debt  due  him, 
and  the  third  person's  ownership  will  be  good  as  against  all  other 
persons.4  The  prima  facie  presumption  is  that  money  deposited 
in  a  bank  belongs  to  the  person  in  whose  name  it  may  have  been 
deposited ;  if  claimed  by  another  person  the  burden  of  proof 
would  be  upon  him  to  establish  his  ownership.5  And  a  bank  will 
not  be  permitted  to  allege  that  money  received  by  it  from  a 
depositor  belongs  to  some  one  else.6  In  an  Ohio  case  a  party 
deposited  money  in  one  bank  to  the  credit  of  another  bank,  but, 
without  knowledge  of  the  latter,  took  a  letter  from  the  bank 
securing  the  deposit,  addressed  to  the  one  credited  with  the 
deposit,  advising  it  of  the  deposit,  and  afterwards  delivered  the 
letter  to  a  third  person,  with  his  own  name  indorsed  on  the  letter 
in  blank,  for  presentation  to  the  bank  credited  with  the  deposit. 
The  court  held  that,  as  between  the  depositor  and  the  latter  bank, 
the  bearer  of  the  letter  had  authority  to  control  the  fund,  and, 
for  that  purpose,  to  write  a  check  or  order  over  the  blank  signa- 
ture ;  also,  it  was  held  that  the  fact  that  this  bank  held  the  note 
of  the  party  making  the  deposit,  then  overdue,  did  not  constitute  a 
notice  that  the  fund  was  to  be  applied  to  the  payment  of  this  note.7 

1  Eccles  v.  Drovers  &  Mechanics'  Rice  v.  Foster,  6  Ohio,  279;  Mitchel  v. 

Nat.  Bank,  (Md.  1894)  29  Atl.  Rep.  McCabe,  10  Ohio,  405;  Moore  ».  Gano, 

963.  12  Ohio,  300;  Howe  ».  Hartness,  Hill 

'Burger  v.  Burger,  135  Pa.  St.  &  Co.,  11  Ohio  St.  449;  Cornwell  v. 

499;  s.  c.,  26  W.  N.  C.  (Pa.)  355.  Kinney,  1  Handy  (Ohio),  496;  Fuller- 

"Hemphill  v.  Yerkes,  132  Pa.  St.  545;  ton  v.  Sturges,  4  Ohio  St.  529;  Putnam 

s.  c.,  25  W.  N.  C.  (Pa.)  417.  v.  Sullivan,  4 Mass.  45;  Selser  v.  Brock, 

4  Ferry  v.  McKenna,  9  Pa.  Co.  Ct.  3  Ohio  St.  307.  In  Tradesmen's  Bank 

Rep.  17.  v.  Astor,  (1833)  11  Wend.  87,  the  facts 

*  Egbert  v.  Payne,  99  Pa.  St.  244,  were  that  the  president  of  the  bank 

'  Bank  v.  Alexander,  120  Pa.  St.  476.  became  treasurer  of  a  voluntary  as- 

f  Weirick  v.  Mahoning  County  Bank,  sociation,  and  as  treasurer  opened  an 

(1866)  16  Ohio  St.  296.  See  Ring  &  account  with  the  bank,  depositing  the 


§  317]  DEPOSITS  AND  CHECKS.  •       • 

A  bank  cannot  claim  a  lien  u{*m  a  hank  ac.  -nod  with  it  In- 

one  as  the  general  agent,  when  it  knows  that  he  U  agent  of  a  cor- 
poration, for  an  individual  debt  of  tin-  depositor  to  the  bank.1 
A  factor  depositing  money  in  a  bank  which  has  knowledge  that 
it  i-  the  proceeds  of  sales  of  goods  for  his  principal'*  account, and 
the  principal's  ownership,  the  hank  will  not  \tc  allowed,  as 
against  the  principal,  to  appropriate  the  deposit  to  jwvment  <,f  ;i 
general  balance  due  from  the  factor  to  the  hank.1  A  bank 
refusing,  without  cause,  to  honor  a  depositor's  check  has  been 
held  liable  for  substantial  damages,  though  no  special  loos  was 
shown.3  In  case  a  bank,  with  which  an  agent  or  trustee  has 
deposited  money  belonging  to  his  principal  or  beneficiary,  without 
his  authority,  and  in  ignorance  of  the  true  ownership  of  the 
fund,  applies  the  deposit  to  a  debt  which  the  depositor  may  owe 
it,  the  owner  would  not  1x3  debarred  by  that  fact  from  recovering 
the  money  from  the  bank  if  it  can  be  identified.4  The  rule  that 
a  trustee  may  follow  trust  property  as  long  as  it  can  be  traced 
has  no  application  in  an  action  to  recover  money  as  a  get 
deposit  in  a  bank.5  As  against  a  depositor,  a  bank  cannot  allege 
that  the  fund  in  its  hands  belongs  to  a  third  person  au 
whom  the  bank  has  a  counterclaim.6  A  bank  would  not  bo 
authorized  to  pay  out  money  on  check  of  a  depositor  in  hi* 
individual  name  where  the  deposit  has  been  credited  to  him  a* 
trustee.7  The  money  l>elonging  to  a  county  deposited  by  a 
county  treasurer  in  a  hank  in  his  name  as  u  treasurer,"  no  money 
of  the  treasurer  being  mixed  with  it,  upon  his  l»ecoming  a 
bankrupt,  belongs  to  the  county,  and  it  would  IHJ  no  defense  in  an 
action  against  the  bank  to  recover  the  deposit  that  it  had  l>een 
paid  to  the  assignee  in  bankruptcy  of  the  treasurer."  There  in 
justification  for  payhient  by  a  bank  of  money  upon  ordero 
of  the  one  depositing  tho  money  or  his  agent,  until  notice 

funds  of  the  association  therein,  which  •  Patterson  r.  Bank.  130  Pa,  8L  418. 

account  he  overdrew.      It  was  held  •  Burtnett  c.  First  National    Dank, 

that    tho    bank    could     recover    tho  88  Mich.  680. 

amount  overdrawn  from  the  members  'McLain  r.  Wallace.  (1885)  10t  Ind. 

of  the  association  as  he  drew  upon  the  562. 

account  as  the  agent  of  the  association.  •  Bank  c.  Mason.  Vi  Pa.  St  118. 

1  National    Bank   r.    Insurance  Co.,  '  Ihl   r.   Bank  of  St.  Joaeph.  (1887) 

104  U.  8.  64.  86  Mo.  App.  199. 

•  Union      Stock   Yards     Bank      v.  •  Supervisors    of  Schuylor    County 

Qillespie   187  U.  8.  41t  «.  Bank  of  Havana,  (1875)  5  Hun.  649. 

77 


610  DEPOSITS  AND  CHECKS.  [§318 

is  received  of  an  adverse  claim  of  ownership  of  the  funds.1 
"Where  a  bank  is  notified  of  adverse  claims  to  a  deposit,  as  that  a 
depositor  has  parted  with  his  interest,  and  others  have  succeeded 
to  his  rights  by  his  act  or  through  operation  of  law,  the  bank 
would  not  be  justified  in  paying  the  depositor.2  When  a  bank 
is  enjoined  by  a  court  from  paying  the  sum  deposited  with  it, 
either  to  the  depositor  or  to  his  assignee,  it  is  its  duty  to  obey  the 
mandate  of  the  court,  and  not  to  pay  out  the  funds  deposited 
with  it  until  the  parties  claiming  the  same  can  have  an  oppor- 
tunity to  contest,  by  interpleader  or  otherwise,  the  good  faith  of 
the  assignment.3  Should  a  bank  pay  to  any  person  other  than 
the  depositor  the  money  he  may  have  deposited  with  it,  the  bank 
would  be  required  to  show  not  only  that  the  money  did  riot 
belong  to  the  depositor,  but  that  it  did  belong  to  the  person  to 
whom  it  was  paid.4  Where  money  belonging  to  one  person  had 
been  deposited  in  a  bank  in  the  name  of  another,  the  bank's  pay- 
ment to  the  committee  of  the  real  owner  of  the  money  (the 
owner  having  became  a  lunatic)  was  held  by  the  New  York 
Court  of  Appeals  to  have  been  legal  and  to  have  discharged  the 
bank,  and  that  it  was  a  protection  against  the  equitable  claim  of 
a  third  person  to  whom  the  one  in  whose  name  the  money  was 
deposited  had  given  a  check,  of  which  facts  the  bank  had  no 
notice.9 

§  318.    The  passing   of  title   by  deposit  of  a   check.— 

Whether  the  title  to  a  check  deposited  with  a  bank  passes  to  the 
bank  before  collection,  so  as  to  immediately  create  the  relation  of 
debtor  and  creditor  between  the  bank  and  a  depositor,  is  a  ques- 
tion of  fact  depending  upon  the  circumstances  and  course  of 
dealing  in  each  particular  case.  Here  certain  checks  marked 
"  For  deposit "  were  deposited  in  a  bank  at  a  quarter  to  three  on 
Saturday,  and  credit  was  immediately  given  for  the  amount  of 
the  checks  on  the  pass  book  of  the  depositor.  The  bank  closed  at 
three  and  the  next  day  was  declared  insolvent  with  the  checks 
still  in  its  hands.  The  custom  of  the  bank  was,  at  the  close  of 

1  McEwen    v.  Davis,  (1872)  39  Ind.  3  Springfield  Marine    &    Fire    IDS. 

109.  Co.  r.  Peck,  (1882)  102  111.  265. 

'German   Exchange  Bank  v.  Cora-  4 Patterson  «.  Bank  130  Pa.  St.  419- 

missioners  of  Excise,  (Sup.     Ct.    N.  6Viets  v.   Union  National  Bank  of 

Y.   Spl.   Term,    1879)  6  Abb.    N.    C.  Troy,  (1886)  101  N.  Y.  563. 
394. 


IS]  DKP08IT8  AM»  rilKCU.  611 

each  day's  business,  to  balance  its  l*n.ks  crediting  depositor*  with 
the  amount  of  their  checks,  and,  if  a  cheek  was  subsequently 
returned  unpaid  from  the  clearing  house,  it  was  charged  off  to 
the  depositors.  This  depositor  did  not  know  of  thw  custom.  !!•• 
had  made  deposits  with  the  bank  for  several  years  without  any 
special  arrangement,  and  had  never  drawn  against  uncolleeted 
ehecks,  except  by  particular  understanding.  On  these  facts  the 
United  States  Circuit  Court  for  the  district  of  Massachusetts  held 
that  title  liad  passed  to  the  bank  so  as  to  create  the  reluti 
debtor  and  creditor.  Bat  these  facts  being  alleged  in  the 
depositor's  bill  against  the  receiver  of  the  insolvent  hank,  and 
connected  with  further  allegations  that,  at  the  time  the  checks  were 
received,  the  bank  was  "  irretrievably  insolvent,  and  made  so  by 
the  operations  of  the  president  and  two  others  of  the  uircc: 
and  that  the  depositor  then  believed  it  to  be  solvent,  and  hod  no 
means  of  knowing  of  its  insolvency,  the  court  held  thw  was  suffi- 
cient to  show  fraud,  and  to  render  tho  bank  liable  to  return  the 
checks  or  their  proceeds.  Further,  it  was  not  necessary  for  the 
bill  to  specifically  allege  that  the  officers  of  the  bank  had  knowl- 
edge of  its  insolvency,  since  such  knowledge  would  bo  implied 
from  the  allegation  that  the  insolvency  was  caused  by  the  presi- 
dent and  two  of  the  directors.''  This  case  was  on  appeal 
before  the  United  States  Circuit  Court  of  Appeals  for  the  fir*t 
circuit,  and  that  court  held  that,  under  the  circumstances  of  tho 
case,  no  title  passed  to  the  bank  by  the  deposit  of  the 
check  "  For  collection,"  and  that  the  depositor  was  entitled 
to  the  proceds  of  the  check  collected  and  passing  to  the  receiver 
of  the  bank  then  insolvent.2  One  corporation  which  had 

'City  of  Soraerville  ».  Deal,  Re-  phadzes  it.  The  paying  of  actual 

ceiver,  (1892)  49  Fed.  Rep.  790.  money  by  a  customer  into  a  bank  of 

•Beal,  Receiver,  v.  City  of  Somer-  deposit  does  uot  create  a  bail  meat,  be- 

ville,  (1892)  50  Fed.  Rep.  647.  The  cause,  by  the  willed  custom*,  recof  • 

oplnion  of  PUTNAM,  Circuit  Judge,  is  nized  by  the  Suprvme  Court  of  the 

an  elaborate  one,  and  it  so  learnedly  Uniled  Slat**,  the  I!ou«c  of  LonUnnd 

discusses  the  whole  question  and  so  numerous  other  court*,  the  bank  U 

distinguishes  the  cases  on  this  subject  authorized  to  mingle  ihe  money  at 

that  we  give  it  in  this  note.  He  said:  once  with  it*  general  fund,  creating 

"The  fact  that  the  checks  were  ex-  immediately  the  relation  of  debtor 

prcssly  indorsed  'For  deposit.'  does  and  creditor,  subject  by  further  cu»- 

not  change  the  nature  of  what  oc-  torn  to  draft  in  the  iwual  courae  of 

rurred  in  this  instance,  as  there  arc  no  business.  But.  with  reference  to  Ibe 

intervening  equities,  although  it  em-  checks  claimed  by  the  city  of  Somrr- 


612 


DEPOSITS  AND  CHECKS. 


[§318 


deposited  a  sight  bill  drawn  upon  another  indebted  to  it  in 
another  city  in  a  bank  in  which  it  kept  its  account,  and  the  bank 
had  credited  it  to  the  corporation  on  itsbooksas  a  cash  item,  and 
the  bank,  which  was  insolvent  at  the  time,  forwarded  the  bill  to 
its  correspondent  in  the  other  city,  who  collected  the  same  after 
the  bank  had  failed  and  closed  its  doors,  brought  an  action  in  the 
federal  court  for  the  southern  district  of  New  York  against  the 


ville,  the  word  by  which  the  transac- 
tions ordinarily  described  may  con- 
veniently have,  and,  therefore,  should 
have,  its  full  natural  force  and  mean- 
ing. A  mere  deposit  would  only  re- 
quire a  bank  to  keep;  but  a  usage 
requiring  the  Maverick  to  do  in  this 
case  something  more  has  continued  so 
long,  and  is  so  notorious  and  universal, 
that  the  law  can  take  j  udicial  notice  of 
it,  and  it  happens  that  its  terms  and 
limitations  cannot  be  mistaken.  The 
bank  must  use  due  diligence  to  col- 
lect, and  as  collections  are  completed, 
the  bank  no  longer  holds  the  avails  as 
bailee,  but  is  authorized  to  mingle 
them  with  its  other  funds,  and  thus 
constitute  itself  a  debtor.  This,  of 
course,  makes  the  entire  transaction 
something  more  than  a  mere  deposit, 
in  any  proper  sense,  but  this  word 
well  gives  color  to  all  that  follows, 
and  converts  all  that  is  due  between 
the  customer  and  the  bank  to  and  in- 
cluding the  actual  turning  of  the 
checks  into  money,  into  locatio  operis, 
according  to  its  meaning  as  explained 
by  Judge  STOKY  in  his  work  on  Bail- 
ments, chap.  6,  art.  2.  Aside  from 
the  right  of  the  bank  to  constitute 
itself  a  debtor  from  the  time  the 
checks  are  converted  into  cash,  or  its 
equivalent,  instead  of  a  mere  trustee 
or  agent,  no  qualification  of  the  strict 
legal  relations  created  by  a  bailment 
is  deducible  from  the  general  nature 
of  the  transaction,  the  terms  in  which 
it  is  expressed,  or  the  settled  custom, 
or  is  shown  by  the  appellant.  *  *  * 
The  first  impression  coming  from  the 
fact  that  the  deposit  was  immediately 


entered  to  the  credit  of  the  city  in  its 
pass  book  favors  the  view  of  the  ap- 
pellant; but  a  careful  consideration 
will  demonstrate  that  this  was  a  mere 
matter  of  convenience,  and  the  entry 
would  have  been  the  same  on  either 
theory,  as  was  illustrated  in  Manufac- 
turers' Nat.  Bank  v.  Continental  Bank, 
148  Mass.  553;  8.  c.,  20  N.  E.  Rep. 
193,  and  Railway  Co.  v.  Johnston,  133 
U.  S.  566;  s.  c.,  10  Sup.  Ct.  Rep.  390. 
On  the  other  hand,  the  appellant  fails 
to  show  that  the  city  had  an  absolute 
right  to  check  against  the  deposit  as 
soon  as  made,  irrevocable  by  notice 
from  the  bank;  and  that  such  right 
did  not  exist  must  be  received  by  this 
court  as  a  matter  of  judicial  knowl- 
edge, notwithstanding  the  parties  in 
Moors  r.  Goddard,  147  Mass.  287;  s.  c., 
17  N.  E.  Rep.  532,  and  the  complain- 
ant in  this  case  seem  to  have  regarded 
it  necessary  to  prove  the  practice  of  a 
particular  bank  with  reference  to  this 
matter.  This  is  inconsistent  with  any 
theory  except  that  the  bank  is  a  bailee 
of  deposited  checks  until  they  are  col- 
lected; as  is  also  the  admitted  fact  that 
the  bank  is  entitled  to  return  to  its 
customer  an  uncollectible  check, 
though  he  neither  indorses  it  nor  gives 
any  special  agreement  to  that  effect. 
The  appellant  fails  to  show  any  obli- 
gation to  receive  back  such  checks, 
unless  from  special  custom;  and  it  is 
more  in  harmony  with  fundamental 
principles  to  presume  that  this  right 
to  return  grows  out  of  the  former 
than  the  latter.  It  strains  the  IMW 
to  convert  the  natural  incidents  of  a 
bailment  into  a  right  of  an  entirely 


§  318]  DEPOSITS  AND  CHECKS.  Ml 

ver  of  the  bank  to  recover  the  gum  collected  on  this  sight 

bill.     The  question  in  the  case  WES  whether  tin-  <lraft  U-lonped  to 
the  plaintiff  at  the  time  it  was  paid  by  the  drawee.     If  it  did  tin- 
defendant  did  not  acquire  title  to  tin-  money.     If  tin-  trains 
in  controversy  was  equivalent  to  a  discount  of  the  draft  the  bank 
acquired  the  title  to  the   JWJUT;  if  it  was  not,  the  bank  n, 
became  the  agent  of  the   plaintiff  t«>  collect  the  proceeds.     The 

different  character,  to  be  sustained,  if  not  of  importance,  jet  it  is  noteworthy 
at  all,  by  a  custom  violative  of  the  that  the  parties  deemed  h  necessary  to 
ordinary  rules  governing  analogous  prove  the  rule  of  that  state  as  though 
trmvictious.  No  authorities  have  local  and  peculiar,  ami  not  to  be  gath- 
been  cited  or  found  which  hind  this  ered  from  the  common  law.  Bank*. 
court  to  the  contrary  of  what  is  here-  Loyd  is  discussed  by  the  Supreme 
inbefore  expressed.  Railway  Co.  «.  Court  in  Railway  Co.  r.  Johnston,  al- 
Johnston,  133  U.  S.  566;  s.  c.,  10  Sup.  ready  cited;  and  iu  effect  is  staled 
Ct.  Rep.  390,  is  not  iu  point,  as  the  (page  575,  133  U.  8.  and  page  892.  10 
paper  in  question  in  that  case  was  not  Sup.  Ct.  Rep.)  to  be  in  substance  that 
a  check,  but  a  sight  draft,  and  the  dc-  a  transfer  by  a  bank  of  a  draft  de- 
cision was  made  to  rest  mainly  on  the  posited  for  collection  and  indorsed 
ground  of  fraud,  as  was  stated  by  the  generally,  would  confer  till 
learned  judge  from  whose  decree  in  of  'reputed  ownership."  This 
the  Circuit  Court  this  appeal  was  the  pith  of  the  New  York  decision. 
taken.  Ex  parte  Hichdale,  19Ch.  Div.  the  question  being,  not  as  to  ti: 
409,  is  critici/.ed  in  Balbach  r.  Freling-  tween  the  primary  bank  and  its  co»- 
huyseii.  15  Fed.  Rep.  675.  It  can  be  tomer,  but  between  the  latter  and 
ad<l«l  to  what  is  there  said  that  so  far  another  bank  to  which  the  drafts  had 
as  the  case  touches  this  at  bar,  the  been  remitted.  Bank  r.  Hutibell,  11? 
different  judges  who  sat  in  the  Court  N.  Y.  884:  8.  c.,  23  N.  E.  Rep.  MM 
of  Appeal  used  essentially  varying  ex-  (decided  November  26,  1889).  can  be 
pressions,  all  of  which  were  unneces-  distinguished  from  the  case  at  bar 
sary,  beyond  the  proposition  that  the  only  by  the  fact  that  in  the  former  the 
banker  there  in  question  was,  under  checks  were  expressly  indorsed  'For 
the  special  circumstances,  a  holder  for  collection.'  They  wave  charged  by 
value.  Bank  r.  Loyd,  90  N.  Y.  580,  the  depositor  to  the  banker  simul 
so  much  rdic<l  on  as  establishing  an  tancously  with  forwarding  them,  and 
absolute  title  in  the  bank  from  the  in-  were  in  like  manner  credited  at  once 
slant  the  checks  were  deposited,  may  on  reception  and  before  collection,  and 
perhaps  settle  the  law  for  the  state  of  such  as  were  protested  were  charged 
New  York.  It  apparently  was  so  back.  The  banker  did  not  keep  the 
considered  by  Judge  WALLACE  as  late  proceeds  of  the  collections  distinct. 
as  1886,  as  stated  in  Railway  Co.  r.  nor  remit  them  speciflcalh  .  but  they 
Johnston,  27  Fed.  Rep.  243.  The  law  were  mingled  with  his  other  funds, 
of  New  York  was  especially  found  by  and  remittances  of  balance*  were  made 
the  Supreme  Court  of  Massachusetts  each  week.  These  covered  the  exist- 
to  be  as  stated  in  Bunk  r.  Loyd,  in  ing  credit*  on  the  bnokaof  the  hanker. 
Brooks  r.  Bigelow,  142  Mass.  6;  s.  r.,  whether  or  n«»t  at  that  time  coll.-  t.il 
6  N.  E.  Rep.  766,  and  though  perhaps  This  method  of  business  had  continued 


614 


DEPOSITS  AND  CHECKS. 


[§318 


bill  was  dismissed.1  The  mere  credit  of  a  check  upon  the  books 
of  a  bank,  which  may  be  canceled  at  any  time,  does  not  make  the 
bank  a  bonajide  purchaser  for  value.  If,  after  such  credit,  and 
before  payment  for  value  upon  the  face  thereof,  the  holder 
receives  notice  of  the  insolvency  of  the  bank,  it  cannot  become  a 


for  many  years.  Notwithstanding  the 
checks  were  indorsed  specially  'For 
collection,'  the  transactions  as  a  whole 
were  identical  in  substance  with  those 
usual  in  connection  with  a  deposit  as 
made  in  the  case  at  bar;  and  the 
course  of  proceedings  and  the  practi- 
cal construction  given  them  by  the 
parties  were  precisely  the  same  as 
though  the  checks  had  been  indorsed 
generally.  The  special  indorsements 
effected  nothing,  except  to  give  notice 
to  a  transferee  or  other  stranger. 
They  were  covered  into  the  transac- 
tions, and  added  nothing  to  them,  be- 
cause checks  delivered  a  banker  are 
'  For  collection '  in  any  view.  The 
checks  were  accompanied  with  letters 
stating  that  they  were  indorsed  '  For 
collection  and  credit.'  The  court  said 
that  this  amounted  to  a  direction  to 
credit  after  the  collection;  but  the 
practice  was  to  credit  before,  so  that 
the  letters  of  advice  were  thus  actually 
superseded.  Moreover,  as  already 
said  about  the  word  'collection,'  the 
word  '  credit '  added  nothing,  and  was 
entered  into  the  transactions,  because 
the  banker  could  do  this  in  any  event 
unless  instructed  to  remit  specially. 
In  this  case  the  Court  of  Appeals  held 
that  the  title  to  the  checks  remained 
in  the  depositor  while  they  were  un- 
collected.  In  Balbach  T.  Frelinghuy- 
sen,  already  cited,  the  United  States 
Circuit  Court  for  the  district  of  New 
Jersey  laid  down  as  the  result  of  its 
conclusions  the  rule  that  a  bank  is, 
until  collection,  a  bailee  of  checks 
deposited,  or  agent  of  its  customers' 
depository." 

1  St.  Louis  &  S.  F.  Ry.  Co.  v.  Johns- 
ton, (1886)  27  Fed.  Rep.  243.  WALLACE, 


J.,  having  stated  the  question  involved 
as  stated  in  the  text,  discussed  it  in 
these  words:  "  The  case  of  Metropoli- 
tan Nat.  Bank  v.  Loyd,  90  N.  Y.  531 
(affirming  the  same  case  in  the  Supreme 
Court,  reported  in  25  Hun,  101),  is  an 
authority  directly  in  point  against  the 
plaintiff's  right  to  recover.  In  that 
case  the  plaintiff  deposited  with  the 
bank  a  check  drawn  upon  another 
bank  in  a  different  city,  indorsed  by 
him,  and  the  amount  of  the  check  was 
entered  by  the  bank  upon  the  pass 
book  of  the  depositor  as  cash,  with  the 
depositor's  knowledge.  It  was  held 
that  the  bank  became  the  owner  of  the 
check.  The  opinions  delivered  in  this 
case,  both  in  the  Court  of  Appeals  and 
in  the  Supreme  Court,  are  a  full  and 
able  discussion  of  the  questions  in- 
volved, and  contain  a  full  review  of 
the  authorities  bearing  upon  them. 
On  the  other  hand,  the  case  of  Balbach 
v.  Frelinghuysen,  15  Fed.  Rep.  675,  de- 
cided by  the  Circuit  Court  of  the  dis- 
trict of  New  Jersey,  follows  the  views 
expressed  in  Morse  on  Banks  and  Bank- 
ing (page  427),  and  holds  that  the 
checks  so  deposited  do  not  become  the 
property  of  the  bank,  although  by  the 
course  of  business  between  the  de- 
positor and  the  bank  the  depositor  has 
been  allowed  to  draw  against  the  de- 
posits before  the  paper  has  been  actu- 
ally collected.  Upon  principle,  there 
is  no  reason  why,  if  the  parties  choose 
to  treat  the  deposit  of  such  paper  as  a 
deposit  of  cash,  the  transaction  should 
not  be  deemed  equivalent  to  a  dis- 
count of  the  paper  by  the  bank.  Sight 
bills  drawn  by  one  corporation  upon 
another  of  prominent  financial  stand- 
ing, like  the  interest  coupons  of  such 


g  ;'18]  DEPOSITS  ATO  CHECKS. 

lun,t  jfi'J.    holder  l>y  MiW.ju.-iit  j.avim-nt.1     A   national  bank   in 
Dakota,  with  knowlcd^-  that  tin-  county  tn-a-un-r  of  a  county  had 

not  sufficient  county  funds   in  his  hand-  t«.   l.alan<-,-  lii-  official 

accounts,  consented  to  give  him  tictitioii-  cn-dif  in  order  to  i-nahl«- 

corporation,  or  like  certified  checks  their  previous  dealing*.  Wln-n  ii  *\> 
upon  banks,  are  generally  accepted  in  pears  that  it  ban  been  Uic  uniform  pi»c- 
commercial  usage  as  the  equivalent  of  tice  between  the  partie*  in  thdr  put 
money.  They  have  practically  the  dealings  to  treat  deposit*  of  paper  a* 
same  attributes  an  bills  issued  by  bank-  deposits  of  cash,  their  intention  to  do 
ing  corporations,  which  are  merely  BO  in  the  particular  tranmction  should 
promises  to  pay  at  sight,  and  are  every-  be  inferred,  in  the  absence  of  new  and 
where  accepted  as  money,  in  the  ab-  inconsistent  circumstance*.  It  i»quit«- 
sence  of  special  circumstances  affect-  certain  that  ImnkerK  do  not  invariably 
ing  the  financial  standing  of  the  cor-  credit  their  customers  for  right  paper 
poration  issuing  them.  Where  bank  as  fore-ash,  but  are  generally  influenced 
bills  arc  credited  at  their  face  to  their  by  the  financial  responsibility  of  the 
depositors,  and  arc  treated  by  the  de-  customer  or  the  drawee  of  the  paper,  or 
pository  as  a  deposit  of  money,  the  both.  If  a  Iwnk  does  not  wUh  to  as- 
bank  receiving  them  becomes  a  debtor  sume  the  relation  of  a  debtor  f»r  th<- 
to  the  depositor  for  the  face  amount,  paper  to  the  dcjiositor.  thin  intention 
although  the  currency  may  at  the  time  may  be  manifested  in  a  very  explicit 
be  depreciated.  Marine  Bank  r.  Ful-  manner  by  crediting  the  paper  as  pa- 
ton  Bank,  2  Wall.  252.  When  a  sight  per.  This  was  done  in  Thompson  r. 
bill  is  deposited  with  a  bank  by  a  cus-  Giles.  2  Barn.  &  ('.  422,  in  the  Case  of 
torner  at  the  same  time  with  money  or  Howton,  1  Rose,  15.  and  in  the  Case  of 
currency,  and  a  credit  is  given  him  by  Sargeant.  Id.  153.  Some  significance 
the  bank  for  the  paper,  just  as  a  like  must  be  attached  to  a  credit  entry  of 
credit  is  given  for  the  rest  of  the  de-  the  paper  upon  the  book*  of  the  bank 
posit,  the  act  evinces  unequivocally  as  cash,  and  the  natural  implication 
the  intention  of  the  bank  to  treat  the  would  seem  to  he  that  the  Innk.  by 
bill  and  the  money  or  currency  with-  making  such  an  entry,  assume*  to  re- 
out  discrimination,  as  a  deposit  of  ceive  the  bill  as  money.  CorrcUlively. 
cash,  and  to  assume  towards  the  de-  if  the  depositor  understands  that  the 
posit  or  the  relation  of  a  debtor  instead  bank  pro|>oses  to  receive  the  paper  aft 
of  a  bailee  of  the  paper.  If  the  cus-  money,  and  assent*,  exprwwly  or  by 
tomer  assents  to  such  action  on  the  acquiescence,  it  would  nwm  that  he 
part  of  the  bank  by  drawing  checks  consents  to  |mrt  with  the  title  to  the 
against  the  credit,  or  in  any  other  way,  pa|>er.  For  these  reason*  the  con- 
he  manifests  with  equal  clearness  his  elusions  reached  in  Metropolitan  Nat 
intention  to  be  treated  as  a  depositor  of  I  (.-ink  r  Ixiyd,  are  adopted  an  sails- 
money,  and,  as  such,  as  a  creditor  of  factory.  The aut horiti*-*  IK*  ring  upon 
the  bank  instead  of  a  bailor  of  the  pa-  the  general  quostionimre  HO  fulh 
per.  Under  such  circumstances  it  and  discussed  in  the  opinions  in  that 
should  be  held  that  the  I  auk  acquires  case  that  it  is  deemed  unnecrasary  for 
title  to  the  paper  just  as  it  would  to  a  present  purposes  to  refer  to  thrnt  " 
deposit  of  money.  The  intention  of  '  Drawer  r  Mitftouri.  etc..  ConMnic 
the  parties  in  the  particular  I ransaction  tion  Co  ,  98  U.  8.  98:  Mann  r  Sroond 
may  be  ascertained  from  the  course  of  National  Bank.  *)  Kan*.  412.  Central 


,61C  DEPOSITS  AND  CHECKS.  [§  319 

him  to  impose  upon  the  county  commissioners,  who  were  about 
to  examine  his  accounts.  The  treasurer  was  given  a  cashier's 
check  for  a  large  sum,  which  he  indorsed  and  took  to  the  com- 
missioners. They  received  it,  but  refused  to  discharge  him  or 
his  bondsmen,  and  placed  the  check  and  such  funds  as  he  had  in 
cash  in  a  box  and  delivered  them  to  his  bondsmen.  The  latter 
deposited  the  money  and  the  check  in  another  bank  in  the  same 
place.  This  last  bank,  as  appeared  by  the  evidence  in  the  case, 
manifested  a  desire  to  get  control  of  this  check,  with  a  view  to 
oppress  its  rival  bank  which  had  issued  it,  and  seemed  to  have  a 
knowledge  of  how  it  was  issued.  The  bank  brought  an  action 
against  the  bank  issuing  it  to  recover  the  amount.  The  question 
of  the  bonajide  ownership  of  this  check,  and  how  far  the  bank 
holding  it  was  protected  as  a  purchaser  for  value  without  notice, 
was  the  main  one  before  the  court.  The  United  States  Supreme 
Cour;t  held  that  the  circumstances  under  which  the  check  was 
issued  were  a  plain  fraud  upon  the  law,  and  also  upon  the  county 
commissioners ;  that  the  receipt  of  it  and  turning  it  over  to  the 
bondsmen  of  the  county  treasurer  was  a  single  act  intended  to 
assist  the  bondsmen  in  protecting  themselves,  and  was  incon- 
sistent with  the  idea  of  releasing  them  from  their  obligations ; 
that  the  question  whether  the  evidence  did  or  did  not  establish 
the  fact  that  the  bank  in  which  it  was  deposited  was  an  innocent 
holder  should  have  been  submitted  to  the  jury.1 

§  319.  Deposits  in  savings  banks. —  A  savings  bank  cannot 
refuse  to  return  a  depositor's  money  to  him  because  he  deposited 

National  Bank  v.  Valentine,  18  Hun,  a  bank,  in  the  ordinary  course  of 
417;  Manfg.National  Bank  0. Newell,  71  business,  of  checks,  drafts  or  other 
Wis.  309;  Buller  #.  Harrison,  Cowp.  negotiable  paper,  received  and  credited 
565.  on  his  account  as  money,  the  title  to 
1  Thompson  v.  Sioux  Falls  National  the  checks,  drafts  or  other  paper  im- 
Bank,  (1893)  150  U.  S.  231.  As  to  the  mediately  becomes  the  property  of  the 
vesting  of  title  in  a  check  deposited  to  bank,  unless  a  different  understanding 
the  credit  of  payee  and  indorsed  for  affirmatively  appears.  Further,  that 
deposit,  see  Ditch  r.  Western  Nat.  an  indorsement  by  the  customer  of  a 
Bank  of  Baltimore,  (Md.  1894)  29  Atl.  check  payable  to  his  own  order  "for 
Hep.  72,  where  there  is  a  full  review  deposit  in  the  [name  of  the  bank]  to 
of  the  cases  upon  this  subject.  In  the  credit  of  [the  name  of  the  de- 
Security  Bank  of  Minnesota  r.  North-  positor]  is  sufficient  to  pass  the  title  to 
western  Fuel  Co.,  (Minn.  1894)  59  N.  the  check  to  the  bank,  and  is  not  a  re- 
W.  Rep.  987,  it  was  held  that  upon  a  strictive  or  qualified  indorsement. " 
deposit  being  made  by  a  customer  of  The  court  cite  in  support  of  its  ruling 


I'-']  DEPOSITS  AM.  <  II!  617 

it  in  tlir  name  of  some  one  else.1  (Jt-ncral  debitor*  of  saving* 
hanks  cann.it  get  off  their  deposits  against  their  debt*  duo  th« 
hank.  The  rule  is  dilTerent  in  tin-  CUM-  of  ^H-cial  deposits  out  of 
tin-  ordinary  coiu>e  of  l.ii.-incss  which  the  bank  limy  have  received 
and  converted  to  its  own  use.*  A  savings  bank  in  New  Jeney, 
under  a  special  charter,  was  authorized  to  receive  and  invest 
depo.-iN  tor  the  benefit  of  the  depositors,  the  income  or  the  profit 
to  be  divided  among  them  after  reasonable  deductions  for  neces- 
sary expenses,  the  principal  to  be  repaid  to  the  depositors  at  such 
time  and  with  such  interest  and  under  such  regulations  an  the 
board  of  managers  should  from  time  to  time  prescribe.  Under 
their  regulations  they  not  only  received  deposits  participating  in 
the  profits,  and  not  payable  except  on  thirty  days'  notice-,  but 
also  another  kind  of  deposits,  called  by  them  "  special  deposits," 
which  were  not  to  participate  in  the  profits,  and  were  to  In- 
repaid  to  the  depositors  without  any  preliminary  notice.  lioth 
kinds  of  deposits  were  mingled  in  the  funds  of  the  bank  indistin- 
iruishably.  A  receiver  was  appointed  for  the  bank  under  insol- 
vency proceedings.  The  court,  as  to  the  relations  between  tin? 
depositors  and  the  bank  and  the  rights  of  the  different  claims 
against  the  assets,  held  as  follows  :  That  the  l>ank  was  a  mere 
trustee  for  the  benefit  of  the  depositors ;  that  a  depositor  who 
borrowed  money  from  the  bank,  secured  by  his  note  or  mortgage, 
could  not  set  off  against  his  debt  the  amount  of  his  deposit  at  the 
time  when  the  decree  of  insolvency  was  made ;  that  the  so-styled 
"  special "  depositors  were  not  entitled  to  priority  in  payment 
over  the  other  class  of  depositors  ;  that  debts  and  expenses  con- 
tracted by  the  bank  in  carrying  on  its  ordinary  business  were  to 
be  preferred ;  that  a  claim  under  the  covenant  in  a  lease  for  rent 
accruing  after  the  surrender  of  the  premises  to  the  lessor  by  th« 
receiver  could  not  be  maintained  ;  that  money  jmid  to  the  bank 

Hank  r.  Miller.  77  Ala.   168.  Bank  r.  II.  228;    Ilnrtl.-tt  r.  Remington.  •  N. 

Smith,  133  Mass.  227;  Fletcher  r.  II.  364;  (Jilrs  r.  Merrill.  M  N.  H.  00. 
Osbourn.  (Minn.)  57  N.  W.  Rep.  88fl.  » Cogswell  r.  Kockingham  Having* 

1  Davis  r.  Lcnawee  County  Savings  Bank.  59  N.  II.  48.     A*  to  the  cUU- 

Hank.  53  Mich.  163.     As  to  deposits  in  mcnta  in  a  Having*  bank  deposit  book 

savings  bunks  by  onir  in  the  name  of  being  a  pnrt  of  the  contract  between 

others,  sec-   Kimbnll   r.  Norton.  59  N.  the  bunk  ami  the  depositor,  tee  He»U» 

H.  1;    Blasdel  r.  Locke,  52  N.  II.  28H;  r.   Portsmouth  tarings   Bank.  46  N. 

Marry    r.    Amazecn.    81    N.   H.    131;  II.  78. 
Smith  r.  Ocsipee  Savings  Bank,  64  N. 

78 


018  DEPOSITS  AND  CHECKS.  [  ;$  olt) 

in  exchange  for  its  check,  given  for  the  accommodation  of  the 
payee,  which  was  dishonored,  presumably  went  into  the  funds, 
and  the  debt  should  be  preferred  ;  that  checks  given  to  depositors 
on  account  of  deposits  were  not  to  be  preferred.1  Money 
deposited  with  a  savings  institution,  to  be  paid  at  certain  times 
prescribed,  may,  after  demand  made  in  pursuance  of  the  by-laws, 
be  recovered  in  an  action  of  assumpsit.  It  would  be  no  defense 
that  the  institution,  having,  in  accordance  with  its  by-laws,  invested 
its  funds  in  stocks  which  have  depreciated,  was  unable  to  repay 
the  whole  amount  of  the  deposits.2  Reasonable  care  and  dili- 
gence is  required  of  the  officers  of  savings  institutions.8  Reason- 
able care  and  diligence  do  not  necessarily  require  the  disbursing 
officer  of  a  savings  institution  to  demand  strict  proof  of  the 
identity  of  the  depositor  in  paying  money  on  the  presentment  of 
a  deposit  book.4  A  deposit  in  a  savings  bank  stated  in  the 
depositor's  "  deposit  book  "  not  made  payable  to  order  or  bearer 
cannot  be  assigned  so  as  to  enable  the  assignee  to  maintain  an 
action  for  the  deposit  against  the  bank.5  A  depositor  in  a  sav- 
ings bank  in  Pennsylvania  drew  an  order  thereon  payable  nine 

'Stockton    v.    Mechanics'   Bank,    5  entered  therein,"  and  that  "  the  insti- 

Stew.  Eq.  (N.  J.)  163.  tution  will  not  be  responsible  for  loss 

2  Makin  v.  Institution  for  Savings,  sustained  when  a  depositor  has  not 

19  Me.  128;    Makin  v.  Institution  for  given  notice  of  his  book  being  stolen 
Savings,  23  Me.  350.  or  lost,  if  such  book  be  paid  in  whole 

3  Sullivan    «.    Lewiston    Institution    or  in  part  on  presentment."     Subse- 
for  Savings.  56  Me.  507.  quently    the    depositor's    book    was 

•"Sullivan  «.  Lewiston  Institution  stolen,  presented  to  and  paid  by  the 
for  Savings,  56  Me.  507.  In  this  case  disbursing  officer  of  the  institution  in 
the  depositor  received  a  book  of  deposit  good  faith.  In  this  action  of  the  de- 
containing  a  copy  of  the  by-laws,  positor  to  recover  the  deposit  it  was 
which,  in  accordance  with  their  pro-  held  that  if  the  disbursing  officer,  using 
visions,  he  thereupon  "subscribed  and  reasonable  care  and  diligence,  but  lack- 
thereby  signified  his  assent  to."  These  ing  present  means  of  identifying  the 
by-laws  provided  that  "all  deposits  depositor,  paid  bona  fide  on  presenta- 
shall  be  entered  in  a  book  to  be  given  tion  of  the  book  by  one  apparently  in 
the  depositor,  which  shall  be  his  the  lawful  possession  of  the  book,  as 
voucher  and  the  evidence  of  his  prop-  the  owner  of  it,  the  institution  had  a 
crty  in  the  institution,"  and  that  "the  right  to  rely  upon  the  contract  of  the 
money  of  any  depositor  may  be  drawn  depositor  safely  to  keep  the  evidence 
either  personally  or  by  witnessed  of  his  claim,  or  make  known  its  loss 
order,  in  writing  of  the  depositor,  but  before  it  was  presented  for  payment, 
no  money  shall  be  paid  to  any  person  5  Howard  v.  Savings  Bank,  40  Vt. 
without  the  production  of  the  original  597. 
book,  that  such  payment  may  be 


§320]  DEPOSITS  AS  I»  (HECKS.  619 

weeks  from  date.  Upon  the  uj.j»er  margin  of  the  blank  form 
used  were  printed  the  words,  "" Keturn  notice  ticket  with  thin 
order."  On  the  lower  margin  l»elou  the  drawer'*  Mgnature  were 
the  following  printed  words:  "Deposit  book  mu-t  !*•  at  bank 
l>f  fore  money  can  be  paid."  The  Supreme  Court  of  that  state 
held  that  there  was  enough  on  the  face  of  the  order  to  show  that. 
in  the  commercial  sense,  it  was  not  a  regular  check  and  waa  not 
intruded  to  operate  as  such,  but  was  drawn  on  a  specially  deposited 
fund,  held  by  the  bank  subject  to  certain  rules  and  regulation* 
requiring  certain  things  to  be  done  before  payment  of  the  on  1m 
could  be  required.  "The  effect  of  these  requirement*,"  *h«'\ 
said,  "was  to  restrain  or  qualify  the  otherwise  general  operation 
of  the  order."  The  court  was  controlled  by  the  settled  doctrine 
that  anything  written  or  printed  on  a  negotiable  instrument  prior 
to  its  issuance  by  the  maker,  relating  to  the  subject-matter  of  the 
instrument  and  tending  to  restrain  or  qualify  it,  must  be  regarded 
as  part  of  the  contract  intended  to  be  evidenced  thereby.1 

§  320.  Receiving  deposits  by  a.  bank  knowing  its  insol- 
vency.—  In  receiving  a  deposit,  after  his  insolvency,  a  banker  i- 
guilty  of  fraud.  In  such  case  the  depositor  will  be  entitled  to 
rescind  the  contract  and  recover  the  check.2  The  depositor  of  a 
check  upon  another  bank  with  a  bank  which  receives  it  having 
knowledge  of  its  insolvency  at  the  time,  may,  in  an  action  alleg- 
ing fraud,  recover  the  check  or  the  proceeds  thereof.*  Upon  the 

1  Iron  City  National  Bank  r.  McCord,  Hadley,  99  N.   Y.  181;  s.  c..  1  N.  E. 

(1891)  189  Pa.  St.  52.  Rep.  587.  an  action  was  brought  by 

'American    Trust  &  Sav.   Bank  r.  the  plaintiff  against    the   receirer  of 

Queder    &    Paeschkc    Munufg.    Co.,  the  First  National  Bank  of  Buffalo  to 

(111.  1894)  87  N.  E.   Rep.  227;  Chaffec  recover  tbc  amount  of  a  dmft  dcpodltd 

v.  Fort,  2  Luns.  81;    St.   Louis,  etc.,  with   the    bank  at  a   lime  when   the 

R.  R.  Co.  v.  Johnston,  183  U.  8.  566.  managers    thereof    knew  that  it  waa 

1  Grant  r.   Walsh,  (N.    Y.    1895)40  insolvent.     It  wa<  held  that  pertnilUnjc 

N.  E.  Rep.  209.     HAIGIIT,  J.,  speak-  the  plaintiff  to    make  the  deposit  in 

ing  for  the  court,  said  :  "The  rule  np-  reliance  upon  the  supposed  solvency 

l>.-:,rs  to  be  well  settled  that  one  who  of  the  bank  was  a  grow  fraud  upon 

has  been    induced    to    part  with   his  the  plaintiff,  and  that  ihc  latter  was 

property    by   the    fraud   of   another,  entitled  to   reclaim    th*   dnift 

under  guise  of  a  contract,  may  upon  proceeds     The  same  rule  was  recog 

the  discovery    of    the  fniud    rescind  nizcd  in  Bank  r.  Ixiyd.  MO  N.  Y.  5SO- 

the  contract  and  reclaim  the  property.  587,  but  in  that   caar    there  was   no 

unless  it  has  come  into  the  possession  allegation  of  fraud  in  r.  ami 

of  ;i  foniijiflc   holder.      In    Tragic    r.  consequently  it  was  held  that  the  evi- 


020 


DEPOSITS  AND  CHECKS. 


[§ 


discovery  of  the  fraud  practiced  by  a  banker  in  receiving  on 
deposit  a  check  or  draft,  when  he  knows  that  he  is  insolvent,  the 
depositor  may  rescind  the  contract,  and  reclaim  the  check  or  draft 
deposited,  unless  such  check  or  draft  has  come  into  the  possession 
of  a  lonafide  holder  for  value.1  If  the  proceeds  of  such  a  check 
or  draft  can  be  traced,  the  fund  will  create  a  trust  in  favor  of  the 
depositor  in  those  proceeds.2  Should  a  bank  receiving  from  one 
of  its  customers,  for  deposit,  his  check  upon  another  bank,  know- 
ing its  own  insolvency  at  the  time,  and  transfer  this  check  to 
another  bank,  in  an  action  by  the  latter  against  the  drawee  of  the 
check,  if  the  drawee  answer,  by  way  of  defense,  that  there  was 
fraud  practiced  upon  him  by  the  receiver  of  the  check,  and  show 
such  fraud,  the  burden  of  showing  that  it  was  a  bonafide  holder 
of  the  check  would  be  upon  the  bank  to  which  the  check  was 
transferred.3  In  a  South  Dakota  case  it  appeared  that  the  plain- 


dence  offered,  tending  to  show  fraud, 
was  properly  excluded." 

1  National  Citizens'  Bank  of  New 
York  T.  Howard,  (N.  Y.  Super.  Ct. 
Spl.  Term,  1886)  3  How.  Pr.  (N.  S.)511. 

*  Importers'  &  Traders'  Bank  v. 
Everett,  (Sup.  Ct.  1889)  21  N.  Y. 
St.  Repr.  98;  s.  c.,  4  N.  Y.  Supp. 
599;  citing  Anonymous,  67  N.  Y. 
598. 

3  Grant  «.  Walsh,  (N.  Y.  1895)  40  N. 
E.  Rep.  209.  HAIGHT,  J.,  speaking 
for  the  Court  of  Appeals,  said  :  "In 
Bank  v.  Diefendorf,  123  N.  Y.  191- 
206;  s.  c.,  25  N.  E.  Rep.  402,  RUGER, 
Ch.  J.,  in  delivering  the  opinion  of  the 
court,  says :  '  The  burden  of  making 
out  good  faith  is  always  upon  the 
party  asserting  his  title  as  a  bonafide 
holder,  in  a  case  where  the  proof 
shows  that  the  paper  has  been  fraudu- 
lently, feloniously  or  illegally  ob- 
tained from  its  maker  or  owner. 
Such  a  party  makes  out  his  title  by 
presumptions,  until  it  is  impeached 
by  evidence  showing  the  paper  had  a 
fraudulent  inception;  and  when  this 
is  done  the  plaintiff  can  no  longer  rest 
upon  the  presumptions,  but  must 
show  affirmatively  his  good  faith.'  In 
Vosburgh  r.  Diefeudorf,  119  X.  Y. 


357-364;  8.  c.,  23  N.  E.  Rep.  801, 
O'BRIEN,  J.,  says  :  '  In  this  state  it 
must  be  regarded  now  as  a  settled  rule 
that,  when  a  maker  of  negotiable 
paper  shows  that  it  has  been  obtained 
from  him  by  fraud  or  duress,  a  subse- 
quent transferee  must,  before  entitled 
to  recover  on  it,  show  that  he  is  a 
bona  fide  purchaser.'  In  Bank  v. 
Green,  43  N.  Y.  298,  it  was  held  that 
a  party  suing  upon  a  negotiable  note 
purchased  before  maturity  is  pre- 
sumed, in  the  first  instance,  to  be  a 
bonafide  holder,  but  when  the  maker 
has  shown  that  the  note  was  obtained 
from  him  under  duress,  or  that  he  was 
defrauded  of  it,  the  plaintiff  would 
then  be  required  to  show  under  what 
circumstances,  and  for  what  value,  he 
became  the  holder.  The  reason  of 
this  rule,  as  stated  by  RAP  ALIA),  J.,  is 
that  '  where  there  is  a  fraud  the  pre- 
sumption is  that  he  who  is  guilty  will 
part  with  the  note  for  the  purpose  of 
enabling  some  third  party  to  recover 
upon  it,  and  such  presumption 
operates  against  the  holder,  and  it 
devolves  upon  him  to  show  that  he 
gave  value  for  it.'  Citing  Bank  c. 
Noxon,  45  N.  Y.  762;  Bank  v.  Carll, 
55  N.  Y.  440;  Wilson  e.  Rocke,  58  N. 


•-'"  1  DEPOSITS  A1CD  CIIICKB. 

tiff  had  deported  with  a  bank,  a  few  day*  before  it*  insolvency 
•was  admitted  and  its  doors  closed,  a  sum  <»f  money,  taking  from 
the  bank  a  receipt,  stating  the  puri>osu  for  which  the  money  wa* 
left.  Tliis  purpose  was,  as  shown  by  the  receipt,  tliat  when  ft 
warranty  deed,  properly  executed.  :^  to  him  certain  hind-, 

together  with  an  ah>tnict  showing  good  title  in  tin-  jmrty  who  was 
to  execute  this  deed,  was  delivered  to  the  hank  by  the  grantor,  tin- 
money  was  to  be  paid  to  the  latter.  The  bank  ^oiri^'  into  tin- 
hands  of  a  receiver,  the  latter  refused  to  pay  the  MUM  of  money 
to  the  plaintiff  upon  demand.  The  Supreme  Court  affirmed  the 
order  of  the  court  in  which  the  proceedings  in  insolvency 
instituted  to  the  receiver  to  pay  this  money  to  the  plaintiff  on  hi* 
petition  for  such  order,  holding  that  the  sum  of  money  «o  deposited 
was  a  trust  fund,  and  did  not  become  assets  of  the  bank,  nor  paw  to 
the  receiver  as  such.1  A  depositor  in  a  bank  in  Nebraska  whi<  ' 

Y.  642;  Nickerson  P.  Rugcr,  76  N.  Y.  bank.     Suppose,  under  the  ma*  dr- 
279;    2  Greenl.  Ev.  §  172;    Bailey  r.  cumstatices.  [plaintiff]    bad    lefl    the 
Bidudl,   13  Mces.   &  W.  73."    As  to  money  with  [the  secretary ]  personally. 
fraud  in  receiving  deposits  by  bankers  and  he  had  failed  and  made  an  assign- 
•with  a  knowledge  of  their  insolvency,  meut,  would  this  money  so  found  in 
see  Crugie  v.  Hadley,  (1885)  99  N.  Y.  his  possession  pass  to  his  assignee  a» 
131;  Rochester  Printing  Co.  t.  Loomis,  his  property?    If  so,  when  and  bow 
(1887)  45  Hun,  93.  did  it  become  due?    That  he.  or  the 
1  Eimmcl  ».  Dickson,  (S.  D.  1894)  58  bank   in  this  case.  had.  without  the 
N.   W.    Rep.    561.      There  was  pre-  consent  of  [the  plaintiff]  diverted  the 
sented  to  the  court,  on  behalf  of  the  money  and  used  it  for  some  other  pur- 
receiver,  an  affidavit  of  the  secretary  pose,  ought  not  to  affect  [hi*]  right*. 
of  the  bank  stating  that  when  it  was  Abuse  of  a  trust  can  confer  no  righU 
left  with  the  bank  this  money  "was  on  the  party  abasing  it.  or  on  thaw 
treated  the  same  as  any  other  deposits  claiming  privity  with  him.     It  U  nol 
of  said  bank  and  mixed  with  the  other  claimed  that  [cash  or  money  ]  found  in 
money  therein."     It  was  not  intimated  the  bank's  vault  when  it  failed  U  the 
that  this  was  done  with  the  knowledge  very  money  or  a  |»art  of  it  deposited 
of  the  one  who  left  the  money  with  by  [plaintiff],  and  it  U  noC  nccoHVjr 
the   bank   for  a  distinct  purpose,  or  that  it  should  be  so.  I  f  the  money  deli  r 
that  he  in  any  manner  consented  to  it.  livered  to  the  bank  had  been  usr-i 
The  court  said:  "  Upon  these  facts  it  in  its  business,  it  had  presumably  either 
would  appear  that  Uie  money  was  left  paid  its  debts  pro  tanto.  or  inortMed 
in  trust  for  a  particular  purpose.     He  its  aiwets;  and  the  general  crrditora  ol 
cmtU  not.  afterwards,  without  the  ac-  the  bank  would  be  in  the  max  • 
< (iii.  sconce  of  [the  one  who  left  it]  tion  if  the  money  found  in  lu  IIMMI 
change  its  relation  to  him  from  that  of  sion   «-n-  j.n-l  -\.r 
a  bailee  or  trustee  to  that  of  a  general  the  trust  as  though  the  ntoory  depo* 
•  l.htor.     We  apprehend  that  no  dlf-  ited  bad  been  kepi  separate,  and  I 
trr.Mit  principle  is  involved   because  identical  money  :  >nd  been  ID 
one  of  the   parties  happens  to  be  a  paid  OTCT.     Peak  r.  EllicoU.  80  Kaoa. 


r,22 


DEPOSITS  AND  CHECKS. 


[§320 


become  insolvent  and  made  an  assignment,  claimed  in  the  courts 
that,  upon  his  allegations  that  the  bank  was  insolvent  at  the  time 
it  received  the  deposit  specified,  within  the  knowledge  of  all  of 
its  officers,  and  that  the  officers  received  his  money  with  the 
intention  of  cheating  and  defrauding  him,  he  should  be  decreed 
to  have  a  preference  on  account  of  his  claim  in  the  payment  from 
the  funds  in  the  hands  of  the  assignee.  The  Supreme  Court  of 
the  state  held  that  he  did  not  have  a  right  to  a  preference  over 
other  creditors  upon  the  case  made  in  his  petition.1  In  a  late  case 


156;  s.  c.,  1  Pac.  Rep.  499,  was  a  case 
entirely  analogous  to  this.  Peak  bad 
left  with  the  bank  of  which  Ellicott, 
upon  its  failure,  became  assignee, 
money  to  pay  a  note  which  the  bank 
was  to  send  for.  As  in  this  case,  he 
took  a  receipt  showing  the  purpose 
for  which  the  money  was  left.  The 
bank  passed  the  amount  to  the  credit 
of  Peak.  After  the  failure  of  the  bank, 
it  not  having  paid  the  note,  Peak 
brought  action  against  the  assignee, 
asking  the  same  relief  as  is  asked  in  this 
case,  to  wit,  that  the  assignee  be  re- 
quired to  pay  over  the  amount  in  full 
as  a  trust  fund.  The  Supreme  Court 
reversed  the  trial  court,  holding  that 
the  transaction  constituted  a  trust; 
that  the  relation  created  was  not  that 
of  a  debtor  and  creditor,  but  that  of 
principal  and  agent,  or  bailor  and 
bailee;  and  that  the  subject  of  such 
trust  did  not  pass  to  the  assignee  as 
assets  of  the  bank.  It  was  held,  fur- 
ther, that  the  manner  in  which  the 
bank  had  treated  the  fund  by  credit- 
ing it  to  Peak  and  mixing  it  with  its 
own  money  did  not  affect  his  right  to 
claim  the  amount  from  the  funds  on 
hand.  Ellicott  v.  Barnes,  31  Kans. 
170;  s.  c.,  1  Pac.  Rep.  767,  was  a  simi- 
lar case  and  the  same  rule  controlled. 
McLeod  v.  Evans,  66  Wis.  401;  s.  c., 
28  N.  W.  Rep.  173,  214,  applies  the 
same  principles,  with  the  same  result, 
where  a  draft  had  been  left  for  collec- 
tion with  a  banker,  who  afterwards, 
and  before  the  depositor  had  received 


its  proceeds,  suspended  and  as- 
signed. The  court  held  that  the  pro- 
ceeds of  the  draft  constituted  a  trust 
fund,  which  did  not  pass  to  the  as- 
signee, and  there  not  being  sufficient 
cash  in  the  hands  of  the  assignee  to 
pay  the  amount,  that  the  same  should 
be  a  lien  upon  the  assigned  estate. 
The  same  principle,  though  to  some- 
what different  facts,  was  applied  in 
People  v.  City  Bank  of  Rochester,  96 
N.  Y.  32,  and  again  in  People  «.  Bank 
of  Dansville,  39  Hun,  187." 

1  Wilson  v.  Coburn,  (1892)  35  Neb. 
530.  The  court  said:  "The  rule  on 
the  subject  is  stated  by  Judge  STORY 
thus:  '  The  right  to  follow  the  trust 
fund  ceases  only  where  means  of  as- 
certainment fail,  which,  of  course,  is 
the  case  when  the  subject-matter  is 
turned  into  money  and  mixed  and 
confounded  in  a  general  mass  of  prop- 
erty of  the  same  description.'  Story's 
Eq.  1259.  That  the  foregoing  rule  is 
applicable  to  cases  like  this,  where  the 
funds  in  controversy  are  the  assets  of 
an  insolvent  bank,  is  well  settled.  In 
111.  Trust  &  Savings  Bank  v.  Smith,  21 
Blatchf.  275,  Judge  WALLACE,  after 
remarking  that  the  property  cojaes 
into  the  hands  of  the  receiver  as  a 
trust  fund  for  the  benefit  of  all  the 
creditors,  proceeds  as  follows:  'It 
would  be  a  violation  of  law  upon  his 
part  to  set  aside  any  part  of  their 
assets  for  the  complainant  unless  his 
portion  is  capable  of  identification  or 
being  definitely  traced  and  distin- 


AM>  CHECKS. 

in  the  federal  eourt  for  the  district  of  Indiana,  it  ha*  been  held 
that  where  money  and  check-  were  nn-u>jM-ctingly  deposited  in  a 
bank,  which  was  known  by  it*  matiajring  officer  to  be  hopeloMlv 
insolvent,  a  few  mimite>  befoiv  el<,>inic  time  on  the  last  day  on  whirl. 
it  did  business,  and  the  cheeks  were  -nhs<-.jtiently  collected  by  the 
hank's  clerk,  the  whole  of  the  deposit  was  charged  with  a  trnal, 
und  an  e.jual  amount  mi^ht  lx»  recovered  from  the  reeeiver.  who 
retained  the  *j»eeitie  money  among  the  general  ma**  of  the  Itank'ft 
funds.1  It  was  insisted  in  this  case,  on  behalf  of  the  receiver  of 

of  the  insolvent  hank  through  the 
fraud  of  its  officers,  and  the  bank,  ft 
trustee  tf  malejifio,  gave  the  defendant 
no  right  to  a  preference  over  other 
creditors  unless  it  could  trace  and  re- 
cover its  property.'  Ami  such  Is  the 
law  as  recognized  from  the  farttest 
history  by  the  courts  of  chancery. 
Ryall  r.  Rolle,  1  Atkyns.  172;  Thomp- 
son's Appeal.  22  Pa.  St.  16;  Perry  on 
Trusts.  55  128." 

1  Wasson  r.  Hawkins.  (1894)  50  Fed. 
Rep.  238.  Aryutiulo,  it  was  said  by 
I{.VKI.II.  I).  .1.  :  "The  bank  was  in 
solvent,  and  was  known  by  its  pres- 
ident, who  had  sole  management  of  it. 
to  be.  insolvent.  The  knowledge  of 
the  president  was  the  knowledge  of 
the  bank.  Martin  r.  Webb.  110  U.  8. 
7;  s.  c..  8  Sup.  Ct.  Rep.  428;  Bank  r. 
Walker.  130  U.  S.  267;  s.  c..  9  8up. 
Ct.  Rep.  519.  It  fraudulently  con- 
cealed its  insolvency  from  the  com- 
plainant, who  was  ignorant  of  U.  and. 
believing  it  to  IK*  solvent,  he  deposited 
in  the  bank  hank  notes  and  checks  to 
[a  certain]  amount  within  ftveminuU-s 
of  its  final  collapse.  The  reception  of 
the  money  and  checks,  under  surh  <  ir 
cumstances,  was  a  fraud  upon  the 
plaintiff,  and  entitled  him  to  rescind 
the  transaction,  and  recover  hack  his 
deposit  from  the  hank.  The  keeping 
of  the  1  i.i nk  open,  ami  the  conducting 
of  its  business  in  the  usual  manner. 
constituted  a  representation  to  its  cus- 
tomers of  the  solvency  of  the  bank. 
upon  which  they  had  the  right  to  rely; 


guished,'  etc.  Counsel  for  plaintiff 
in  error  rely  with  confidence  upon  the 
case  of  Cragie  r.  Hadley,  99  N.  Y. 
181.  We  do  not,  however,  regard  that 
case  as  authority.  That  was  an  ac- 
tion against  the  defendants  for  the 
procceiU  of  a  dm  ft  received  for  collec- 
tion from  an  insolvent  bank.  The 
fund,  therefore,  was  easily  di>tin 
guithahlc  from  the  other  assets  of  the 
Iwnk.  It  is  evident  from  subsequent 
cases  in  Ne-w  York  that  that  case  has 
never  been  regarded  as  an  authority 
in  cases  like  this,  where  the  money  of 
tin-  claimant  has  been  mingled  with 
the  other  funds  of  the  bank,  and  can- 
not be  distinguished  from  other  assets 
in  tin-  hands  of  the  assignee  or  re- 
ceiver. In  re  N.  River  Bank.  14  X. 
Y.  Supp.  261,  is  a  case  directly  in 
point.  The  Supreme  Court  therein, 
after  showing  that  Cragie  r.  Had  lev- 
was  not  authority,  for  the  reason  given 
above,  hold  that  the  petitioner  was  not 
entitled  to  preference,  although  he  de- 
posited his  money  on  the  forenoon  of 
the  day  on  which  the  bank  closed  its 
doors,  on  the  assurance  that  it  was 
solvent,  upon  the  ground  that  it  did 
not  nppear  that  the  money  had  not 
•rone  into  the  general  funds  of  tin- 
hank,  and  because  he  had  failed  to 
impress  upon  the  funds  in  the  hand* 
of  the  receiver  the  character  of  a  trust. 
In  Atkinson  r.  Rochester  Printing  Co.. 
114  N.  Y.  10H,  the  same  distinction  is 
made,  and  the  court  says:  '  The  fact 
that  the  defendant  became  a  creditor 


024  DEPOSITS  AND  CHECKS.  [§  320 

the  bank,  that,  though  the  money  and  checks  were  obtained  by 
fraud,  the  title  to  them  vested  in  the  bank ;  and  that  the  only 
relation  subsisting  between  the  plaintiff  depositor  and  the  bank 
was  that  of  creditor  and  debtor ;  and  that  he  could  not  reclaim  the 
money  and  checks,  because  money  has  no  mark  and  cannot  be 
identified  ;  and  that  the  plaintiff  had  no  lien  on  the  funds  in  the 
receiver's  hands  entitling  him  to  priority  or  preference  over  the 
other  creditors  of  the  bank.  The  court  held  adversely  to  this 
contention ;  that  the  depositor  was  entitled  to  be  preferred  out 
of  the  funds  in  the  hands  of  the  receiver.1 

and  if  the  bank  was  known  to  be  in-  Pinner,  18  N.  Y.  295;  Brown  v.  Mont- 
solvent  by  the  officers  who  were  gomery,  20  N.  Y.  287;  Johnson  v.  Mo- 
charged  with  its  management,  the  con-  nell,  2  Keyes,  655;  Chaffee  «.  Fort, 
cealment  of  that  fact  from  a  person  2  Lans.  81.  But  it  is  believed  that  no 
about  to  make  a  deposit  would  consti-  case  can  be  found  in  the  books  holding 
tute  a  fraud  upon  him.  The  title  that  a  trader  who  was  hopelessly  in- 
acquired  by  the  bank  to  the  money  solvent  and  knew  that  he  could  not 
and  checks  deposited  under  such  cir-  pay  his  debts,  and  that  he  must  fail  in 
cumstances  would  be  voidable  at  the  business,  and  thus  disappoint  his  cred- 
election  of  the  depositor,  who  could  itors,  could  honestly  take  advantage 
bring  suit  to  recover  his  deposit,  with-  of  a  credit  induced  by  his  apparent 
out  any  previous  demand.  The  bank  prosperity,  and  thus  obtain  property 
would  become  a  trustee  ex  malefido,  which  he  had  every  reason  to  believe 
and  would  hold  the  deposit  for  the  "use  he  could  never  pay  for.'  And  it  was 
of  the  depositor,  and  subject  to  his  decided  that  '  in  the  case  of  bankers, 
right  of  reclamation.  Eailway  Co.  v.  where  greater  confidence  is  asked  and 
Johnston,  133  U.  S.  566;  s.  c.,  10  Sup.  reposed,  and  where  dishonest  dealings 
Ct.  Rep.  390;  Cragie  t.  Hadley,  99  N.  may  cause  widespread  disaster,  a  more 
Y.  Rep.  131;  8.  c.,  1  N.  E.  Rep.  537;  rigid  responsibility  for  good  faith  and 
City  of  Somerville  «.  Beal,  49  Fed.  honest  dealing  will  be  enforced  than  in 
Rep.  790;  Peck  t.  Bank,  43  Fed.  Rep.  the  case  of  merchants  and  other 
357.  In  the  case  of  Cragie  v.  Hadley,  traders; '  and  that  '  a  banker  who  is, 
supra,  it  was  held  that  the  acceptance  to  his  own  knowledge,  hopelessly  in- 
of  the  deposit  by  a  bank  hopelessly  solvent,  cannot  honestly  continue  his 
insolvent  constituted  such  a  fraud  as  business  and  receive  the  money  of  his 
entitled  the  depositor  to  his  drafts  or  customers;  and,  although  having  no 
their  proceeds.  In  Anonymous  Case,  actual  intent  to  cheat  and  defraud  a 
67  N.  Y.  598,  the  court  say:  '  This  is  particular  customer,  he  will  be  held  to 
not  like  the  case  of  a  trader  who  has  have  intended  the  inevitable  conse- 
become  embarrassed  and  insolvent,  quences  of  his  act,  i.  e.,  to  cheat  and 
and  yet  has  reasonable  hopes  that  by  defraud  all  persons  whose  money  he 
continuing  in  business  he  may  retrieve  receives,  and  whom  he  fails  to  pay  be- 
his  fortunes.  In  such  a  case  he  may  fore  he  is  compelled  to  stop  business.'" 
buy  goods  on  credit,  making  no  false  '  Wasson  v.  Hawkins,  (1894)  59  Fed. 
representations,  without  the  necessary  Rep.  233.  The  discussion  by  the  court 
imputation  of  dishonesty.  Nichols  v.  of  the  question  thus  raised  deals  very 


§321] 


DEPOSIT*  AND  CHECK*. 


§  321.  Certificates  of  deposit.— In  making  the  discount  of  a 
note,  a  bank  may  give  a  ci  rtitic.ite  of  deposit  for  tin-  proceed*, 
instead  of  paying  over  the  money  to  the  borrow,  r.1  Where  one 
person  intrusts  money  to  another  to  deposit  in  bank,  the  b*nk 
having  knowledge  of  the  ownership,  hut  no  discretion  aa  t 


fully  with  English  as  well  as  other  au- 
thorities, and  was  in  these  words:  "  It 
was  said  by  Lord  KING  In  Dcg  r.  Deg, 
2  P.  Wms.  414,  'that  money  had  no 
earmark,  inasmuch  that  if  a  receiver 
of  rents  should  lay  out  all  the  money 
in  the  purchase  of  land,  or  if  an  ex- 
ecutor should  realize  all  his  testator's 
estate,  and  afterwards  die  insolvent, 
yet,  a  court  of  equity  could  not 
charge  or  follow  the  land.'"  See, 
also,  Cox  P.  Bateman,  2  Ves.  8r.  19. 
And  bank  notes  and  negotiable  bills 
have  been  represented  as  possessing 
the  same  quality.  But  the  notion  that 
money,  because  it  had  no  earmark, 
could  not  be  followed  into  or  charged 
upon  land  in  the  hands  of  the  trustee 
or  his  executor,  arose  from  some  mis- 
conception, and  could  not  be  sup- 
ported. In  Miller  v.  Race,  1  Burrows, 
*452,  Lord  MANSFIELD  exposed  this 
misconception,  and  pointed  out  the 
true  reason  why  money  could  only  be 
pursued  under  particular  circum- 
stances. He  observed:  "It  has  been 
quaintly  said  thnt  the  reason  why 
money  cannot  be  followed  is  because 
it  has  no  earmark;  but  this  is  not  true. 
The  true  reason  is  upon  the  currency 
of  it;  it  cannot  be  recovered  after  it 
has  passed  in  currency.  So,  in  case  of 
money  stolen,  the  true  owner  cannot 
recover  it  after  it  has  been  paid  away 
fairly  and  honestly  upon  a  valuable 
and  bow  fide  consideration;  but,  be- 
fore money  has  passed  in  currency,  an 
action  may  be  brought  for  the  money 
itself.  Apply  this  to  the  case  of  a 
bank  note.  An  action  may  lie  against 
the  finder,  it  is  true,  and  it  is  not  at  all 
denied,  but  not  after  it  has  been  paid 


away  in  currency;  and  thia  point  baa 
been  determined  even  In  the  infancy 
of  bank  note*."  Lord  ELLEXBOH.  • 
in  Taylor  r.  Plumcr.  8  Maule  A  S. 
562,  575,  observed:  "The  dictum  that 
money  lias  no  eannark  niUBt  be  under- 
stood as  predicated  only  on  an  undi- 
vided and  uiuli.stinguUhable  BMaa  of 
current  money;  but  money  kept  in  a 
bag,  or  otherwise  kept  apart  from  other 
money,  guineas,  or  otlu-r  cuin 
marked  (if  the  fact  wen-  so)  for  the 
purpose  of  being  diMingiiiabed  are  ao 
far  earmarked  as  to  fnll  within  the 
rule  which  applies  to  every  other 
description  of  personal  property  while 
it  remains  in  the  hands  of  the  factor 
or  his  general  legal  representative." 
After  these  references  to  Kngliah 
cases,  it  was  said  :  "The  true  di»tinr- 
tion,  therefore,  between  money,  bank 
notes  or  negotiable  bills,  ami  otln-r 
chattels,  would  seem  to  be  that  the 
former,  for  the  protection  of  com- 
merce, cannot  be  followed  into  the 
hands  of  a  bona  Jidt  holder  to  whom 
they  have  passed  in  due  couraa  of 
business,  while  other  chutU-U  affected 
by  a  trust  may.  in  general,  be  pur- 
sued and  reclaimed.  The  ancient 
notion  that  money  could  not  be  fol- 
lowed, even  as  between  tru»U«  and 
ffttni  que  triut,  bora  UNO  money  had  no 
earmark,  has  given  way  to  a  more 
just  and  enlightened  doclrinr. 
Money,  bank  nou*  and  negotiable 
bills  may  be  followed  by  the  rightful 
owner,  where  they  have  not  Dt~ 
iMilat.il  or  negotiated,  or  if  the  penon 
to  whom  they  have  paaacd  baa  ex- 
prcw  notice  of  the  truat.  Miller  r. 
Kacc,  1  Burrow*.  •453:  1  Smith  Lead. 


1  Mississippi  Railroad  Co.  r.  Scott,  7  ilow.  (Mias.)  7». 
79 


626 


DEPOSITS  AND  CHECKS. 


[§321 


manner  of  making  the  deposit,  it  will  be  warranted  in  receiving 
the  money  and  giving  a  certificate  of  deposit  therefor -in  the  name 
of  the  person  presenting  the  money  for  deposit.  And  where  the 
real  owner  of  the  money  deposited,  receiving  notice  of  the  man- 
ner in  which  it  was  deposited,  fails  to  dissent  thereto  within  a 


Cas.  (5th  Amer.  ed.)  597  (*250); 
Taylor  «?.  Plumer,  3  Miiule  &  S.  562, 
575;  King  v.  Egginton,  1  Term  R. 
370;  Ryall  v.  Rolle,  1  Atk.  172:  Pen- 
nell  v.  Deffell.  4  DeGex,  M.  &  G.  372; 
In  re  Hallett's  Estate,  36  Eng.  R. 
779;  s.  c.,  13  Oh.  Div.  696;  National 
Bank  v.  Insurance  Co.,  104  U.  S.  54. 
The  only  difference  between  money 
and  notes  and  bills,  is  that  money  is 
not  earmarked,  and,  therefore,  cannot 
be  traced,  except  under  particular 
circumstances,  while  bills  and  notes, 
having  a  number  and  date,  may 
generally  be  identified  with  less  diffi- 
culty. It  is  conceded  that,  if  plaintiff 
could  identify  the  particular  coins  and 
bank  notes  which  he  had  deposited,  he 
would  have  the  right  to  withdraw 
them  from  the  mass  of  coins  and  bank 
notes  which  passed  into  the  hands  of 
the  receiver;  but  it  is  insisted  that 
inasmuch  as  the  money  deposited  by 
him  has,  like  water,  flowed  into  the 
common  mass  and  so  become  incapable 
of  identification,  the  right  to  pursue 
and  reclaim  it  is  lost,  although  it 
is  admitted  that  the  very  coins  and 
bank  notes  deposited  by  him  con- 
stitute a  part  of  the  common  mass. 
It  is  charged  in  the  bill,  and  admitted 
by  the  demurrer,  that  the  identical 
coins  and  bank  notes  deposited  by  the 
plaintiff  remained  in  the  bank  when  it 
stopped  business,  and  came  into  the 
hands  of  the  receiver,  who  now  has 
them  in  his  possession  as  a  part  of  the 
general  mass  of  coins  and  notes  held 
by  him  as  such  receiver.  In  such  a 
case  the  identification  is  sufficient  to 
entitle  the  depositor  to  follow  and 
reclaim  the  deposit  made  by  him. 
Although  the  identical  coins  and  bank 


notes  cannot  be  ascertained,  yet,  as  It 
is  admitted  that  so  much  in  coins  and 
bank  notes  belonging  to  the  plaintiff 
is  in  common  mass,  he  is  entitled,  in 
equity  and  good  conscience,  to  take  so 
much  out.  If  he  does  not  withdraw 
from  the  common  mass  the  very  coins 
and  bank  notes  deposited  by  himself, 
no  in  justice  is  done,  for  he  leaves  an 
equitable  amount  of  his  own  in  place 
of  every  coin  or  bank  note  deposited 
by  another.  Pennell  c.  Deffell,  4 
DeGex,  M.  &  G.  372;  In  re  Hallett's 
Estate,  36  Eng.  R.  779;  8.  c.,  13  Ch. 
Div.  696;  Cragie  t.  Hadley,  99  N.  Y. 
131;  s.  c..  1  N.  E.  Rep.  537;  National 
Bank  v.  Insurance  Co.,  104  U.  S.  54; 
Frelinghuysen  v.  Nugent,  36  Fed. 
Rep.  229;  Peters  v.  Bain,  133  U.  8. 
670;  s.  c.,  10  Sup.  Ct.  Rep.  354;  Bank 
v.  Dowd,  38  Fed.  Rep.  172;  Atkinson 
v.  Printing  Co.,  114  N.  Y.  168;  s.  c., 
21  N.  E.  Rep.  178;  In  re  North  River 
Bank,  14  N.  Y.  Supp.  261.  And  the 
proceeds  of  the  checks  are  governed 
by  the  same  principle,  because  the 
identical  coins  and  bank  notes  realized 
from  their  collection  constitute  a  part 
of  the  common  mass  in  the  receiver's 
hands.  The  mere  fact  that  the  plain- 
tiff became  a  creditor  of  the  insolvent 
bank  through  the  fraud  of  its  presi- 
dent, and  that  the  bank  became  a 
trustee  ex  maleficio,  would  give  him 
no  right  to  preference  over  other 
creditors,  unless  he  can  trace  and 
identify  his  money  as  a  part  of  the 
common  mass.  But  when  it  is  shown 
by  indubitable  proofs,  or  is  admitted, 
as  in  the  present  case,  that  the  identi- 
cal bank  notes  and  coins  so  obtained 
by  fraud,  constitute  a  part  of  the 
common  mass  of  bank  notes  and  coins 


§  '''21]  IH  I -08118  AKD  CHECKS.  '..'7 

:iali!f  time,  he  will  IK;  held  to  have  ratified  the  Mine.  And 
after  the  lapse  of  several  years  he  cannot  ..l.j.-ot  that  the  bank 
subsequently  ]>ui«l  over  the  money  to  his  a^ent  IIJM.IJ  the  presenta- 
tion of  the  certificate  of  depi..-it,  the  hank  having  no  knowledge 
that  the  agent's  possession  of  the  certificate  was  wrongful  and 
tortious.1  A  certificate  of  dej>o>it  is  jn'iinafaci*  evidence  of 
indebtedness.8  A  certificate  of  deposit  payable  in  "  currency  ** 
means  priina  facie  money  current  by  law,  or  paper  equivalent 
in  value  circulating  in  the  business  community  at  par.'  By 
giving  a  certificate  of  deposit  for  current  bank  notes,"  the 
receiver  of  the  deposit  admits  that  to  be  the  character  of  the 
money  received,  and  will  be  estopped  by  the  admission  from  show- 
ing that  the  funds  received  were  not  current,  or  claiming  the 
right  to  pay  in  anything  but  the  same  character  of  funds.4  A 
certificate  of  deposit  has  been  treated,  in  fact  and  in  law,  as  a 
promissory  note  for  the  payment  of  money.9  A  certificate  of 
deposit  for  a  stated  sum,  to  draw  interest,  if  left  for  thirty  days, 
and  payable  on  return  of  the  certificate  properly  indorsed,  has 

in  the  hands  of  the  receiver,  in  my  *  Osgood  r.  McConnell.  (1868)  83  III. 

judgment,    the     modern    and    better  74.     As  to  the  meaning  of  "  currency  " 

doctrine  is  that  the  depositor  may  take  and  "current   bnnk  bills"  the  court 

out  of  the  common  mass  so  much  as  said:  "  This  court  has  repeatedly  brld 

he  has  put  in."  that  currency  and  current  bnnk  bills 

1  Bank  of  Montreal  r.  Dewar,  (1880)  have  a  fixed  known  signification.  That 

6Bradw.(lU.)  294.  On  the  first  point  the  the  term  currency  mcana  bank  Wlb  or 

court  cited   McNeil  v.  Tenth  National  other  paper  money,  whirh  paaar*  a*  a 

Bank,  46  N.  Y.  825;  Anderson  r.  Arm-  circulating    medium    in  the  busiixM 

stead,  69  111.  452.  community  as   and  for  the  conaUtu- 

'Cushmant*.  Illinois  Starch  Co.,  79  tional  coin  of   the  country.    Current 

111.  281.  bank  bills,  it  will  be  perceived,  mean 

8  Phelps  v.  Town,  14  Mich.  374.     In  precisely  the  same  thing  iu  currency. 

Hulbert  v.  Carver,  (1868)  40  Barb.  265,  This    question    baa   been    repeatedly 

where    the    plaintiffs    had    deposited  before  the  court,  and  it  haa  been  unl- 

money   with  defendants,    bankers  in  formly  BO  held.  Sec  Chicago  Fire  & 

Chicago,   Illinois,  taking  a  certificate  Marine  Ina.  Co.  r.  KHron,  81 

that  they  had  deposited  in  the  bank-  Marine  Bank  r.  Chamllrr.  '21  111   .1 

era' office  a  certain  amount  "Illinois  Galena  Ins.  Co.  r.  Kupfer,  38111.888; 

currency,"    payable  to    the  order  of  Chicago  Marine  &  Fire  In*  ' 

themselves  on   return  of  the  ccrtifl-  pcnttr,  88   111.  850;   Marine  Bank  r 

cate,  the  Supreme  Court  of  New  York  Rushmorc.  28  111.  4<B;  Swift  ».  ' 

held  that  they  were  at  least  entitled  to  ney.  20  III.  144;  Trowbridg«».  Semman. 

payment  in  Illinois  currency,  recdv-  21  111.  101." 

able  in  the  ordinary  transactions  of  •  Bank  of  Peru   r.  Farnaworth.   1 

business   at  par,  if   not   entitled   to  111.  5«8;  Uugblin  r.  HaranaU,  1 

specie.  ;;'-(" 


628  DEPOSITS  AND  CHECKS.  "[§  321 

been  held  to  be  a  good  promissory  note.1  Where  a  bank  addresses 
to  another  bank  an  instrument  stating  that  a  person  had  deposited 
with  it  a  stated  sum  of  money  to  the  credit  of  the  latter  bank 
for  the  use  of  a  third  person,  such  instrument  would  be  in  its 
legal  character  a  certificate  of  deposit.2  A  certificate  of  deposit, 
"  payable  in  current  funds,"  is  equivalent  to  a  promissory  note, 
but  not  being  payable  in  money  is  not  governed  by  law  merchant.3 
Indorsees  of  a  certificate  of  deposit,  not  bearing  interest,  who 
received  it  more  than  six  years  after  it  had  been  paid  and  should 
have  been  surrendered,  were  held  by  the  Indiana  Supreme  Court 
to  have  taken  it  as  dishonored  paper,  and  not  as  a  continuing 
negotiable  security,  and  not  entitled  to  enforce  its  second  pay- 
ment after  such  an  unreasonable  delay.4  The  transferree  by 
indorsement  of  a  certificate  of  deposit,  takes  it  subject  to  all 
equities  between  the  payee  and  the  bank.5  In  a  case  where  a 
national  bank  upon  a  deposit  made  by  a  depositor  over  its  coun- 
ter, in  the  usual  course  of  business,  issued  to  him  a  certificate  of 
deposit,  which  he  received  in  the  belief  that  it  was  the  obligation 
of  the  bank,  but  which  purported  to  be  the  individual  obligation 
of  its  president,  the  officers  of  the  bank  knowing  of  and  permit- 
ting this  course  of  business,  the  Supreme  Court  of  New  York 
held  that  the  defendant  was  not  bound  by  the  acceptance  of  the 
certificate  to  knowledge  or  notice  that  the  deposit  was  accepted 
by  the  president  of  the  bank  individually,  but  was  entitled,  under 
the  circumstances,  to  believe  the  certificate  was  the  obligation  of 
the  bank,  and  that  the  bank  was  estopped  to  deny  its  liability  on 
the  certificate.6  A  bank  has  been  held  responsible  for  the  money 
of  a  depositor  notwithstanding  a  fraud  perpetrated  by  its  officers 
in  inducing  the  depositor  to  accept  their  certificate  of  deposit  as 
that  of  the  bank.7  But  a  bank  would  not  be  responsible  for  an 

1  Howe  v.  Hartness,  (1860)  11  Ohio  222;  Lindsey  v.  McClelland,   18  Wis. 

St.  449.  481;    Klauber  v.  Biggerstaff,  47  Wis. 

9  Armstrong  v.  American  Exchange  551. 

National  Bank,  133  U.  8.  433.  5  Humboldt  Trust    Co.'s  Estate,   3 

3  National  State  Bank  of  La  Fayette  Pa.  Co.  Ct.  Rep.  621. 

v.  Ringel,  (1875)  51  Ind.  393.  •  West    v.   First    National   Bank  of 

4  Gregg  V.  Union  County  National  Elmira,    (1880)  20  Hun,   408.     As  to 
Bank,  (1882)  87  Ind.  238.      As  to  the  negotiability  of  a  certificate  of  deposit, 
regularity  of  certificates  of  deposit,  sec  see  Smith  v.  Mosby,  Receiver,  (1872)  9 
O'Neill  v.    Bradford,    1  Finn.   (Wis.)  Heisk.  (Tenn.)  501. 

390;  Ford  v.  Mitchell,  15  Wis.  304;  7  Steckel  v.  Bank,  93  Pa.  St.  376; 
Platt  v.  Sauk  County  Bank,  17  Wis.  Ziegler  v.  Bank,  93  Pa.  St.  393. 


§321]  DEPOSITS  AND  CHECKS.  •_• 

interest-bearing-  certificate  of  deposit,  issued  by  its  precedent  in 
the  name  of  bis  firm,  under  circumstances  by  which  the  depositor 
could  not  have  been  misled.1  In  an  Illinois  case  it  appeared  tliat 
the  employee  of  owner  of  money,  who  hud  intruded  it  t.»  him  to 
deposit  for  him  in  a  bank,  deposited  it  in  Li*  own  name,  tlit*  bank 
knowing  whose  money  it  was  at  the  time.  The  employee  after- 
ward indorsed  the  certificate  of  deposit  to  the  owner  of  the 
money,  who  deposited  the  certificate  in  the  safe  to  which  hi* 
employer  had  access,  but  gave  no  notice  of  these  fact*  to  the 
bank  until  after  the  employer  had  taken  the  certificate,  and  drawn 
the  money  on  it,  and  had  it  placed  to  his  own  individual  account, 
when  he  did  inform  the  bank  of  his  rights.  After  this,  however, 
lie  treated  the  transaction  as  a  loan  to  his  employee  for  over 
three  years,  expecting  to  have  him  secure  it.  During  tub  time 
he  made  no  claim  on  the  bank.  The  Supreme  Court  held  that 
under  these  facts  the  owner  of  the  money  thus  deposited  could 
not  maintain  an  action  of  trover  against  the  bank  for  a  conver- 
sion of  the  money,  for  the  reason  that  he  had  by  his  acts  vested 
hi-  employee  with  an  apparent  ownership  or  control  of  the  money, 
and  had  thus  acquiesced  in  the  payment  of  the  money  to  him.1 
The  assigning  of  a  certificate  of  deposit  transfers  to  the  ••ignee 
the  whole  sum  deposited,  as  stated  in  the  certificate.3  An  innocent 
holder  of  a  certificate  of  deposit  issued  to  a  cashier,  naming  him, 
for  funds  deposited  belonging  to  his  bank  which  the  enhier 
transferred  to  him,  would  be  protected,  though  the  transfer  may 
be  in  bad  faith  on  the  part  of  the  cashier.4  An  attempt  by  the 
holder  of  a  certificate  of  deposit  to  obtain  payment  of  it  before 

'Bank  r.   Williams,   11  W.    N.  C.  » Springfield  Marine  &  Fire  In*.  Oft. 

(Pa.)  847.     In  Jenkins  r.  Walter.  8  G.  r.  Peck,  (1882)  102  III.  265.     In  llaxle- 

&  J.  (Md.)  218,  a  guardian  had  dcpos-  ton  t.  Bank  of  Columbus.  82  Wh.  84. 

ited  money  of  his  ward  in  a  bank  and  a  bank  which  had  paid  its  certificate 

received  a  certificate  of  deposit  pay-  of  deposit  to  one  to  whom  it  had  been 

able  to  his  own  order.     On  the  day  of  properly    indorsed,    though    without 

(1  posit,  by  an  indorsement  on  the  cer-  consideration  as   to   one  who  rmlljr 

tiflcate  made  to  himself,  he  declared  it  owned   it  and    the   money,  and   the 

to  be  the  property  of  his  ward,  and  indorsement  wms  forged,  it  was  held. 

placed  in  bank  for  his  benefit.    The  would  not  be  liable  on  the  cetttfieste 

depositor    subsequently  failed.     The  to  the  original  payee. 

court  held  that  the  bauk  might  apply  * Perpetual     Ins.     Oo.     f.     Cohen. 

the  fund  in  satisfaction  of  any  claim  (1845)9  Mo.  421.     In  Phlllppa  r.  Fran- 

it  had  against  the  depositor.  dscu*.  (1878)  58  Mo.  :i:                 OM 

*Dewar  r.   Bank  of  Montreal.    115  owing   money  to   another    took   the 

HI  22.  amount,  and,  after  placing  it  In  an  co- 


630  DEPOSITS  AND  CHECKS.  [§  321 

it  falls  due,  is  not  inconsistent  with  its  ownership  by  some  one 
else.1  The  bona  fide  holder  of  a  certificate  of  deposit  issued  by 
a  bank  payable  on  its  return,  properly  indorsed,  to  whom  it  was 
transferred  seven  years  after  its  issue,  has  been  held  entitled  to 
recover  the  amount  from  the  bank,  notwithstanding  the  bank  had 
paid  it  to  the  original  holder.2  The  holder  of  a  non-negotiable 
certificate  of  deposit,  which  has  been  indorsed  to  him  in  blank  by 
the  payee  and  delivered  to  him,  may  make  a  valid  pledge  of  it  to 
an  innocent  party,  without  reference  to  the  equities  between  him- 
self and  the  payee.3  On  demand  of  payment  of  a  certificate  of 
deposit  in  a  savings  institution  payable  to  the  depositor  or  order, 
on  demand  and  on  return  thereof,  the  bank  has  the  right  to  insist 
that  the  certificate  shall  be  produced  and  delivered  up  as  its 
voucher  of  payment,  and  security  against  any  future  claim.4  In 
a  Vermont  case  it  appeared  that  an  insolvent  person  fraudulently 
procured  a  certification  of  a  check  from  a  bank,  which  he  deposited 
in  a  second  bank  to  the  credit  of  a  third  bank  for  the  use  of  one 
to  whom  he  was  indebted  to  that  amount.  The  creditor  of  the 
insolvent  had  previously  directed  the  latter  to  deposit  that  sum 
for  him  in  bank,  but  had  no  communication  with  the  second  bank, 
above  referred  to,  on  the  subject.  The  bank,  on  receiving  the 
deposit,  had  addressed  a  letter  to  the  third  bank,  informing  them 
of  the  deposit  and  credit,  but,  before  this  bank  received  the  letter, 
notified  them  by  telegraph  by  procurement  of  the  bank  certify- 
ing the  check,  not  to  make  payment  to  the  creditor  upon  this 
credit,  as  there  was  something  wrong.  The  creditor  was  also 

velope,  sealed  the  package  and  placed  the  wife  was  not  authorized,  but  that 

it  in  the  hands  of  a  banker  and  took  a  the  bank  was  entitled  to  a  credit  for 

certificate    of    deposit  of    the    same,  the  amount  which  she  had  drawn  and 

which  he  indorsed  and  delivered  to  his  applied  to  the  use  of  his  estate  in  the 

creditor,  the  title  of  the  latter  to  the  way  of  personal  expenses,  etc.  Citing 

money  was  held  to  be  complete.     In  Murray    v.   Cannon,    Admr.,  41    Md. 

Second  National  Bank  of  Baltimore  T.  466;    Taylor    v.    Henry    &  Bniscup, 

Wrightson,  Exr.,  (1884)  63  Md.  81,  it  Admrs.,  48  Md.  550. 

appeared  that  the  appellee's  testator  '  Burrows  v.  Bangs,  34  Mich.  304. 

had  deposited  a  sum  of  money  in  the  *  National  Bank  of  Fort  Edward  v. 

bank  and  received  a  certificate  of  de-  Washington  County  National  Bank, 

posit  stating  that  the  same  was  pay-  (1875)  5  Hun,  605. 

able  to  the  order  of  himself  or  of  his  3  International     Bank     v.    German 

wife  (naming  her)  on  the  return  of  the  Bank,  (1879)  71  Mo.  183. 

certificate.     The    Court    of    Appeals  4  Fells  Point  Savings  Inst.  of  Balti- 

held  that  upon  the  death  of  the  de-  moie  ®.  Weedon,  Admr. ,  18  Md.  320. 
positor  a  payment  of  the  certificate  to 


§  321]  DEPOSITS  AND  CHECKS.  •      1 

informed  by  telegraph  by  his  debtor,  tin-  in.-.lvent,  tin-  drav. 
the  check,  that  payment  of  the  credit  ha<l  been  stopped.  These 
telegrams  were  received  as  early  at  least  as  the  creditor  received 
notice  of  the  deposit,  an<l  before  he  h;i<l  in  any  way  acted  upon 
it.  The  certifying  bank,  before  becoming  fu||y  informed  «»f  tin- 
fraud,  had  paid  the  money  on  the  check  to  the  M-cond  tank.  On 
the  bill  in  chancery  brought  by  the  certifying  bank,  the  Supreme 
Court  held  that  it  was  entitled  to  reclaim  the  nioiny  from  tin* 
bank  to  which  it  had  paid  it;  that  the  receipt  of  the  money  by 
that  bank  was  not  in  law  a  payment  to  the  creditor,  considering 
the  relations  between  all  the  parties  growing  out  of  thin  trans- 
action.1 The  right  of  action  upon  an  ordinary  certificate  of 
deposit  does  not  arise  until  a  demand  for  payment  w  made.9 
Limitations  on  a  certificate  of  deposit  payable  with  interest  on 
demand  and  on  return  of  same,  run  along  from  the  time  of 
demand  actually  made.3  The  defendant  in  this  New  York  case, 
a  director  of  a  national  bank,  had  dej>osited  a  certain  amount  of 
money  in  the  bank,  and  received  three  certificates  of  deposit,  two 
at  one  time  and  one  at  another,  bearing  six  percent  interest.  The 
two  certificates  first  issued,  the  cashier,  in  a  little  more  than  three 
years  after  their  issue,  voluntarily  paid  by  a  transfer  of  negotiable 
paper  belonging  to  the  bank,  and  the  payment  of  a  small  cash 
difference,  giving  as  a  reason  therefor  "  that  his  directors  did  not 
like  his  paying  so  large  a  rate  of  interest ;"  the  payment  was  not 
requested  by  the  depositor.  Near  nine  months  later  the  third 
certificate,  which  had  been  indorsed  and  transferred  by  the 
depositor  to  another  national  bank,  was  paid  to  the  l>ank  in  the 
settlement  of  exchanges  between  the  banks  in  the  usual  man- 

D 

ner.  At  the  time  of  the  payment  the  bank  was  insolvent, 
and  had  been  so  for  some  years,  its  insolvency  being  known 
only  to  the  cashier,  and  it  was  in  good  credit  with  the  public, 

'Bank   of    Re-public  r.   Baxter,    Ul  while  failed.     In  nn  action  again**  the 

Vt.    101.     In    Cate    t.   Patterson.   25  pay«-<-  as  indonMT.  be  W«M  held  not  to 

Mich.  191,  the  payee  of  11  certificate  of  have   been  relieved  fn»m  liability  oo 

deposit  had  transferred  it  with  a  special  the  ground  that  the  presentment   f«-r 

request  that  it  should  not  be  presented  paynifnl  wan  not  in  du«-  tlmr. 

until   three  months   had  expired,  and  'Munger  r.  Albany    City   National 

had  actually   received   from  the  pur  Bank.  (1(81) H5  N.  Y.  WO. 

chaser  the  interest  accrued  at  the  dale  » Fella  Point  Saving  In*,  of  lUIti 

of  the  transfer.     The  purchaser  pre-  more  r.  Weedon.  Admr.  etc.,  18  Md. 

sented    the  certificate  after  the  time  890. 
expired  and  the  bauk  hud  in  the  mean* 


632  DEPOSITS  AND  CHECKS.  [§  321 

doing  business  without  suspicion.  Its  financial  condition  shortly 
after  the  payment  of  the  third  certificate  of  deposit  became 
public  from  the  absconding  of  the  cashier  and  one  of  the  book- 
keepers. The  receiver  of  the  bank,  afterwards  appointed,  brought 
this  action  against  the  former  depositor  to  recover  the  amount  of 
the  deposits  paid  him,  upon  the  ground  that  the  payments  were 
void  under  the  section  of  United  States  Eevised  Statutes  cited 
below,1  which  provides  as  follows :  "  All  transfers  of  the  notes, 
bonds,  bills  of  exchange  or  other  evidences  of  debt  owing  to  any 
national  banking  association,  or  of  deposits  to  its  credit  j  all 
assignments  of  mortgages,  sureties  on  real  estate,  or  of  judg- 
ments or  decrees  in  its  favor ;  all  deposits  of  money,  bullion  or 
other  valuable  thing  for  its  use,  or  for  the  use  of  any  of  its  share- 
holders or  creditors ;  and  all  payments  of  money  to  either,  made 
after  the  commission  of  an  act  of  insolvency,  or  in  contemplation 
thereof,  made  with  a  view  to  prevent  the  application  of  its  assets 
in  the  manner  prescribed  by  this  chapter,  or  with  a  view  to  the 
preference  of  one  creditor  to  another,  except  in  payment  of  its 
circulating  notes,  shall  be  utterly  null  and  void."  The  New  York 
Court  of  Appeals  affirmed  the  dismissal  of  this  action  upon  the 
findings  of  fact  and  evidence  by  the  trial  court,  which  had  also 
been  affirmed  by  the  General  Term.2  In  a  case  it  appeared 

1  §  5242.  sented  by    its    numerous  customers. 

*  Hayes  n.  Beardsley,  (1892)  136  N.  The  first  two  certificates  were  paid,  as 
Y.  299.  EARL,  Ch.  J.,  in  the  opinion,  we  must  assume,  for  the  reason  as- 
said:  "The  bank  had  not  committed  signed  by  the  cashier  at  the  time,  be- 
any act  of  insolvency,  as  it  met  all  its  cause  they  were  bearing  interest  at  a 
obligations  as  they  became  due  or  larger  rate  than  the  directors  of  the 
were  demanded  during  more  than  six  bank  were  willing  longer  to  pay,  and 
weeks  after  the  last  certificate  was  the  last  certificate  was  paid  to  the 
paid.  While  its  cashier  knew  that  the  [bank  holding  it]  in  the  ordinary 
bank  was  insolvent,  and  must  have  course  of  business  in  the  settlement  of 
expected  that  it  would  liltimately  fail  exchanges  between  the  two  banks, 
to  meet  its  obligations  and  be  obliged  There  was  no  satisfactory  evidence 
to  go  into  liquidation,  yet  it  cannot  be  that  these  payments  were  made  by  the 
said  to  have  been  an  undisputed  fact  bank  to  prevent  the  application  of  its 
in  the  case  that  the  financial  collapse  assets  in  the  manner  prescribed  in  the 
of  the  bank  was  impending  or  immi-  National  Banking  Act  or  with  a  view 
nent,  and  there  is  little  if  any  ground  to  a  preference  of  the  defendant  over 
for  saying  that  these  payments  were  the  other  creditors  of  the  bank.  The 
made  in  contemplation  of  insolvency,  circumstances  under  which  the  pay- 
The  cashier  paid  the  certificates,  as  he  ments  were  made  and  the  condition 
did  all  other  demands  upon  the  bank  and  credit  of  the  bank  at  the  time  for- 
as  they  were  from  time  to  time  pre-  bid  the  inference  that  the  payments 


§321]  DEPOSITS  AND  CHECKS.  SSI 

that  two  persons  who  were  direct. >r*  Itoth  of  a  savings  bank  and 
of  a  national  bunk,  procured  money  from  the  savings  bank  on 
two  notes  made  by  third  persons  to  th«-m.  ami  .  r  the  pay- 

ment of  stock  of  the  national  Lank,  issued  in  the  names  of 
tin-  third  persons  for  their  bent-tit.  These  persons  represented  to 
the  savings  bank  that  it  would  have  to  carry  the  notes  but  a  short 
time,  and  that  the  national  bank  would  take  care  of  them.  Thev 
were  behind  in  their  account  with  the  national  bank,  and  the 
savings  bank  allowed  them  to  overdraw  their  accounts  with  it  to 
a  large  amount,  which  money  was  used  in  settling  their  account* 
with  the  national  bank.  After  this  the  savings  bank  delivered  the 
notes  and  the  check  representing  the  overdrafts  to  the  national 
bank,  and  received  from  the  latter  a  certificate  of  deposit  fur  an 
amount  covering  the  whole  amount  represented  by  the  notes 
and  check.  In  a  suit  by  the  receiver  of  the  savings  bank,  which 
had  become  insolvent,  against  the  receiver  of  the  national  bank, 

were  made  for  such  a  purpose.     The   bid  such  an  inference."     As  to  the 
defendant  was  not  selected  us  a  favor-    effect  of   the  defendant  being  a  di 
ite  creditor.     During  all  the  years  of    rector  it  was  said:   "  The  insolvency  of 
the  insolvency  of  the  bank  all  cred-    this  hank  seems  to  have  been  covered 
itore  were  treated  alike,  and  there  was    up  and  concealed  by  the  cashier  with 
no   preference  of  one  over  another,    great    skill    and    ingenuity.     It   was 
All  its  demands  were  met  at  maturity,    not  discovered  by  the  bank  examin 
There  does  not  appear  from  the  facts   era  in  making  their  examination*  of 
found   to  be  any   better  ground    for   the  hank,  and  no  one  of  the  directon 
claiming  that  these  payments  made  to   had  the  least   suspicion  of   it.     The 
tin-  defendant  were  void  than  there  is    fact  that  the  defendant,  entirely  igno- 
for  making  the  same  claim  in  refer-    rant  of   the  insolvency  of  the  bank. 
ence  to  the  numerous  payments  made    was  a  director  doe*  not.  under  such 
in  the  regular  course  Of  business  by    circumstances,   as  a   matter    of    law. 
this    bank    to  its   customers   during   charge  him  with  liability  for  the  pay- 
many  mouths  prior  to  the  closing  of   ment  made  to  him.     In  the  trial  of  the 
its  doors.     In  order  to  uphold   a   re     case  and   in  weighing  and  balancing 
covery   in  an  action  like  this    there    the    evidence  that   fart   might    have 
should  be  some  satisfactory  evidence    weight  —  in    nome    case*    controlling 
that  the  cashier  or  other  officer  actu-    weight  —  with  the  trial  court.      But 
ally  paid  the  money  of   the  bank  in    when,  after  all  the  evidence  U  ^ 
contemplation  of   insolvency   for  the    it  is  found  that  the  director  acted  in 
purpose  of  giving  a  preference  to  the 'good     faith,    wan    ignorant    of    any 
payee  and  with  a  view  to  prevent  the    wrongdoing  or  of   toe  insolvency  of 
application  of  the  assets  of  the  bank    the  bank,  then  a  payment  made  t 
to  the  creditors  generally,  as  provided    must  be  tested  under  section  8942  |l 
in  the   National    Hanking  Act.     We   8.    Rev.  St.]  like  payments  made  to 
think  all  the  circumstances  surround-   any  other  creditor  of  toe  bank." 
ing  these  deposits  and  payments  for* 


634  DEPOSITS  AND  CHECKS.  [§  322 

also  insolvent,  based  upon  this  certificate  of  deposit,  it  was  held 
that  the  certificate  of  deposit  was  without  consideration  and  void, 
.and  that  the  savings  bank  would  have  to  submit  to  the  loss  accruing 
to  it  out  of  the  transaction,  as  the  loss  was  due  to  the  fraud  or 
incompetency  of  its  own  officers.1 

§  322.  Special  deposits. —  The  United  States  Supreme  Court 
has  held  that  the  provision  of  the  National  Banking  Association 
Act,  that  it  shall  be  lawful  for  a  national  bank  after  its  failure  to 
"  deliver  special  deposits,"  was  as  effectual  a  recognition  of  the 
power  of  a  national  bank  to  receive  special  deposits  as  an  express 
declaration  to  that  effect  would  have  been.2  Bank  notes,  when 
received  by  a  bank  on  general  deposit,  become  the  property  of 
the  bank,  and  the  amount  a  debt  payable  on  demand  by  the  bank 
to  the  person  entitled  to  it.  An  action  of  debt  or  assumpsit 
against  the  bank  is  the  only  remedy  of  the  creditor  in  case  pay- 
ment be  refused.  But  it  is  different  if  they  be  deposited  as  a 
special  deposit.  The  deposit  then  is  nothing  but  a  bailment. 
And  if  a  cashier  of  the  bank  converts  them  it  is  a  tortious  act  for 
which  he  will  be  held  individually  liable  in  an  action  of  trover.3 
A  deposit  in  bank  will  not  be  made  a  special  one  nor  will  the  lia- 
bility of  the  bank  ,  be  changed  by  the  addition  of  the  word 
"  clerk  "  to  the  name  of  a  general  depositor.4  Where  a  bank  has 
given  a  receipt  for  money  received  "  on  deposit,"  such  a  receipt 
would  not  show  whether  it  was  a  special  or  general  deposit, 
and  the  bank  would  be  allowed  to  show  by  parol  evidence  that 
the  transaction  was  in  fact  a  special  deposit.5  In  cases  of  special 
deposit  the  right  of  property  remains  in  the  depositor,  and  he  is 
entitled  to  receive  back  the  identical  thing  deposited.^  A  bank, 
in  receiving  a  special  deposit,  undertakes  to  exercise  no  greater 
care  in  its  preservation  than  the  depositor  has  the  reasonable  right 

1  Murray  v.  Pauly,    (1893)  56  Fed.  (1885)  103  Ind.  562;  Keene  r.  Collier,  1 

Rep.  962.  Mete.  (Ky.)  417.     As  to  a  special  de- 

*  National  Bank  v.   Graham,  (1879)  posit  of  bonds,  see  Van  Leuven  v.  First 

100  U.  S.  699,  which  overruled  Whit-  National  Bank  of  Kingston,  (1873)  54 

ney  v.  National  Bank  of  Brattleboro,  *N.  Y.  671. 

50  Vt.  388.  5  Keen  ®.  Beekman,  66  Iowa,  672. 

8  Coffin  v.  Anderson,  (1837)  4  Blackf .  •  Lowry  e.  Polk  County,  51  Iowa,  50. 

(Ind.)  395.  As  to  a  bank's  liability  to  return  a  spe- 

4  McLain  v.  Wallace,  (1885)  103  Ind.  cial  deposit  in  kind,  see  Chesapeake 

562.     Distinction  between  special  and  Bank  T.  Swain,  29  Md.  483. 
general  deposits,  McLain  i:  Wallace, 


§322)  DKI'o-n*    AMi  •  IIKCU.  .     ... 

uppose  is  exercix-.l  in  raring  for  its  own  property  of  like 
description.1  A  bank,  reviving  a  package  of  money  as  a  special 
deposit  without  compensati.Mi,  will  l>e  bound  only  for  hlight  care, 
and  responsible  only  for  gross  negligence.*  The  obligation  ,,f  a 
hanker  in  the  keeping  of  a  deposit  will  not  be  increased  by  a  im-rv 
showing  to  the  depositor  the  facilities  and  securities  of  the  bank.* 
A  bank  will  be  liable  where  special  deposits  an-  l>^  l.v  reason  of 
gross  negligence  or  willful  inattention  on  the  part  of  iU  diructora.4 
In  case  a  special  deposit  of  bonds,  stock  or  coin  with  a  bank  lw 
stolen  or  embezzled  by  its  clerk  or  cashier  and  he  dot*  n.-t  par 
ticipate  in  the  act  and  is  guilty  of  no  negligence  in  the  matter,  the 
bank  will  not  be  responsible  to  the  depositor  for  its  value.*  A 
national  bank  will  be  held  liable  for  damages  oeea&i<>m-<l  l,\-  the 
loss,  through  negligence,  of  a  special  dej^sit  made  in  it  with  the 
knowledge  and  acquiescence  of  its  officers  and  directors.*  Itcbberv 
by  burglars  of  securities  deposited  for  safe-keeping  in  thi?  vault* 
of  a  bank  would  be  no  proof  of  negligence  on  the  part  of  the 
bank  in  caring  for  the  property.7  In  a  Vermont  case,  one  depos- 
iting with  the  cashier  of  a  national  bank  $4,000  of  United  States 
bonds,  received  this  writing :  "  Received  of  J.  D.  Whitney  four 
thousand  dollars  for  safe-keeping  as  a  special  deposit."  j  Si^m-d  j 
"  S.  M.  "Waite,  C."  This  appearing  to  be  a  naked  deposit  with- 
out reward,  the  Supreme  Court  of  that  state  held  that  the  word 
"safe-keeping"  only  indicated  the  purpose  for  which  the  bonds 
were  delivered  and  received,  and  did  not  import  a  contract  to 
keep  safely ;  that  the  bank  was  answerable  only  for  fraud  or  gross 
negligence  in  the  keeping  of  the  bonds,  and  wan  not  liable  for  the 

1  United  Society  of  Shakers  r.  Un-  Uon.     The  Supreme  Court  held  that 

derwood,  (1878)  9  Bush  (Ky.),  616.  the  transaction  should  be  deemed  one 

*  Hale  r.  Rawallie,   (1871)  8  Kans.  for  a  compensation  and  not  a  gratui 
136.  tons  one,  and  that  the  bonk  waft  liable- 

*  Ibid.     An   illustration  of  a  bank  as  a  bailee  for  hire. 

being  rendered  liable  to  a  depositor  as  4  United  Society  of  Shaker*  < 

trustee  for  a  breach  of  trust  in  connec-  derwood.  (1878)  9  Huah.  616.    A*  to 

tion  with  its  application  of  the  avails  of  the  care  with  which  a  bank  tnunt 

a  special  deposit  for  the  benefit  of  do-  a  special  deposit,  SSS  Boyden  r.  Bank 

positor*8    agent.    Manhattan   Bunk  e.  of  Cape  Fear,  63  N.  C.  IS. 

Walker,  130  U.  8.  267.     In  Leach  r.  •  Sturgc*  r.  KHth.  (1870)*"  U 

Hale,  31  Iowa,  69,  United  States  bond*  'National   Hank   r.  Graham.  <I*7V> 

were 'deposited  with  a  bunk   for  the  100  U.  8.  6W. 

purpose  of  their  being  converted  into  '  Wylic  r.  Northampton  Bank,  110 

similar  bonds  of   another  denomina-  U.  8.  9tL 


636  DEPOSITS  AND  CHECKS.  [|  323 

loss  by  robbery  or  larceny,  if  the  baiik  acted  in  good  faith  and 
took  the  same  care  of  these  bonds  as  it  did  of  its  own  of  like 
character.1  By  a  cashier  wrongfully  transferring  a  special  deposit 
and  putting  it  with  the  funds  of  the  bank,  and  the  bank  report- 
ing and  treating  it  as  a  part  of  its  assets,  a  conversion  of  the 
deposit  is  effected,  and  no  demand  and  refusal  would  be  neces- 
sary for  the  depositor  to  maintain  an  action  of  trover  against  the 
bank.2  Where  a  bank  receiving  a  special  deposit  had  transferred 
it  to  another  bank  established  at  the  same  place,  with  the  same 
officers,  and  the  deposit  was  embezzled  by  the  cashier,  the  Ken- 
tucky Court  of  Appeals  held  that  the  bank  receiving  the  deposit 
would  be  liable  unless  the  depositor  directly  or  by  implication 
assented  to  or  ratified  the  transfer  prior  to  the  loss.3 

§  323.  The  duty  of  a  bank  as  to  deposits  and  its  right  as 
to  their  application. —  A  deposit  received  under  special  agree- 
ment must  be  applied  by  the  bank  according  to  the  agreement.4 
A  depositor  with  a  bank  who,  having  made  overdrafts,  should 
transfer  securities  to  the  bank,  and  request  that  these  overdrafts 
be  paid,  would  thereby  create  a  valid  trust  for  the  payment  of 
such  outstanding  checks  and  drafts,  whether  presented  or  not, 
and  the  holders  of  such  checks  and  drafts  would  be  entitled  to 
payment  out  of  the  securities  so  deposited  in  preference  to  the 
general  creditors  of  the  depositor.5  Where  a  depositor  of  a  bank 

• 
1  Whitney     v.     National    Bank    of   lently  takes  away  a  special   deposit 

Bmttleboro,  55  Vt.  154.  As  to  the  li-  made  in  the  bank,  see  Foster  v.  Essex 
ability  of  a  bank  receiving  special  de-  Bank,  (1821)  17  Mass.  479;  Smith  n. 
posits  where  loss  is  the  result  of  their  Westfield  Bank,  (1868)  99  Mass.  605. 
gross  negligence,  see  Foster  <o.  Essex  4  Wilson  v.  Dawson,  (1876)  52  Ind. 
Bank,  17  Mass.  479;  Lancaster  County  513,  in  which  case  the  surety  of  a  de- 
National  Bank  v.  Smith,  62  Pa.  St.  positor  for  debts  due  at  the  bank, 
47;  Scott  v.  National  Bank  of  Chester  where  the  depositor  had  deposited 
Valley,  72  Pa.  St.  471;  First  National  more  than  sufficient  to  pay  those  debts, 
Bank  of  Carlisle  v.  Graham,  79  Pa.  St.  but  under  special  agreement  that  these 
106;  Turner  v.  First  National  Bank  of  deposits  were  to  be  paid  out  on  checks 
Keokuk,  26  Iowa,  562;  Smith  v.  First  for  certain  purposes,  some  of  which 
National  Bank  in  Westfield,  99  Mass,  deposits  was  in  bank  when  the  debts 
605;  Chattahoochee  National  Bank  v.  matured,  and  paid  out  under  the 
Schley,  58  Ga.  369.  agreement,  was  held  not  released, 

*  First  National  Bank  of  Monmoulh  though  ignorant  of  the  special  agree- 
v.  Dunbar,  19  Bradw.  (111.)  558.  ment  with  the  depositor. 

3  Ray  v.  Bank  of  Kentucky,  (1874)       5  Watts  v.  Shipman,  (1880)  21  Hun, 
10  Bush  (Ky.),  350.     That  a  bank  is   598. 
not  liable  in  case  its  cashier  fraudu- 


§  323]  DEPOSITS  AND  CIIKCKA.  681 

is  indebted  to  the  bank  by  bill,  note  or  other  independent  indebt- 
edness, the  bank  has  the  right  to  apply  BO  much  of  the  fund*  of 
the  depositor  to  the  payment  of  his  matured  indebtedness  a*  may 
be  necessary  to  satisfy  the  same.1  And  the  same  rule  obtain* 
where  a  depositor  makes  his  paper  to  third  persona  payable  at 
the  bank.  As  it  is  the  duty  of  the  bank  to  pay  iu  customer*' 
checks,  when  in  funds,  so  at  least  it  has  authority,  if  it  in  not 
under  actual  obligation,  to  pay  his  notes  and  acceptances  mudft 
payable  at  the  bank.  It  is  a  presumption  of  law  that  if  a  cus- 
tomer does  so  make  payable  or  negotiable  at  a  bank  any  of  hi* 
paper,  it  is  his  intent  to  have  the  same  discliarged  by  hi-  deposit.' 
The  Supreme  Court  of  Illinois  has  held  that  the  order  of  ft 
depositor  to  his  bank  to  apply  his  funds  deposited  to  the  payment 
of  a  note  of  his  payable  at  the  bank  is  necessary  to  give  the  bank 
power  to  pay  the  note.8  Verbal  direction,  or  a  chock  or  draft  -r 
some  other  writing  signed  by  a  depositor  to  a  bank  in  which  ho 
has  deposits,  is  necessary  to  justify  a  payment  by  the  bank  out 
of  his  funds  of  a  draft  which  the  depositor  has  accepted  made 
payable  at  such  bank.4  A  bank  may  apply  all  the  funds  of  a 

'Home  National  Bank  P.  Newton,  if  a  bank  advances  the  money  to  pay 

(1881)  8  Bradw.  (111.)  563;  citing  Morse  a  note  or  bill  of  its  customer  madn 

on  Banks  &  Banking  (2d  ed.),  42;  Com-  payable  at  the  bank,  it  may  reeorsr 

merciul  Bank  of  Albany  r.  Hughes,  17  from    the    depositor    as    for    money 

Wend.  04.  loaned,  the  paper  so  made  payable  be- 

'Home  National  Bank  P.  Newton,  ing  deemed  equivalent  to  a  request  to 

(1881)  8  Bradw.  (111.)  563;  citing  Morse  pay.     He  makes  the  bank  bU  ajfent 

on  Banks  &  Banking,  87.     The  Illinois  with  implied  authority  to  protect  hU 

Appellate    Court  in   Home    National  credit  by  appropriating  bin  deposits  to 

Bank  v.  Newton,  tupra,  further  said  :  the  payment  of  his  maturing  oblljra- 

"The  neglect  of  the  bank  to   make  tions    made     payable    at    the    bank. 

such    appropriation  would   discharge  Forster  r.  Clement*.  2  Camp.  17;  Man- 

the  indorsors  and  sureties.     McDowell  dcville  r.  Union  Hank  of  Georgetown. 

t».  Bank  of  Wilmington,  1  Harrington  9  Cranch.  9.    These  general  prinriplr* 

(Del.),   869;    Dawson    P.    Real    Estate  arc    suftlrient    to   show    the   rrktino 

Bank,  5  Pike  (Ark.),  283.     The  act  of  which  exUU  between  a  bank  and  in 

thus    making   his    paper  payable   at  depositors  In  respect  to  the  paper  of 

a  bank   is   considered    as   much  his  the  latter  made  payable  by  ill  trnne 

order  to  pay  as  would  lie  his  check,  at  the  bank,  ami  they  make  the  bank 

and,  if  the  bank  pixy  without  express  tho  agent,  not  of  the  payee  of  mch 

orders  to  the  contrary,  it  is  a  defense  paper,  but  of  the  maker." 
to  a   suit  by   the  depositor    for  tho       •  Ridgely  National  Bank  t.  Pmttoo. 

money  so  paid.     Mandevillc  r.  Union  109  111.  479. 

Bank  of  Georgetown,   9   Cranch.   9.       *  Haines    P.    McFerorn.    19    Ilrwiw. 

And  the  rule  seems  to  bo  settled  that  (UL)  17*     As  to  the  lack  of  power  of 


DEPOSITS  AND  CHECKS.  [§  323 

depositor  which  it  has  to  his  credit  to  an  indebtedness  created  by 
the  payment  upon  a  discount  by  the  bank  upon  him  until  it  is 
fully  discharged.1  The  full  balance  due  a  general  depositor  may 
be  tendered  to  him  at  any  time  by  the  bank  holding  it,  but  he 
cannot  be  compelled  by  the  bank  to  receive  less.2  A  bank  can- 
not set  off  an  individual  deposit  against  a  partnership  debt  to  the 
bank.3  Where  money  is  deposited  'in  a  bank  in  the  name  of  a 
firm,  and  the  bank  pay  a  check  out  of  the  same  drawn  by  one  of 
the  firm  in  his  own  name  only,  to  justify  such  payment  the  bank 
would  be  required  to  show  that  the  money  thus  drawn  on  the 
firm  account  was  applied  to  the  use  of  the  firm.4  It  would  be 
no  excuse  for  a  bank,  in  paying  out  funds  deposited  in  the  name 
of  a  firm  upon  the  individual  check  of  a  member  of  that  firm, 
that  the  partner  drawing  the  check  told  the  officer  of  the  bank 
that  it  was  drawn  on  the  joint  account  and  in  his  individual  name 
by  mistake,  and  directed  him  to  pay  it  and  any  other  of  the  like 
kind  which  he  might  draw  out  of  the  firm's  funds.5  In  an  Indi- 
ana case  money  in  the  form  of  a  draft  was  sent  by  A.  to  a  bank, 
with  directions  to  place  it  to  his  credit  and  await  his  further 
orders.  The  banking  firm  gave  a  receipt  for  it.  Afterward  A. 
agreed  with  B.  that  the  draft  should  be  transferred  to  B.'s  credit, 
but  the  banking  firm  was  not  privy  to  the  agreement,  nor  did  A. 
notify  them  of  it.  B.,  without  authority  from  A.,  wrote  to  the 
firm,  ordering  them  to  place  the  draft  to  his  credit,  and  they 
replied  that  they  had  done  so.  In  the  suit  brought  by  A.  against 
the  bankers  after  payment  of  the  same  was  refused  by  them  upon 
his  demand,  the  Supreme  Court  held  that  the  bankers  were  liable 
to  A.  for  the  amount  of  the  draft.6  A  bank  is  under  no  obli- 
gation to  pay  checks  of  its  depositors  in  excess  of  their  deposits, 
unless  there  be  a  special  arrangement  to  that  effect.7  A  bank 

a  bank  to  transfer  money  deposited  *  Union    Bank   of    Quincy  v.  Tutt, 

with  it  to  the  payment  of  notes  exe-  (1878)  5  Mo.  App.  343. 

cuted  by  the  depositor,  payable  at  the  J  Coots  v.  McConnell,  39  Mich.  742. 

bank,   unless    depositor    consent,   see  3  International  Bank  v.  Jones,  119 

Scott  «.  Shirk,  (1877)  60  Ind.  160.     As  111.  407. 

to  its  not  being  bound  to  pay  such  4  Coote  &  Jones  v.  Bank  of  U.  8.,  8 

money  on  a  note  held  by  a  third  party  Cranch  Cir.  Ct.  50. 

upon  oral    request  of  the   depositor  6Ibid. 

when  not  proposed  to  surrender  the  6  Coffin  v.  Henshaw,  (1858)  10  Ind. 

note  to  the  banker  or  give  any  other  277. 

evidence  of  payment,  see  McEwen  v.  *  Decatur  National  Bank  v.  Murphy, 

Davis,  (1872)  39  Ind.  109.  (1881)  9  Bradw.  (111.)  112. 


-;*  I  DEPOSITS  AND  CHECKS. 

in;,  v  maintain  an  action  against  tin-  drawer  for  payment  made  by 
its  cashier  on  cheeks  overdrawn.'  Should  a  depositor  fraudu 
1  en tly  overdraw  his  account,  tad  tin-  i.l.-nti.-al  money  u  placed 
l>y  him  to  his  credit  in  another  bank,  the  bank  from  which  it  was 
drawn  may  reclaim  it  from  tin-  one  in  which  hi-  ha*  place- 1  it/ 
After  rcci-iviii:;  froin  a  depositor  a  genuine  check  drawn  upon  it 
by  another  depositor,  and  crediting  the  amount  to  the  one  deposit- 
ing it,  even  on  the  deposit  ticket  alone,  through  its  receiving  teller, 
a  bank  cannot  return  it  to  the  depositor  as  not  good,  although  tin- 
drawer's  account  may  have  been  overdrawn  at  the  time  the  cheek 
was  deposited.3  A  bank  receiving  a  deposit  under  an  agreement 
to  apply  it  to  the  payment  of  a  debt  due  some  designated  pencil, 
cannot  divert  it  from  the  purposes  of  the  trust  by  paying  it  to  a 
different  person.4  Should  one  to  whom  a  bank  has  by  mistake 
ji;ii«l  the  money  of  one  of  its  depositors,  make  any  payment  to 
the  depositor  on  that  account,  the  bank  would  be  entitled  to  a 
credit  for  the  amount  paid  on  its  account  with  the  dejxjsitor.* 
Where  the  bank  book  of  a  dc}K>sitor  is  written  up  and  balanced, 
his  checks  returned  and  his  indebtedness  canceled,  this  cun»titutr- 
a  full  settlement  of  the  depositor's  account,  and,  if  acquiesced  in, 
it  cannot  be  questioned.*  The  effect  of  a  delay  in  questioning 
the  accuracy  of  the  balance  credited  to  a  depositor  on  his  pass 
book  after  it  has  been  written  up  ami  returned  to  him,  without 
objection,  if  the  bank  has  not  suffered  by  his  silence,  is  to  charge 
him  with  the  burden  of  establishing  fraud,  error  or  mistake  in 
his  account.  When  he  does  this  he  is  entitled  to  have  it  cor- 
rected.7 Where  one  indebted  to  a  bank  has  a  less  sum  standing 
to  his  credit  on  deposit  on  the  bank's  l>ooks,  the  bank  has  a  right 
to  retain  the  sum  on  deposit  in  part  j>ayment  of  its  claim.' 
Where  the  maker  of  a  note  indorsed  by  the  jwyee  to  a  bank  dis- 
counting it  becomes  insolvent  before  the  maturity  of  the  note, 
having  a  deposit  at  the  bank,  the  bank  may  set  off  the  deposit 
against  the  note,  and  prove  the  balance,  if  any,  against  the  maker 

1  Franklin  Bank  r.  Bynun.  89  Mr.  •  Ilgcnfriu  r.  Petti*  County  Bank. 

489.  (188Q  tl  Mo.  App.  588. 

'Tradesman's  Bank  r.  Merrill.  •  Peddicord  e.  Connard,  «  111.  1«. 

(1839)  1  Paige  Ch.  802.  '  Frank  r.  Chemical  National  Bank 

•Oddier.  National  City  Bank,  (1871)  of  New  York.  (1874)87  N.  Y.  Super 

45  N.  Y.  785.  Ct  26. 

4  Judy  t.  Farmers  &  Traders'  Bank,  •  Union  Bank  r.  Cochran.  7  O.  A  J. 

(1884)  81  Mo.  404.  (Md.)  188. 


640  DEPOSITS  AND  CHECKS.  [§  323 

in  insolvency.1  A  bank  holding  overdue  paper  of  one  of  its 
depositors,  would  not  be  bound,  though  it  might  have  the  right, 
to  apply  his  deposits  to  the  payment  of  the  paper.2  A  bank 
holding  and  owning  a  depositor's  past-due  note,  the  amount  of 
which  may  exceed  the  amount  of  his  deposit,  may,  however,  hold 
the  deposit  account  against  the  note,  and  refuse  to  pay  checks 
drawn  against  the  deposit.8  "Where  a  note  was  discounted  at  a 
bank,  for  the  benefit  of  the  first  indorser,  and  the  money  was 
passed  to  his  credit  as  a  deposit,  and  a  portion  of  it  remained  in 
the  bank  until  the  note  became  payable,  the  Maine  Supreme 
Court  of  Judicature  held  that  it  was  optional  with  the  bank  to 
retain  this  money,  in  part  payment  of  the  note  or  not ;  that  the 
omission  to  retain  it  did  not  destroy  the  bank's  right  to  recover 
the  full  amount  from  another  indorser.4  A  bank  may  secure 
and  discharge  any  obligation  it  may  assume  for  a  depositor,  or 
which  may  be  imposed  upon  it  by  operation  of  law,  as  in  garnish- 
ment proceedings,  by  retention  of  a  sufficient  sum  from  the 
deposits  in  its  possession  made  by  the  depositor.5  A  bank  is  not 
bound  to  apply  subsequent  deposits  to  the  payment  of  a  note  for 
the  protection  of  a  guarantor.6  A  bank  may  apply  to  the  dis- 
charge of  the  indebtedness  of  a  depositor  on  a  note  which  the 
bank  may  have  discounted,  which  has  not  been  paid  at  maturity, 
all  funds  of  his  held  at  the  date  of  the  maturity  of  the  note,  or 
afterwards  acquired  in  the  course  of  business  with  him,  whether 
a  general  deposit  or  commercial  paper  placed  by  him  in  bank  for 
collection.7  But  a  bank  has  no  lien  upon  the  deposit  of  a  cus- 

1  Demmon  v.  Boylston  Bank,  (1849)  payable  at  the    bank.      It  was  held 

5  Gush.  (Mass.)  194.     As  to  the  ap-  that    the    letter    accompanying    the 

plication  of  a  deposit  to  a  note  of  the  check  was  not  an  assignment  of  the 

depositor  falling  due  in  a  bank,  see  fund  to  the  holder  of  the  note  due  the 

Mahaiwe    Bank    v.    Peck,   (1879)  127  fourth,  and  that»he  could   not  malh- 

Mass.  298.     In  ^Etna  National  Bank  v.  tain  an  action  against  the  bank. 

Fourth  National  Bank,  (1871)  46 N.  Y.  'Citizens'  Bank  of  Steubenville  *. 

82,  it  appeared  that  certain  depositors  Carson,  (1862)  32  Mo.  191. 

remitted  to  a  bank  a  check  for  deposit,  3  Ehlermann  v.  St.   Louis    National 

with  a  letter  saying,  "Please  credit  to  Bank,  (1883)  14  Mo.  App.  591. 

our  account  and  charge  us  our  note  of  4  Ticonic  Bank  v.  Johnson,  21  Me. 

five  thousand  dollars  due  4th  inst."  426. 

The    bank    received    the    check    and  &McEwen   v.  Davis,  (1872)  39  Ind. 

credited  it  to  the  depositors  on  the  109. 

third,  and   on  that  day  applied  it  to  'Bank   v.  Shreiner,  110  Pa.  St.  188. 

the    payment  of  a   past-due  note  of  7  Muench  v.  Valley  National  Bank, 

|5,000  made   by   the  depositors  and  (1881)  11  Mo.  App.  144. 


§  323]  DEPOSITS  AKD  ClIECKS.  64  1 

toiner  for  the  purpose  of  indemnifying  itself  against  a  possible 
loss  upon  unmatured  commercial  paper  of  • 
counted  by  the  bank.1  And  a  bank  holding  the  note  of  a 
depositor  for  a  certain  sum  can,  on  the  morning  of  tho  last  day 
of  grace  upon  such  note,  apply  to  its  payment  any  money  of  the 
depositor  then  remaining  on  deposit  in  the  bank.1  There  is  no 
such  lien  on  the  funds  deposited  with  a  bank  in  it*  favor  a*  will 
allow  it  to  apply  the  funds  of  a  depositor  upon  an  indebUxJneai 
or  liability  of  his  not  yet  due.8  Neither  can  a  bank  retain  the 
money  of  a  depositor  to  meet  a  note,  the  payment  of  which  the 

6  Met.  (Mass.)  18.    They  then  Mid : 
"Asa  bill  or  not*  Is  payable  oo  the 
last  day  of  grace,  or.  when  there  U  oo 
grace,  on  the  day  of  ita  maturity,  the 
maker  or  acceptor  has  the  right  to  pay 
it  on  that  day.  though  he  cannot  pay 
it  on  the  day  before  without  the  coo- 
sent  of  the  holder.      By  making  hi* 
note  payable  at  the  Home  National 
Bank,  Newell  authorized  the  bank  to 
pay  it  at  maturity.     He  constituted 
the  bank  his  agent,  and  directed  it 
to  pay  the  note  on  the  day  it  fell  due. 
The  act  of  making  the  not*  payable 
there,  was,  as  we  have  already  aeon,  a 
direction  to  the  bank  to  appropriate 
any  moneys  he  might  have  on  deposit 
to  the  payment  of  his  note,  so  far  aa 
might  be  required  for  that  purpose, 
on  the  day  of  its  maturity.     The  law 
knows  no  parts  of  a  day  in  respect  to 
the    maturity    of  commercial    paper. 
Newell's  note  was  equally  due  at  ten 
o'clock  in  the  morning  as  at  three  io 
the  afternoon,  and  it  is  no  aoswer  to 
say  that  an  action  for  its  non-payment 
could  not  be  brought  agaiiwt  him  for 
its  non-payment  until    the  following 
day.     He  authorized  bU  ajrrnt  to  pay 
it  on  the  day  of  its  maturity,  and  tab 
must  be  conntrucd  to  mean  at  any  boor 
of  the  day." 

'Merchants'   National  Bank  r 
zinger,  20  Bradw.  (III.)  27;  Jordan  r 
National  Shoe  &  Ix-nthrr  Kink.  71   N 
Y.  467;  *  r,.  80  Am    It.  P  819;    Ilank 
r.  Jones,  2  !*ennypackcr  (IV),  877. 


1  State  Savings  Association  v.  Boat- 
men's Savings  Bank,  (1881)  11  Mo. 
App.  292. 

'Home  National  Bank  t>.  Newton, 
(1881)  8  Bradw.  (111.)  563.     This  was 
an  action  brought  by  the  payee  of  a 
check  drawn  by  one  Newell  upon  the 
bank,  which  the  bank  declined  to  pay 
for  want  of  funds  of  the  drawer,  it 
having  applied  his  balance  to  a  note 
of  his  falling  due  on  the  day  when 
this  check  was  presented,  the  applica- 
tion of  the  balance  being  made  before 
the   presentation    of  the  check    with 
others   for  payment.     Aryitendo,   the 
appellate  court  referred  to  the  follow- 
ing cases,  first  as  to  when  an  action 
can  be  brought  on   paper  due   with 
days  of  grace  :  Walter  r.  Kirk,  14  111. 
55;     Reese    t>.    Mitchell.   41    111.  365; 
Osborn  v.   Moncure,    3    Wend.    170; 
Smith  v.  Aylesworth,   40  Barb.   104; 
Wilcombe   t>.    Dodge,     3    Cal.     260; 
Staples    ».    Franklin    Bank.    1    Met. 
(Mass.)  43;    Greeley  v.    T-hurston.    4 
Greenl.  (Me.)  479;  Dennie  r.  Walker.  7 
N.  H.  201;  Farmers'  Bank  r.  Duvall.  7 
G.  &  J.  (Md.)89;  Wilson  r.  Williman, 
1  Nott  &  McC.  (8.  C.)  440;  Coleman  r. 
Ewing,  4  Humph.  241;  Flint  r.  Rogers, 
8  Shepley,  67;  Leftley  r.  Mills,  4  Term 
R.  170.     They  then  referred  to  cases 
as  to  the  presentment  of  such  notes: 
Griffin  v.   Goff,   12  Johns.  423;  Jack- 
son r.  Newton.  8  Watts,  401;  Farmers' 
Bank  r.  Duvall.  7  G.  &  J.  (Md.)  78; 
Mechanics'  Bank  r.  Merchants'  Bank, 

81 


C42  DEPOSITS  AND  CHECKS.  [§  323 

depositor  may  have  guaranteed,  the  note  not  being  due  at 
the  time.1  "Where  the  maker  of  a  note  held  by  a  bank  has  funds 
in  the  bank  on  general  deposit  when  the  note  falls  due,  the  bank 
is  bound  to  apply  the  funds  to  his  credit  in  payment  of  the  note  ; 
if  it  fails  to  do  so,  the  indorser  upon  the  note  will  be  thereby  dis- 
charged from  liability.2  A  bank  holding  a  depositor's  note  must 
charge  it  against  his  account  at  maturity,  or  else  the  indorser  will 
be  discharged.8  A  bank  will  be  bound  to  pay  a  note  payable  at 
its  counter,  of  which  it  is  the  owner,  with  any  general  deposit  of 
the  maker  in  its  hands.  Should  it  let  the  note  go  to  protest,  the 
indorsers  would  be  discharged.4  A  bank  may  refuse  to  apply  a 
deposit  of  the  maker  of  a  note  after  maturity,  so  as  to  relieve  the 
indorser.5  In  the  absence  of  express  directions,  or  an  agreement 
to  that  effect,  it  is  optional  with  a  bank  whether  it  will  apply  a 
general  deposit  made  by  the  maker  of  a  note  held  by  it  which  is 
past  due,  on  the  note  or  not.  It  is  under  no  obligation  to  do  so, 
even  as  to  an  indorser.  The  general  deposit  does  not  of  itself 
operate  as  a  payment  of  such  a  note.6  A  debt  due  by  a  depositor 
to  a  bank  will  be  extinguished  by  a  check  drawn  in  payment  of 
it,  the  check  operating  as  an  appropriation  of  the  fund  from  the 
time  of  its  presentment.7  The  Supreme  Court  of  Missouri  have 
affirmed  a  holding  of  a  lower  court  that,  where  a  bank  had 
received  from  a  non-resident  money  which  it  had  agreed  to  invest 
for  him  in  real  estate  security,  and  having  passed  the  same  to  his 
credit,  led  him  to  believe  that  the  investment  had  been  made, 
and  subsequently  assigned  its  assets  for  the  benefit  of  its  credit- 
ors, the  relation  of  trustee  and  cestui  que  trust  existed  and  not 
that  of  depositor  and  depositary  between  them,  and  that  the 
bank  was  liable  for  wrongfully  mixing  the  money  with  its  own.8 
In  a  case  where  a  draft  was  deposited  in  a  bank,  drawn  against 
by  a  check,  and  the  check  certified  to  the  bank  in  which  it  was 
to  be  deposited,  and  before  the  check  arrived  the  bank  certify- 

1  Commercial      National     Bank     v.  posits    in    its    hands,    see    Bank    «. 
Proctor,  (1881)  98  111.  558.  LeGrand,  13  W.  N.  C.  (Pa.)  317. 

2  McDowell  v.  Bank  of  Wilmington  6  Huckstein    v.     Herman,   1    Walk. 
&  B.,  1  Hair.  (Del.)  369.  (Pa.)  92. 

3 Bank®.  Foreman,  27  W.  N.  C.  (Pa.)  "National  Bank  of    Newburgh    t>. 

154.                        %  Smith,  (1876)  66  N.  Y.  271;  s.   c.,  28 

4  Bank   r.    Henninger,    105   Pa.    St.  Am.  Rep.  48. 

496.      As  to  the  duty   of  a  bank  to  7  Laubnch  v.  Leibert,  87  Pa.  St.  55. 

sureties  on  promissory  notes  as  to  de-  *  Harrispn  r.  Smith,  (1884)  83 Mo.  210. 


§  323]  DEPOSITS  AKD  CHECKS.  '   }  . 


ing  it  had  made  an  assignment,  it  wii*  lu  Id  that  the  fund  remained 
in  tin-  first  hank  impn->.-rd  with  tlu-  tru>t,  and  that  the  relation 
of  general  creditors  was  not  created  between  the  depositor*  and 
the  hank.1  A  court  in  Illinois  having  hv  order  made  a  bank  a 
depository  of  court  funds  and  of  funds  «.f  its  officer*,  a  clerk  of 
the  court  made  a  deposit  of  funds  In-longing  to  the  court  in  the 
hank,  just  as  other  depositors  did,  the  money  being  commingled 
with  that  of  the  bank,  and  there  being  no  agreement  to  keep  the 
funds  separate.  The  hank  became  insolvent  and  was  placed  in 
the  hands  of  a  receiver.  The  Illinois  Supreme  Court  held  that 
the  deposit  being  a  general  one,  and  not  a  mere  naked  bailment, 
and  there  being  no  means  of  identifying  the  money  deposited, 
even  if  the  assets  of  the  hank  were  in  the  hands  of  the  receiver, 
it  was  error  to  require  the  receiver  to  pay  the  deposit  in  full  ;  that 
the  clerk  was  only  entitled  to  share  pro  rata,  with  other  deposit- 
ors and  creditors  of  the  bank.2  Where  the  circumstances  u 
which  a  lost  check  came  into  plaintiffs  possession  were  so  sus- 
picious that  a  person  of  ordinary  prudence  ought  to  liave  hesi- 
tated and  examined  further  before  buying,  the  Supreme  Court  of 
Louisiana  held  that  no  recovery  could  bo  had  on  it.'  Where  ft 
bank  chock  was  received  in  payment,  during  banking  hours,  the  day 
it  was  drawn,  in  the  usual  course  of  business,  under  circumstances 
not  suspicious,  and  no  negligence  was  shown  from  which  l»ad 
faith  could  be  inferred,  the  same  court  held  that  the  holder 
might  recover  from  the  drawer,  though  the  check  had  been  lost 
or  stolen.4  A  bank  having,  without  instruction,  jwiid  a  forged 

1  Stoller    v.   Coates,   (1885)    88   Mo.  checks  were  collected  the  AMCU  of  the 

614,  holding  the  bank  chargeable  with  Southern  Bank    were  adzed    by    the 

the  amount  of  the  converted  fund  as  a  sheriff,  and  receiver*  wen?  appointed. 

preferred  demand.     In  State  ex    rel.  The  Hank  of  Commerre   claimed   la 

Girardey    e.   Southern  Bank,    8:i  La.  this  case  the  rettitulio  at  tmtqrnm  of 

Ann.  057,  it  appeared  that  the  Bank  of  the  proceed*  of  the  three  check*.    The 

Commerce  sent  to  the  Southern  Bank  Supreme  Court  held  that  the  Bank  of 

for    collection  three   checks  on  other  Commerce  wa*  an  ordinary  depositor 

banks  in  New  Orleans.     The  checks  of  the  Southern  Bank;  that  Uw  pro- 

were  collected  and  the  proceeds  paww-d  cccds  of  the  check*  were  mixed  with 

to  the  credit  of  the  Bank  of  Commerce  its   general  fund*,   and   the    Bank  of 

in  its  general  account,  as  it  had  given  Commerce    was    no    more   than    an 

no   instructions    for    any  special  dis-  ordinary  creditor. 

position  of  the    money,  but,  on  the  •  Otis  r.  OrOM,  (1880)  96  HI  011. 

contrary,  drew  against  the  proceed*  •  Vairin  r.  Hohsoo.  8  LA.  85. 

of  these  checks  aa  an    ordinary  de-  «  Marsh  r.  Small.  8  L».  Ann.  401 
positor.      On  the  same  day  that    the 


644  DEPOSITS  AND  CHECKS.  [§  324 

acceptance,  and  sent  the  same  by  mail  to  the  firm  whose  names 
were  forged  as  acceptors,  the  Kansas  Supreme  Court  held,  were 
not  thereby  entitled  to  a  credit  for  the  amount  of  the  payment 
against  the  firm.  The  firm,  as  the  court  viewed  it,  were  under 
no  legal  obligation  to  immediately  examine  the  acceptance  upon 
its  being  received  by  them,  to  ascertain  whether  it  was  genuine 
or  not,  and  were  not  chargeable  with  negligence  for  not  discover- 
ing the  forgery  immediately.  In  such  a  case  it  was  sufficient  to 
give  notice  when  the  forgery  was  discovered.1  One  having 
inclosed  a  note  in  a  letter  to  a  bank  and  asked  the  bank  to  dis- 
count it  and  place  the  proceeds  to  the  writer's  credit,  and  in  that 
event  to  charge  a  certain  overdraft  of  a  corporation  against  the 
credit,  and  the  bank  having  declined  to  discount  the  note,  the 
United  States  Supreme  Court  held  that  the  bank  had  no  right  to 
hold  the  note  as  collateral  for  the  overdraft.2 

§  324.  Checks,  generally. —  Checks,  like  bills,  are  generally 
negotiable  instruments  payable  to  bearer,  sometimes  to  order, 
requiring  as  essentials  a  drawer,  drawee  and  payee.3  That  it 
shall  be  instantly  payable  on  demand  is  an  essential  characteristic 
of  a  check  upon  a  bank.4  The  payment  of  a  check,  before  made, 
can  be  countermanded  by  the  drawer.5  Although  not  identical 
with  a  bill,  a  check  on  a  bank  is,  in  many  respects,  governed  by 
the  same  rules ;  and  when  payable  to  order  is  negotiable  by 
indorsement.6  The  effect  of  drawing  a  check  by  a  depositor  upon 
his  banker  is  to  transfer  the  sum  named  to  the  payee,  provided 
the  depositor  has  that  sum  to  his  credit  on  the  books  of  the 
banker,  and  an  assignment  of  the  check  carries  the  title  to  the 

1  First  National  Bank    v.   Tappan,  that  sum  out  of    the  funds  of    the 

(1870)  6  Kans.  456.  drawer  in  bank  to  the  drawee  for  the 

*  Bank  of  Montreal  v.  White,  (1880)  purposes  named  in  the  check.     For  an 

14  Sup.  Ct.  Rep.  1191.  illustration  of  what  would  be  a  bank- 

3  Hewitt  v.    Goodrich,  10  La.    Ann.  ers  check  and  not  an  ordinary  bill  of 

340.     In    Ridgley  National    Bank  v.  exchange,    see    Harrison    v.   Wright, 

Patton     109  111.    479,   an  instrument  (1884)  100  Ind.  515. 

drawn  by  a  depositor  in  this  form,  4  Merchants'  National  Bank  v.  Rit- 

after  giving  the    date  and  the  name  zinger,  118  111.  484. 

of  the  bank:  "Pay  to  A.  and  B.  for  5  Albers  v.  Commercial  Bank,  (1884> 

account  of  C.  &  Co.,  ten  hundred  and  85  Mo.  173;  Bank  v.  Bank,  118  Pa.  St. 

eighteen  23-100  dollars."  and   signed  294. 

by  the  depositor,  was  held  to  be  a  valid  *  Barbour  v.  Bayon,  5  La.  Ann.  304. 
check,  and  that  it  operated  to  transfer 


§  324]  DEPOSITS  AND  CIIECKS.  045 

fund  to  each  successive  holder.1  Hut  a  banker  is  not  bound  to 
pay  the  check  of  a  depositor  in  anything  hut  money.  So,  where 
a  depositor  drew  a  check  upon  his  banker  for  <%hi<-a«?o  cxi-hangf, 
which  he  was  to  send  to  his  creditors  at  their  request,  the  Appel- 
late Court  of  Illinois  held  that  these  creditors  could  not,  upon 
failure  of  the  depositor  to  send  the  Chicago  draft.  .in  an 

action  against  the  banker  upon  the  original  check  drawn  upon 
him.2  A  bank  check  payable  in  "current  funds"  is  payable  in 
whatever  is  current  by  law  as  money.*  When  a  chock  is  drawn 
upon  a  bank  payable  to  the  drawer's  order  and  assigned  by  him, 
and  lu-  lias  not  sufficient  money  to  his  credit  to  pay  the  check  in 
full,  the  bank  will  be  under  no  obligation  to  pay,  and  an  assignee 
can  have  no  recovery  upon  such  a  check  in  an  action  against  the 
bank.4  A  draft  given  on  a  bank  in  the  ordinary  course  of  busi- 
ness does  not  constitute  an  equitable  assignment  of  the  fund.* 
And,  in  this  case,  it  was  held  that  it  was  not  sufficient  to  consti- 
tute such  an  assignment  that  the  draft  was  drawn  by  a  bank 
against  its  reserve  fund  in  another  city,  and  was  given  in  exchange 
for  clearing-house  certificates  upon  the  representation  of  its  presi- 
dent that  it  owed  a  heavy  debt  at  the  clearing  house  which  it  was 
unable  to  meet,  and  his  further  statement  showing  the  amount  of 
the  reserve  fund  against  which  the  draft  was  drawn.'  A  bank 
by  retaining,  on  the  settlement  of  a  depositor's  account,  the  exact 

1  Merchants'  National  Bank  r.  Kit-  denied  in  Hogue  r.  Edwards,  (1881) • 

zinger,  20  Bradw.  (111.)  27;    Bank  of  Bradw.  (III.)  203. 

America  r.  Indiana  Banking  Co.,  114  *  Bull  r.    Bank  of  Kasaon,  188  U. 

111.483.     As  to  the  drawing  of  a  check  8.105. 

by  a  depositor  upon  the  bank  holding  *  Coates  r.  Preston.  105  III.  470.     In 

tin-  deposits  operating  to  transfer  the  Pack  r.  Thomas.  13  Smedtu  A  Marsh. 

title  to  the  sum  named  in  the  check,  see  (Miss.)  11,  it  was  held  that  it  was  not 

Foster  v.  Paulk,  41  Me.  425;  Hoguc  r.  competent  to    proTe  by  parol  that  • 

Edwards,   (1881)9    Bradw.   (111.)  148;  check  payable  in  "  dollar* "   limply. 

Union     National     Bank     r.     Oceans  was    intended   by   the   partk*   to  be 

County  Bank,  80  111.  212.    And  that  the  paid  in  depreciated  bank  noUaa.  as  that 

payee  may  sue  the  bank  therefor,  see  would  bo  to  vary  a  written  contract  by 

Brown  t>.  Pierce,  80  III.  214;  C.  M.  &  parol. 

F.  Ins.  Co.  v.  Stanford,  28  111.  108;  •  Bank    r.    Millanl.  10   Wall    IBS; 

Bickford    /-.   First   National   Bank.  42  Bank  r.  Schuler.  120  U.  8.  511. 

111.  239;  Brown  r.  Leckie,  43  111.  497;  7  Sup.  Ct.  Rep.  W4. 

Seventh  National  Bank  r.  Cook,   73  •  Fourth    Street    National  Bank  r. 

Pa.  St.  485.  Yardley,  (1N08)  55  Fed.    Rep.  890  (a 

Vlogue  r.  Edwards,  (1881)  9  Bradw.  bill  against  the  receiver  of  the  bank 

(111. )  148.     A  rehearing  of  this  case  was  to  charge  bim  as  trustee  of  a  fund). 


646  DEPOSITS  AND  CHECKS.  [§  324: 

amount  of  an  outstanding  check,  impliedly  accepts  the  check,  and 
subjects  itself  to  an  action  by  the  holder  upon  the  check.1  An 
unaccepted  and  uncertified  check  not  being  an  equitable  assign- 
ment to  the  credit  of  the  holder,  is  but  an  order  which  may  be 
countermanded.2  Should  the  paying  teller  of  a  bank  after  a 
notice  to  the  bank  by  the  drawer  of  a  check  not  to  pay  it,  and  his 
promise  that  he  would  not  do  so,  afterwards  pay  it  to  the  holder, 
the  drawer  may  recover  from  the  bank  the  amount  of  the  check 
so  paid.8  A  check  upon  a  bank  is  payable  in  the  kind  of  funds 
deposited  prior  to  its  date,  and  a  subsequent  agreement  between 
the  depositor  and  the  bank  that  other  funds  would  be  received  is 
not  binding  upon  the  payee  of  the  check.4  It  appeared  in  an 
Illinois  case  that  at  a  time  when  the  banks  in  that  state  were 
receiving  and  paying  out  the  paper  of  Illinois  banks  which  were 
of  doubtful  solvency,  and  their  paper  at  a  discount,  two  bankers, 
in  the  usual  course  of  their  business,  had  mutual  accounts  grow- 
ing out  of  remittances  and  collections,  and  the  relations  existing 
between  them  were  such  that  the  depositor  could  withdraw  his 
funds  at  pleasure,  and  the  receiver  of  the  deposits  could  in  like 
manner  return  them.  The  Supreme  Court  of  that  state  held 
that,  in  the  absence  of  any  agreement  between  them  on  the  sub- 
ject, the  holder  of  the  deposits  would  be  compelled  to  pay,  or 
return  in  current  funds  or  funds  at  par.  But  the  banker  who 
owned  the  deposit,  with  a  considerable  balance  to  his  credit  with 
his  correspondent,  having  notified  the  latter  by  letter  that  he 
should  require  that  any  remittances  he  might  desire  should  be 
made  in  the  paper  of  certain  banks,  which  were  specified  in  his 
letter,  it  was  held  that  this  direction  left  the  holder  of  the  depos- 
its at  liberty  to  make  the  remittances  in  bills  of  any  of  the  banks 
so  designated,  which  the  owner  of  the  deposits  would  be  com- 
pelled to  receive  at  their  nominal  value.  Further,  that  after  the 
receipt  of  such  letter,  the  holder  of  the  deposits  was  authorized  to 
remit  to  the  owner  the  entire  balance  standing  to  his  credit,  with- 

1  Saylor  v.  Bushong,  100  Pa.  St.  27.  *  Schneider  v.  Irving  Bank,  (1865) 
As  to  the  drawer  of  a  bank  check  1  Daly,  500;  s.  c.,  30  How.  Pr.  190. 
being  relieved  of  liability  by  a  delay  As  to  the  duty  of  a  bank  in  the  pay- 
of  nine  days'  presentment  of  a  check,  ment  of  checks  drawn  upon  it  by  a 
see  Kinyon  r.  Stanton,  44  "NVis.  479  ;  depositor,  see  Dodge  v.  National  Ex- 
Cork  v.  Bacon,  45  Wis.  192.  change  Bank,  (1870)  20  Ohio  St.  23<% 

1  Florence  M.  Co.  v.  Brown,  124  4  Marine  Bank  of  Chicago  v.  Ogden, 

U.  S.  385.  (1862)  29  111.  248. 


§324]  l.KI'.  CHECK*.  641 

out  further  order,  in  the  class  of  paper  designated  in  the  letter,  at 
its  nominal  value,  or  in  the  pajn-r  of  any  one  of  the  banks  detig- 
nated.  Further,  this  right  of  the  holder  ..f  tin-  dcpoeiU  would 
not  he  affected  by  the  fact  that  subsequent  ti.  tin-  n«»ti«v  g 
him,  and  before  he  had  received  any  further  notice  on 
ject,  the  paper  of  such  hanks  had  continued  to  depreeiute  in  value. 
It  appeared  also  in  this  case  that  the  holder  of  the  deposits  bad 
transmitted  to  the  owner  the  entire  balance  due  him  in  a  package 
of  these  hills ;  the  latter  retained  it  a  week  without  owning  it  to 
leani  the  character  of  its  contents,  knowing  it  was  a  remittance 
from  his  correspondent,  and  the  amount  of  it,  and  did  not  notify 
the  correspondent  that  he  would  not  receive  it.  The  court  held 
that  by  such  delay  he  waived  even  any  right  he  may  have  had  to 
refuse  to  receive,  at  its  nominal  value,  any  of  the  pap< 
banks  contained  in  the  package.1  An  individual  depositor 
may  draw  a  check  in  favor  of  a  bona  jidc  creditor  and  appropri 
ate  his  funds  in  a  bank  to  such  creditor,  vesting  him  with  full 
power  to  sue  the  bank  and  recover  upon  the  check,  notwithstand- 
ing an  indebtedness  to  the  bank  of  a  partnership  of  which  the 
depositor  is  a  member.2  A  check  duly  notified  to  the  bank  ujx»n 
which  it  is  drawn  constitutes  an  equitable  assignment  of  the  fund 
on  which  it  is  drawn.3  A  check  upon  a  bank  certified  by  its 
teller  is  equivalent  to  a  bill  of  exchange  accepted  by  the  bank, 
and  the  bank  is  liable  on  the  certified  check  to  a  bonajide  holder 
whether  it  had  funds  of  the  drawer  or  not4  A  check  drawn  by 
one  in  extremis,  with  directions  to  the  payee  to  defray  the  funeral 
expenses  of  the  drawer  from  the  amount,  and  to  jwy  the  balance 
to  his  heirs,  not  accepted  by  the  bank  at  the  death  of  the  drawer, 
has  been  held  not  to  have  operated  as  an  assignment  of  the  fund 
so  as  to  make  the  bank  liable  to  the  payee.5  The  Indiana 
Supreme  Court  has  held  that  a  linker's  check  drawn  upon  the 
drawer's  banker  without  words  of  transfer,  and  drawn  upon  no 

1  Cushman  p.  Carver,  (1809)  51   III.        •  Mwuls   r    Merchant*'  lUnk  of  Al 

509.    Sec,  also,  Marine  Bank  of  Chicago  bany.  (1*62)  85  X.  Y.  148. 
e.     Rushmore,   28    111.    463 ;    Marine       *  Stcond  National  Hank  r.  William*. 

Bank  of  Chicago  t.  Chandler.  27  III.  18  Mich.  288.    Thnl  a  check  U  an  a,. 

.Vjr,  propriation  of  ao  murk  money  in  the 

'International    Bank  r.  Jones.  11»  hank  to  the  payer  nwl  holder,  we  < 

111.  407.  Uaiu  r.  Rowiie.  (1H74)  .V.  '-wta 

»  Gordon  &  Gomila  r.  Muchlcr,  34  r.  International  Bank.  (1888)  13  Mo. 

La.  Ann.  604.  App.  909. 


648  DEPOSITS  AND  CHECKS.  [§  324 

particular  designated  fund,  did  not  of  itself,  either  as  between  the 
drawer  and  drawee,  or  drawer  and  payee  or  holder  of  the  check, 
act  as  an  appropriation  or  equitable  assignment  of  a  fund  in  the 
hands  of  the  drawee ;  nor  did  it  operate  as  an  assignment  of  a  part 
of  the  drawer's  chose  in  action  against  the  drawee ;  and,  hence,  the 
holder  of  the  check  was  not  entitled  to  a  preference  as  against  the 
depositors  and  the  general  creditors  of  an  insolvent  drawer.1  If 
bank  bills  are  deposited  as  depreciated  paper,  the  depositor  has 
no  right  to  draw  for  funds  at  par  or  expect  payment  on  a  check 
thus  drawn.2  A  right  of  action  is  given  to  the  drawer  of  a  check 
in  case  he  has  funds  in  bank  to  meet  it  by  the  refusal  of  the  bank 
to  pay  it,  if  the  refusal  to  pay  is  without  his  authority.3  The 
presenting  of  a  check  to  a  bank  on  which  it  is  drawn  for  pay- 
ment, and  the  bank's  stamping  it  paid  and  canceled,  although  not 
in  fact  paid,  but  subsequently  returned  to  the  collecting  bank  pre- 
senting it,  would  not  be  such  a  payment  as  would  discharge  the 
drawer.4  A  bank  paying  a  check  drawn  to  order,  without  the 
indorsement  of  the  payee,  before  it  can  refuse  to  pay  upon 
demand  by  the  payee  having  possession  of  the  paper,  is  Tx>und  to 
prove  that  the  payee  has  parted  with  his  title.5  To  a  national 
bank's  action  to  recover  an  overdraft  which  amounts  to  a  simple 
loan,  the  omission  of  an  officer  of  the  bank  to  exact  security  for 
the  money  loaned  cannot  be  made  a  ground  of  defense.6  A 
banker  cannot  set  off  a  demand  he  holds  against  the  person  pre- 
senting a  check  for  payment.7  A  check  drawn  upon  a  bank  for 
more  than  the  amount  of  the  drawer's  funds  on  deposit  creates  no 

1  Harrison  v.  Wright,  (1884)  100  Ind.        «  Union  Gold  Mining  Co.  v.  Rocky 
515.  Mountain  National  Bank,  (1873)  2  Colo. 

2  Willetts  t>.  Paine,  (1867)  43  111.  432.    248. 

See  Lawrence  v.  Schmidt,  35  111.  440;  7  Brown  v.  Leckie,  (1867)  43  111.  497. 

Galena  Ins.  Co.  v.  Kupfer,  28  111.  332.  The  court  said:  "  In  the  case  of  Crom- 

3  Citizens'  National  Bank  of  Daven-  well  v.  Lovett,  1  Hall,  (N.  Y.)  56,  it  was 
port  v.  Importers',  etc.,  National  Bank  held  that  a  check  on  a  banker  given  in 
of  New  York,  (1887)  44  Hun,  386.  the  ordinary  course  of  business,  is  not 

4  Mclntosh  v.  Tyler,  (1888)  47  Hun,  presumed  to  be  received  as  an  absolute 
99  ;    citing  Turner  v.   Bank  of    Fox  payment,  even  if    the  drawer  have 
Lake,  4  Abb.  Ct.  of  App.  Dec.  434;  s.  funds  in  the  bank,  but  as  the  means  to 
c.,  3  Keyes,  425;  Burkhalter  v.  Second  procure  the  money.     The  holder,  in 
National  Bank,  42  N.  Y.  538;  Kelty  v.  such  a  case,  becomes  the  agent  of  the 
Second  National  Bank,  52  Barb.  328.  drawer  to  collect  the   money,  and  if 

6  Citizens'  National  Bank  of  Daven-  guilty  of  no  negligence  whereby  an 
port  t.  Importers',  etc.,  National  Bank  actual  injury  is  sustained  by  the 
of  New  York,  (1887)  44  Hun,  386.  owner,  he  will  not  be  answerable,  if, 


S  324  ]  DEPOSITS  AND  CHECK*.  •   t  ' 

lien  upon,  and  will  irm-  the  payee  no  right  to  the  actual  balance, 
until  the  l>ank  1ms  agreed  to  pay  it  JT,.  (.into.1  The  IllinoU 
Supreme  Court  has  held  that  tin-  Imldrr  of  a  hank  rhuck,  who  \MH 
paid  value  for  it.  i>  mtitlcd  t..  as  much  of  tin-  fund*  of  thu  drawer 
on  deposit  a«  the  check  calls  f..r,  and,  wln-n  presented  for  payment, 
the  bank  on  which  it  is  drawn  will  become  the  holder  of  the 
drawer's  money  to  the  use  of  the  holder  of  the  check,  and  will  In- 
bound to  account  to  him  for  the  amount  unlet*  other  ecji. 
have  intervened.2  The  rights  of  the  holder  of  the  check  and 
tin-  bank  are  fixed  from  the  time  the  check  is  presented  for  paj- 
meiit,  and  the  bank  will  have  no  right,  subsequently,  to  paj  other 
checks  or  other  demands  either  to  itself  or  to  others  which  may 
afterwards  be  presented,  or  which  may  afterwards  accrue.'  A 
bank  receiving  an  indorsed  check  for  a  special  ptirjKwe,  not  in  tin- 
regular  course  of  banking  business,  has  \HXI\  held  to  bo  responsi- 
ble for  an  erroneous  appropriation  of  the  proceeds.4  The  payed 
of  a  check  has  been  held  not  responsible  to  a  bank  for  amount 

from  any  peculiar  circumstances  at-  posit.     It  was  further  paid   in    Munn 

tending  the  bank,  the  check  is  not  paid.  r.   Burch,  25  III.  85,  to  deny  to  the 

And  in  a  suit  against  the  drawer  for  holder  of  a  bank   check  both  a  legal 

the  consideration  of  such  a  check,  the  and  equitable  right,  after  presentation 

holder  may  treat  it  as  a  nullity,  and  of  the  check,   to  the  money  of    the 

resort  to  the  original  cause  of  action."  drawer  in  the  hands  of  a  banker,  would 

1  Dana  v.    Boston    Third    National  destroy  the  most  valuable  feature  of 

Kink,  (1866)  18  Allen,  (Mass.)  445.  bank  deposits  and  checks.    In  the  very 

'  Fourth  National  Bunk  of  Chicago  nature  of  such  transactions  a  banker'* 

r.  City  National  Bank  of  Grand  Rapids,  lion  cannot  extend  to  the  money  left  on 

1873)68111.398.  deposit  with    him.  according  to   the 

1  Ibid.     Mr.    Justice   BRF.ESK  said  :  customs  and  usages  of  banks.     It  baa 

"  The    universal  custom   informs   us  never  been  so  extended,  but  U  con- 

what  the  contract  of  all  the  parties  to  lined  to  securities  and  valuable*  which 

such    transaction    is.     It  informs  us  may  be  in  the  l»nker'»  custody  aa  col- 

that  the  banker,  when  he  receives  the  laterals.     The  credit  muM  tic  given  on 

deposit,  agrees  with  the  depositor  to  the  credit  of  the  securities  or  valnafesBSk 

pay  it  out  on  the  presentation  of  his  either  in   |>o8*c*8ion    or   expectoncj 

<  Imks,  in  such  sums  as  those  checks  HuKsell  r.  Haddnck.  3  Oilro.  288.    Thb 

may  specify,  and  to  the  person  pro-  is  the  extent  of  a  banker'*  Hen."    See. 

senting   them,   and    with  the    whole  also.  Johnson  r.  Ward.  2  Hradw.  (Ill  i 

world  the  banker  agrees  that  whoever  261;    Braum   r.   Adkina.   77   111.   888. 

shall  become  the  owner  of  such  check  When  the  holder  of  a  check  is  not  §ut» 

shall,   upon  presentation  thereof,  be-  ject  to  equities  existing  between   ihr 

come  thereby  the  owner,  and  entitled  original   parties.     Rochester  Bank  r 

to  receive  the  amount  specified  in  the  Harris,  (1871)  108  Mas*.  514;  Ames  r. 

check,  provided  the  drawer  shall  at  Meriam.   (1H67)  98  Mass.  J84. 
that  time  have   that  amount  on  de-       «  Parker  r.  Hartley,  01  IV  Ht.  464. 

82 


650  DEPOSITS  AND  CHECKS.  [§  324 

paid  to  him,  without  fraud  on  his  part,  although  paid  by  mis- 
take.1 The  mere  presentment  of  a  check  does  not  fix  upon  a  bank 
the  liability  to  pay  it.2  Should  a  bank,  without  funds,  pay  a 
check  long  overdue,  it  would  take  it  subject  to  all  the  equities  of 
the  drawer.3  A  bank,  though  it  may  have  by  mistake  paid  a 
check  and  placed  it  upon  the  canceling  knife,  would  not  be 
thereby  prevented  from  recovering  upon  it  against  the  drawer.4 
One  receiving  a  counterfeit  bill  from  a  bank  in  payment  of  a 
check  may  return  it  in  a  reasonable  time  after  discovering  that  it 
is  not  genuine.5  The  drawer  of  a  check  and  his  sureties  will  be 
discharged  by  the  acceptance  of  the  drawee,  with  the  consent  of 
the  payee  of  a  check  conditionally  fixing  some  other  time  or  mode 
of  payment  than  is  implied  in  the  language  and  terms  of  the 
check.6  No  law  requires  the  drawee  of  a  check  to  delay  pay- 
ment until  advice  that  it  has  been  drawn.7  A  check  to  bearer, 
taken,  though  from  one  who  obtained  it  unfairly,  yet  immediately 
after  its  issue,  and  without  notice,  entitles  the  holder  to  recover 
the  sum  it  calls  for.8  Where  a  check  is  drawn  on  a  bank  in 
which  the  drawer  has  no  funds  it  need  not  be  presented  at  all, 
in  order  that  an  action  may  be  maintained  upon  it.9  Should  a 
bank  pay  a  post-dated  check  before  the  day  on  which  it  is  dated, 
it  will  be  a  payment  to  its  own  wrong,  and  no  defense  to  an 
action  for  the  amount  of  the  fund  by  one  to  whom  it  may  have 
been  assigned  in  good  faith.10  A  bank  on  which  a  check  is 
drawn  is  not  constituted  an  agent  for  the  owner  of  the  check 
to  receive  the  proceeds  by  his  sending  the  check  to  it  through 
the  mail.11 

'Hull  v.  Bank,  Dud.  (8.  C.)  259.  amount  of  the  counterfeit  bill  to  the 

8  Albers  v.  Commercial  Bank,  (1884)  owner  of  the  check. 

85  Mo.  173.  «  Warrensburg  Co-operative  Build- 

3  Lancaster  Bank  T.  Woodward,  18  ing  Assn.  v.  Zoll,  (1884)  83  Mo.  94. 
Pa.  St.  357.  7  Merchants'     Bank     v.    Exchange 

4  State  Savings  Association  v.  Boat-  Bank,  16  La.  457. 

men's    Savings   Bank,  (1881)  11  Mo.        *  Clark  v.  Stackhouse,  2  Mart.  (La.) 

App.  292.  326. 

5  Boyd  T.  Mexico  Southern    Bank,        9  Foster  v.  Paulk,  41  Me.  425. 
(1878)  67  Mo.  537.    In  Murray  v.  Bull's       I0  Godin  r.  Bank  of  Commonwealth, 
Head  Bank,  (1871)  3  Daly,  364,  a  bank  (1856)  6  Duer,  76. 

which  had  through  its  teller  cashed  a       "  People  ».  Merchants  &  Mechan- 

check  drawn  on  another  bank,  and  part  ics'  Bank  of  Troy,  (1879)  78  N.  Y.  269; 

payment  was  made  in  a  counterfeit  s.  c.,  34  Am.  Rep.  532. 
bank  bill,    was    held   liable    for    the 


§  325]  DEPOSITS  AMD  CIIKCKS.  '      ! 

§  325.  Certification  of  checks.—  A  bank  may  render  iteelf 
liable  to  the  holder  and  payee  of  a  check  by  a  formal  acceptance 
written  upon  the  check,  in  which  case  it  stand*  to  the  holdi-r  in 
the  position  of  a  drawer  and  acceptor  of  a  bill  of  excliangv.'  Tin* 
same  result  may  "be  accomplished  by  the  bank'*  writing  upm  the 
check  the  word  "good"  or  any  similar  wonU  which  indicate  ft 
statement  by  it  that  the  drawn-  1ms  funds  in  the  bank  applicable 
to  the  payment  of  the  check,  and  that  it  will  BO  apply  them.* 
Such  a  certificate  discharges  the  drawer  of  tin-  <-lir«-k,  and,  as  to 
him,  amounts  to  a  payment.8  The  certifying  of  a  check  an  M  good  n 
is  not  a  mere  declaration  of  an  existing  fact,  but  creates  a  new  and 
binding  obligation  on  the  part  of  the  bank.  Its  meaning  U  not 
merely  that  the  check  was  "  good  "  when  certified,  but  that  it 
shall  be  "  good  "  when  presented  for  payment.  A  certified  check, 
therefore,  is  as  truly  an  absolute,  unconditional  promise  to  pay 
upon  demand  the  sum  it  specifics,  as  an  ordinary  bank  note ;  and 

laches  in   making  the  demand  is  no  more  imputable  in  tin •• 

case  than  in  the  other.4  The  fact  that  a  check  may  have  been 
properly  drawn  on  a  national  bank  (a  public  depositor)')  by  an 
officer  of  the  government  in  favor  of  a  public  creditor  doe*  not 
alter  the  rule  that  the  holder  of  a  bank  check  cannot  sue  the  bank 
for  refusing  payment  in  the  absence  of  proof  that  it  was  accepted 
by  the  bank  or  charged  against  the  drawer.5  Payment  to  a 
stranger  upon  an  unauthorized  indorsement  of  a  check  will  not 
operate  as  an  acceptance  of  the  check  so  as  to  authorize  an  action 
by  the  real  owner  to  recover  the  amount  of  the  check  a*  uj>on  an 
accepted  check.6  Although  certified  checks  pass  from  hand  to 
hand  as  cash,  they  are  not  cash,  or  currency,  in  the  legal  sense  of 
the  terms,  and  they  do  not  lose,  on  tliat  account,  any  of  the  char- 

1  Merchants'  Bank  c.  State  Bank,  10  holders  for  value,  were  entitled  to  m- 

Wall.    604;  Espy  t>.   Bank  of  Cincin-  cover  the  sum  advanced  by  them  upon 

nati,  18  Wall.  804.  four  checks  certified    by   the    bank. 

•  Cook  t».   State  Bank  of  Boston,  53  although  payment  wan  not  demanded 

\   Y.  96.  until  two  month*  after  the  checks  w«w 

1  Bank    v.    Leach,   53   N.    Y.   850;  certified,  and  in  the  interval  the  drawer 

Meads  t>.  Merchants'  Bank.  25  N.  Y.  had  withdrawn,  upon  other  check*  all 

148;  Muasey  t>.  Prest.,  Directors,  etc.,  hi*  fund*  from  the  bank. 
Eagle  Bank,  0  Met.  (Mass.)  311;  Wil        »  Bank  of  Utr  Republic  r  Mill.nJ  10 

lets  v.  Phoenix  Bank.  2  Duer,  121.  Wall.  158. 

«  Willcts  t.  Pucpnix  Bank.  (1833)  3       •  Kin*  National  Bank  of  Waahlaf. 

Duer  (N.  Y.),  121.     Holding  upon  the  ton  r.  Whitman.  (1876)  W  U.  8.  Ml 
doctrine  of  the  text  that  the  plaintiffs, 


652  DEPOSITS  AND  CHECKS.  [§  325 

acteristics  of  bills  of  exchange,  and,  therefore,  when  dishonored, 
the  holder  has  a  right  to  look  to  the  drawer  for  payment.1  The 
only  effect  of  certifying  a  check  "  good  "  is  to  give  it  additional 
currency  by  carrying  with  it  the  evidence  that  it  was  drawn  in 
good  faith  on  funds  to  meet  its  payment,  and  lending  to  it  the 
credit  of  the  drawee  in  addition  to  the  credit  of  the  drawer. 
Beyond  this  it  does  not  differ  from  an  uncertified  check.2  The 
indorsement,  by  the  proper  officer  of  a  bank,  upon  a  check  drawn 
upon  it  payable  to  bearer,  that  it  is  "  good,"  would  be  prima  facie 
an  admission  on  the  part  of  the  bank  that  the  money  drawn  for 
is  in  bank,  subject  to  the  order  of  the  drawer.  This  presumption, 
however,  may  be  repelled  by  proof,  as  that  the  admission  was 
made  by  mistake.3  Certifying  a  check  is  only  an  agreement  that 
the  signature  of  the  drawer  is  genuine,  and  that  he  has  funds  to 
meet  it.4  A  bank  will  not  be  relieved  from  its  responsibility  to 
the  innocent  holder  of  a  check  certified  by  its  officer  authorized  to 
do  so,  by  the  fact  that  he  may  have  transgressed  his  authority  and 
certified  checks  where  the  drawer  had  no  funds.5  Where  a  check 
had  been  delivered  by  the  drawer  to  the  payee  for  accommoda- 
tion, and  the  payee  had  transferred  it  without  indorsement  to 
another,  t who  took  it  to  the  bank  on  which  it  was  drawn  for  certi- 
fication, and  while  it  was  so  in  the  possession  of  the  bank  the 
drawer  notified  the  bank  riot  to  pay  it,  it  was  held  by  the  Supreme 
Court  of  New  York  that  the  payment  of  the  check  by  the  bank 
was  unauthorized,  and  that  the  drawer  could  recover  the  amount 
from  the  bank.6  A  bank  will  not  be  bound,  by  a  parol  repre- 
sentation that  a  check  is  good,  to  pay  it  whenever  presented  until 
barred  by  limitation,  such  a  representation  not  being  equivalent 
to  a  certification ;  neither  would  the  holder  of  the  check  be  relieved 
from  the  duty  of  proper  diligence  in  presenting  it  for  payment.7 
The  deposit  of  the  drawer  of  a  check  upon  which  it  is  drawn,  is 
paid  as  the  effect  of  the  holder  of  the  check  procuring  it  to  be 

1  Bickford  ?>.  First  National  Bank,  Am.  Rep.  305.     As  to  the  power  of  a 

42  111.  238.  bank  to  certify  checks,  see  Merchants' 

8  Brown  v.  Leckie,  (1867)  43  111.  497;  Bank  v.  State  Bank,  10  Wall.  604. 

citing  Rounds  v.  Smith,  (1860)  42  111.  6  Hill  v.  Trust  Co.,  108  Pa.  St.  1. 

245;  Bickford  v.  First  National  Bank,  *  Freund   v.    Importers  &  Traders' 

42  111.  238.  National  Bank,  (1875)  3  Hun,  689;  s.  c., 

3  Smith  v.  Branch  Bank  at  Mobile,  6  T.  &  C.  236. 

(1845)  7  Ala.  880.  '  Bank  of  Springfield  v.  First  Na- 

4  Marine  National  Bank  T.  National    tional  Bank  of  Springfield,  (1888)  30 
City  Bank,  (1874)  59  N.  Y.  67 ;  s.  c.,  17   Mo.  App.  271. 


§  32.'.  ]  DEPOSITS  AKD  CHECKS.  •       ; 

certified  instead  of  collecting  it.1  The  drawer  of  a  check  will  !•• 
discharged  by  tin-  holder's  procuring  it  to  bo  certified  instai 
collecting  it.4  In  case  a  certificate  of  "  good  "  on  a  check  be  erro- 
neously made  by  a  bank,  and  the  error  be  discovered  and  notice 
i^ivrii  to  the  bank  presenting  tlio  check  in  time  for  it  to  make  a 
re-presentment  and  charge  the  indorsee,  the  certifying  bank  will 
be  relieved  from  further  liability.'  A  new  and  binding  obliga- 
tion is  created  on  the  part  of  a  bank  by  its  certifying  a  check  as 
"  good  "  to  hold  sufficient  funds  of  the  drawer  to  meet  the  check ; 
and  the  holder's  right  is  not  impaired  by  a  delay  on  his  part  in 
demanding  payment.4  The  act  of  a  bank  certifying  the  genuine- 
ness of  a  check  and  directing  its  payment  by  a  corrwpondnit 
bank,  operates  as  a  promise  to  pay  the  check  ujxm  presentation  at 
the  correspondent  bank,  properly  indorsed.  The  obligation  of  tin? 
bank,  as  shown  by  such  certification,  amounts  to  a  representation 
that  the  drawer  has  funds  in  the  bank  with  which  to  pay 
the  check,  and  that  it  will  retain  and  pay  them  to  the  holder 
through  the  designated  agency,  upon  presentation  there,  properly 
indorsed.5  A  bank  certifying  a  check  drawn  upon  it  by  one  of 
its  depositors  is  primarily  liable  upon  it.*  One  taking  a  check 
which  has  been  certified  by  a  bank  in  good  faith,  for  value,  in  tho 
ordinary  course  of  his  business,  may  recover  against  the  bank 
although  the  signature  to  tho  check  may  be  a  forgery.  And  it 

1  BiHs  v.  National  Park  Bank,  47  N.  bank  to  meet  tho  check,  the  plaintiff 

Y.  Super.  Ct.  302.  was  held  not  entitled  to  recover,  on  ac- 

'First     National     Bank    of    Jersey  count  of  her  m-glijrencf  in  delay  tog  lft» 

City  P.  Leach,  (1878)  52  N.  Y.  350;  s.  c..  presentation  of  the  check  for  payment 

11  Am.  Rep.  708.  for  no  long  a  time. 

»  Irving  Bank   r.  Wetherald,  (1887)  •  Lynch  r.  Finit   National  lUnk  of 

86  N.  Y.  335,  affirming  34  Barb.  323.  Jersey  City.  (18*7)  1O7  N.  Y.   17»;  «. 

4  Farmers    &  Mechanics'    Bank   r.  c..  1  Am.  St.  Krp  H<W;  rilinif  .ttna  Na- 

Butchers  &  Drovers'  Bunk,  (1855)   4  tional  Bank  r.  Fourth  National  Hank, 

Duer,   219.     In  Mills  r.  State  Bank.  5  46  N.  Y.  82;  Crawford  e.   We* 

N.  J.  Law  J.  56,  it  appeared  that  on  a  Bank,  100  N.  Y.  I 

certain  date  a  check  was  drawn  in  fa-  Bank.  83  N.  Y.  318;  Onrida  Bank  e. 

vor  of  the  plaintiff  on  the  Slate  Bank.  Ontario  Bunk.  81  N.  Y.  490 

and  indorsed  by  the  cashier  "  good  at  •  Drover*'  National  Bank  ».  I 

the  Mechanics'  Bank."    The  plaintiff  Ion  Co..  II?  III.  1 

retained  the  check  for  two  month*,  liability   of   a    bank 

when  the  Mechanics'  Bank  failed.     In  check*  imulm  from, 

this  action,  on  proof  that  at  the  date  of  National  Bank  of  lk»t<i 

the  failure  of  the  Mechanics'  Bank  tho  Y.  96;  ».  C..  11  Am.  Krp.  9 
State  Bank  had  sufficient  funds  in  that 


654  DEPOSITS  AND  CHECKS.  [§  326 

would  make  no  difference  that  the  payee's  name  was  fictitious.1 
The  money  paid  upon  a  raised  check  by  a  bank  certifying  and 
paying  it  may  be  recovered  from  the  one  receiving  it,  as  for 
money  paid  under  a  mistake  of  fact.2  The  money  paid  by  a  hank 
upon  a  certified  check  may  be  recovered  if  it  prove  that  the  filling 
in  of  the  check  was  forged.  And  the  bank  will  not  be  estopped 
from  showing  the  body  of  the  check  to  be  a  forgery  by  the  verbal 
assurance  of  its  teller  to  the  payee  that  the  check  was  correct  in 
every  particular.3  Payment  of  a  raised  check  on  the  faith  of  a 
certificate  of  a  bank  has  been  held  not  to  raise  an  estoppel  pre- 
cluding the  bank  from  recovering  back  the  money  paid  on  it.4 

§  326.  Acceptance  of  a  check  by  a  bank  —  illustration.— 

In  a  case  in  the  United  States  Circuit  Court  for  the  western  dis- 
trict of  Missouri  it  appeared  that  a  cattle  company  had  agreed 
to  sell  to  one  T.  a  large  number  of  cattle  for  a  fixed  sum  of 
money.  He  offered  in  payment  for  the  cattle  his  check  on 
defendant  bank.  The  cattle  company  refused  to  accept  it  unless 
persons  to  whom  it  was  indebted  would  accept  it  in  payment  of 
the  debt.  The  payee  of  the  check  telegraphed  to  the  bank  asking 
if  it  would  pay  T.'s  check  for  the  amount  specified,  and  the  bank 
telegraphed :  "  T.  is  good.  Send  on  your  paper.''  The  telegram 
was  shown  to  the  creditors  of  the  cattle  company,  who  took  the 
check  in  payment  of  their  debt.  Upon  the  issues  raised  by  the 
defendant's  answer  it  was  held  that  the  answer  by  the  bank  was 
an  acceptance  of  the  check  for  the  sum  named  in  the  first  tele- 
gram, and  was  sufficient,  under  Revised  Statutes  of  Missouri 
(§  533),  providing  that  an  acceptance  of  a  bill  of  exchange  must 
be  in  writing,  and  section  534,  providing  that  an  acceptance  on  a 
separate  paper  will  bind  the  acceptor  in  favor  of  one  to  whom  it 
has  been  drawn,  who  takes  the  bill  on  the  faith  thereof  for  a 
valuable  consideration,  to  render  the  bank  liable  to  plaintiffs  on 
the  check.  And  in  such  case,  the  evident  purpose  of  the  inquiry 

1  Hagen  v.  Bowery  .National  Bant,  a  Security  Bank    of    New  York  «. 

(1872)  6  Lans.  490;  s.  c.,  64  Barb.  197.  National  Bank  of  Republic,  (1876)  67 

8 St.    Nicholas    Bank     v.    National  N.  Y.  458;  s.  c.,  23  Am.  Rep.  129. 

Bank  of  the  State  of  New  York,  (1876)  *  Marine  National  Bank  v.  National 

3   N.    Y.    Wkly.    Dig.    583;    citing  City  Bank,  (1874)  59  N.  Y.  67;  s.  c., 

Marine  Nat.   Bank  v.  National  City  17  Am.  Rep.  305. 
Bank,  (1874)  59  N.  Y.  67;  s.  C.,  17  Am. 
Rep.  305. 


-'7]  DEPOSITS  A  XD  CHECKS.  '       • 


"btain  assurance  of  pavmrnt    U-fnre  taking  the  cheek,' 
tlit-  hank  was  Habit-  undrr  itutm  of  Muwoilri  (§  585), 

providing  that  an  unconditional  written  |>  rut  111*0  to  accept  u  bill 
l>of<>iv  it  is  drawn  shall  IK*  drrim-d  an  actual  acceptance  in  favor 
of  any  person  to  whom  it  is  shown,  and  who  on  tin*  faith  thereof 

i  ves  the  bill  for  a  valuable  consideration.1  The  same  ca*e 
was  l>efore  the  court  again,  \vhrn  then-  w«/rv  MHIM-  further  rulinp* 
as  to  the  hank's  liability  on  the  check  l.y  reason  of  its  aoeeptanee 
by  telegram.  It  was  held  that  the  hank  which  had  agreed  to 
accept  the  check  for  a  certain  sum  could  not  refoie  payment 
because  the  check  when  presented  concluded  with  the  word* 
"  with  exchange,"  no  place  of  exchange  lx*ing  mentioned. 
this  was  mere  surplusage,  and  of  no  effect.'  It  was  also  held  that 
a  bank  check  payable  to  "the  order  of"  the  payee  wa*  a  bill  of 
exchange  within  the  meaning  of  Revised  Statutes  of  Muaoari 

:!>,  riM|iiiring  an  acceptance  of  a  "bill  of  exchange*  "  t..  !«•  in 
writing. 

§  327.  Presentment  of  checks  for  payment.  —  Upon 
sentation  of  a  check  for  payment  the   payee  or  legal   holder 
becomes  the  owner,  entitled  to  the  sum  called  for  by  the  check, 
if  that,  amount  stands  to  the  credit  of  the  drawer  on  the  books  of 
the  bank.4     Bank  checks  being  payable  immediately  on  preaent- 

1  Garrettson  r.  North  Atchison  Hunk,  Bank.   76  Iowa.  689;  a.  c.,  41  N.  W. 

(1880)  39  Fed.  Rep.  163.     As  to  princi-  Rep.  381:  Hughitt  r.  Job  MOO.  88  Fed. 

plea  applicable  to  bank  checks,   we  Rep.  865;  Hill  r.  Todd.  29  111.  101-108; 

Bank  r.  Bank,  10  Wall,  647;  Oooke  r.  Clauscr  r.  Stone.  29  111.  114.     As  to  * 

Bank.  52  N.  Y.  96;  Jurvis  r.  Wilson,  defense  that  presentation  of  a  check 

46  Conn.  90-92;  Freund    r.    Bank,    76  for    payment   wa»   unreasonably    de- 

V  Y    BBS,  :::,(,;  Unnk  r.  Richartls.  109  Inyed.  see   Bull   r.    Bank.   1*1   f.  8. 

41:5;   Whildcn  r.  Bank.  64  Ala.  111.    112;  *.  c\.  8  8up.  (1.  Krp.  « 

29,  30.    -As  to  how  an  acceptance  of  n  •OarretUton  r.  North  AtchUoo  Bank. 

check  may  l>e  made,  see  Bank  r.  Bank.  (1H91)  47  Fed.  Rep.  867.  affirming  Oar 

l    N    Y.  Leg.  Obs.  26;  Espy  v.  Bank,  rettoon  c.  North  Atrhiaon  Bank.  (1899) 

18  Wall.  604  ;    Whilden   r.   Bank,   64  89  Fed.  Rep.  168     OarrrtUoo  r.  North 

Ala.  32,  33;  Bank  r>.  Howard.  40  N.  Y.  Atchison   Bank.   »»  Fed     Rrp.    161. 

Super.  Ct.  20.     As  to  a  check  paasinp  and  47  Fed.  H«-p.  867.  were  affirmed 

to  another  for  a  valuable  consideration.  l»y  the  United  .State*  Circuit  Court  of 

sec  Railroad  Co.   r.   Bank.  102  U.  8.  Appeal*  in   North  Atchiaoo  Bank  r. 

14-22;    Pope  r.   Bank.  59  Barb.  226;  aanrtUon.  (1898)  51  Fed.  Rep.  !«. 

Fn-und  r.  Bank,  76  N.  Y.  808-808.  «Shaffnrr  ».    Bdfertoo.   18  Bf»dw 

*  Garrettson  r.  North  Atchison  Bank.  (III.)  188;  W«*  r.  Way.  87  Mo.  16; 

(1891)  47  Fed.  Rep.  867.     C.  f..  Brink-  Munn  r.  Buirh.  85  III.  85, 
man  r.  Hunter,  73  Mo.  179;  Lindley  r. 


656  DEPOSITS  AND  CHECKS.  [§  327 

ment  are  not  entitled  to  days  of  grace.1  Whether  days  of  grace 
are  to  be  allowed  on  a  draft  in  the  form  of  a  check  depends  upon 
the  question  whether  the  instrument  is  payable  on  demand  or  at 
a  future  day.2  A  check  drawn  on  a  bank  ordering  it  to  pay 
money  to  a  third  party  or  order  on  a  day  subsequent  to  its  date 
would  be  entitled  to  grace.8  A  check  drawn  by  one  party  upon 
another  payable  to  a  third  person,  due  thirty  days  after  date,  has 
been  held  in  a  suit  by  the  drawee  against  the  drawer  to  be  enti- 
tled to  days  of  grace.4  An  instrument  drawn  upon  the  cashier  of 
a  bank,  payable  sixty  days  after  date,  has  been  held  to  be  a  bill 
of  exchange,  and  entitled  to  days  of  grace.  It  was  also  held  in 
the  same  case  that  it  was  essential  to  a  check,  eo  nomine,  that  it 
should  be  payable  on  demand.5  A  draft  on  a  bank  for  money 
payable  at  a  day  subsequent  to  its  date,  has  been  held  to  be  a  bill 
of  exchange,  and  entitled  to  days  of  grace.6  A  bank  check  pay- 
able fifteen  days  after  date  has  been  declared  in  an  Indiana  case 
to  be  an  inland  bill  of  exchange,  and  to  have  every  feature  of 
such  a  bill.7  A  demand  in  business  hours  on  the  day  succeeding 
that  on  which  a  check  is  drawn  is  a  sufficient  presentment.8  Pre- 
sentment of  a  check  is  excused  by  the  stoppage  of  its  payment  by 
the  drawer.9  The  fact  that  a  check  may  be  drawn  by  a  depositor 
of  funds  in  a  bank  in  favor  of  the  cashier  of  the  bank  just  previ- 
ous to  the  service  upon  the  bank  of  process  in  garnishment,  has 
been  held  not  to  be  in  itself  evidence  of  fraud  or  want  of  good 
faith.10  A  bank  which  had  sent  another  bank  a  bad  check,  sup- 
posing and  affirming  that  it  came  from  the  bank  to  which  it  was 
returned  and  been  paid  money  by  the  latter  for  the  check,  rely- 
ing upon  this  statement,  which  was  erroneous,  has  been  held  liable 
in  an  action  by  the  latter  for  the  money,  as  paid  under  a  mis- 
take of  fact,  although  the  error  in  the  statement  was  not  discov- 
ered until  three  days  after  the  payment  of  the  money,  when  the 

1  Barbour  v.  Bayon,  5  La.  Ann.  304.  *  Woodruff  v.  Merchants'  Bank,  25 

* Morrison  v.  Bailey,  (1855)  5  Ohio  Wend.  673. 

St.  13.     When  an  instrument  drawn  'Bowena.  Newell,  8  N.  Y.  190. 

on  a  bank  is  a  check  and  not  a  bill  of  7  Glenn  v.  Noble,  1  Blackf .  (Ind.)  104. 

exchange,  and  not  entitled  to  days  of  8  Ocean  Co.  v.  Ophelia,  11  La.  Ann. 

grace,  see  Andrew  v.  Blachly,  (1860)  28. 

11  Ohio  St.  89.  9  Woodin  «.  Frazee,  (1874)  38  N.  Y. 

» Ivory  v.  Bank  of  Missouri,  (1865)  Super.  Ct.  190. 

36  Mo.  475.  10  Bank  of  America  T.  Indiana  Bank- 
Sutler  v.  Reynolds,  (1872)  64  111.  ing  Co.,  114111.  483. 

321. 


§  327J  DEPOSITS  AND  CHECKS. 

drawer  of  the  check  had  failed.1  A  bank  paying  a  fraudulently 
altered  post-dated  check  before  its  true  date  would  not  be 
tied  to  charge  it  again-t  tin-  drawer.1  Check*  are  governed  by 
the  same  rules  that  hills  are,  as  to  demand,  protect  and  notice.  A 
holder  of  a  check,  to  recover  against  the  drawer,  mu*t  show  • 
presentment  for  payment  and  protest,  or  that  the  drawer  luid  M.I 
funds  in  the  hands  of  the  drawee.*  A  post-dated  check  will  not 
be  entitled  to  days  of  grace,  as  a  bill  of  exchange.4  The  obliga- 
tion of  the  drawee  to  pay  a  check  and  a  bill  are  the  same.'  A  bank 
check  has  been  held  to  be  a  bill  of  exchange,  within  the  meaning 
of  that  term  as  used  in  the  Illinois  Statute  of  Limitations.'  When 
payment  of  a  check  is  made  to  the  payee  an  indorsement  l>y  him 
is  not  necessary.7  Mere  priority  in  drawing  a  check  give*  the 
holder  no  preference  or  privity  in  payment  over  the  holders  of 
checks  subsequently  drawn.8  The  neglect  of  the  holder  «»f  a 
check  to  present  it  will  postpone  his  right  to  the  funds  to  that  of 
a  subsequent  attachment  upon  the  funds.'  A  bonajulc  indoreetof 
a  bank  check,  who  had  delayed  for  six  months  to  present  it  for  pay- 
incut,  funds  remaining  in  the  hands  of  the  drawee  and  the  drawer, 
being  unprejudiced  by  the  delay,  has  been  held  not  subjected  to 
equities  between  the  drawer  and  a  previous  holder  of  the  check." 
Presentment  and  notice  are  not  required  where  bank  checks  are 

1  Union  Bank  r.  United  States  Bank,  « Champion     r.     Gordon.    70     IV 

(1807)  8  Mass.  74.  St.  474;   Lawson  r.  Richanb.  fl  Phil. 

•Crawford    r.     Bank,   3    Lancaster  179. 

Law  Rev.  (Pa.)  245.  »City  Bank  r.  Oirnrd  Bank.  10  L». 

•Succession  of  Kercheval,   14   La.  566. 

Ann.  457,  Barnct  r.  Smith,  30  N.  H.  'Rogers  r.  Durant.  140  U.  8.  *9& 

256;  Shrieve  r.  Duckham,  (1822)  1  Litt.  As  to  the  transfer  of  Uic  »uiu  named 

(Ky.)   195;  Humphries  t>.  Bicknell,  2  in  a  rbeck  to  the  payer.  ace  Hank  of 

Litt.    (Ky.)   297;   Sutcliffe  &   Bird   ».  America  r.  Indiana  Banking  Co..  114 

McDowell.  2  Nott  &  McC.  (8.  C.)  251;  111.  488. 

Lillcyc.  Miller,  2  Nott  &  McC.  (8.  C.)  'Huber  r.  Boasart.  (1886)  70  low*. 

257.     As  to  the  necessity  of  proof  of  718. 

presentment  and  notice  of  dishonor  of  •  Moaca  ».  Franklin  Bank  of   Bahi 

a  check,  to  entitle  the  owner  to  resort  more,  84    Md.  574.    See.  alto.  Norrb 

to  the  drawer  for  payment,  sec  Case  r.  «.  Despard,  88  Md.  487. 

Morris.  81  Pa.  St.  100.     Payment  of  a  •  Ilarry  r.  Wood.  3  Mil« 

part  of  the  check  after  it  becomes  due  Kuhn  r.  Bank.  80  W.  N.  C.  (IV)  MO. 

by  the  drawer  dispenses  with  the  ne-  '•  Bull  f.  Bank  of  KBMOO,  US  U.  8. 

cessity  of  such  proof.     Levy  p.  Peters,  105. 
9  Berg.  &  Rawle  (Pa.),  125. 
83 


658  DEPOSITS  AND  CHECKS.  [§  327 

payable  at  a  future  day  or  protested.1  A  bank  check  must  be 
presented  for  payment  by  the  holder  within  a  reasonable  time ; 
should  it  not  be,  the  delay  is  at  the  holder's  peril.  As  to  what  is 
a  reasonable  time  would  depend  upon  the  circumstances  in  eacli 
case.  And  the  time  of  presentation  may  be  extended  by  the 
assent  of  the  drawer,  express  or  implied.  In  a  Connecticut  case, 
by  way  of  illustration,  the  plaintiff,  desiring  to  make  a  remittance 
to  a  creditor  at  a  distance,  and  there  being  no  bank  in  the  place 
where  he  lived,  asked  the  defendant,  who  had  an  account  with 
a  banker  in  a  neighboring  city,  to  take  the  amount  of  him  in 
bank  bills  and  give  him  his  check  therefor,  which  the  latter  did, 
fully  understanding  the  object.  The  plaintiff,  to  whose  order  the 
check  was  payable,  at  once  indorsed  it  to  his  creditor  and  sent  it 
by  the  next  mail.  It  was  three  days  before  the  check  reached 
the  place  where  the  banker  resided,  on  whom  it  was  drawn,  and 
was  presented  for  payment,  at  which  time  the  banker  had  failed 
and  payment  was  refused.  The  plaintiff  took  up  the  check  and 
brought  this  action  against  the  drawer.  The  Supreme  Court  of 
Connecticut  held  that  the  check  was  presented  writhin  a  reason- 
able time  under  the  circumstances,  and  held  the  drawer  liable  to 
the  drawee  for  its  amount.2  Negligence  cannot  be  imputed  to 
the  holder  of  a  check  upon  a  bank  for  the  payment  of  money  if 

1  Blachly  v.  Andrew,  (1855)  1  Dis-  Daggett  v.  Whiting,  35  Conn.  366.  is 

ney  (Ohio),  78.  certainly  an  authority  to  show  that 

3  Woodruff  v.  Plant,  (1874)  41  Conn,  what  the  understanding  of  the  parties 

344.  The  court  said:  "What  is  area-  was  at  the  time  that  the  check  was 

sonable  time  will  depend  upon  circum-  drawn  and  delivered  enters  into  the 

stances;  and  will,  in  many  cases,  de-  contract.  That  the  time  for  present- 

pend  upon  the  time,  the  mode,  and  the  ment  may  be  extended  by  the  assent 

place  of  receiving  the  check,  and  of  the  drawer,  express  or  implied,  is 

upon  the  relations  of  the  parties  be-  well  settled.  Alexanders.  Burchfield, 

tweeu  whom  the  question  arises.  Story  7  Man.  &  Gr.  1061;  s.  c.,  49  Eng. 

on  Prom.  Notes,  §  493;  Mohawk  Bank  Com.  Law  Rep.  1060."  See  on  this 

v.  Broderick,  13  Wend.  133.  Here  subject,  Bridgeport  Bank  v.  Dyer, 

three  days  only  elapsed  between  the  19  Conn.  136;  Taylor  v.  Wilson,  11 

giving  of  the  check  and  its  present-  Met.  (Mass.)  44;  Ames  v.  Meriam,  98 

ment  for  payment.  The  particular  Mass.  294;  First  Nat.  Bank  v.  Harris, 

circumstances  attending  this  case  we  108  Mass.  514;  Morrison  v.  Bailey,  5 

consider  very  important.  The  de-  Ohio  St.  13;  Stephens  v.  McNeill,  26 

fendant  knew  that  the  plaintiff  desired  Barb.  652;  Rickford  v.  Ridge,  2 

this  check  to  make  a  remittance;  that  Campb.  537;  Robinson  v.  Hawksford, 

it  was  not  to  be  immediately  presented  9  Adol.&  El.  (N.  S.)  52;  Hare  v.  Henty; 

for  payment,  and  would  not  reach  the  10  C.  B.  (N.  S.)  64;  Prideaux  t.  Crid- 

bank  for  several  day*.  The  case  of  die,  L.  R.,  4  Q.  B.  455. 


§  327]  DEPOSITS  AUD  CHECKS. 

lu  demands  payment  on  the  day  following  that  on  which  he 
received  it.  If,  however,  the  holder  unreaaonal.ly  delay*  in  j.n- 
senting  the  check  for  payment,  and  in  the  meantime  the  hank 
fails,  the  loss  will  be  the  holder's  and  not  that  «.f  the  drawer  of 
the  check.1  In  case  it  appears  that  the  drawer  of  a  check  luu 
sustained  any  injury  by  the  delay  or  negligence  of  tin-  h..|.. 
the  check  in  presenting  it  for  payment,  the  drawer  will  be  dis- 
charged from  liability.3  Where  a  holder  of  a  check  had  neglected 
to  present  it  for  payment  until  twenty-five  days  after  it  was 
drawn,  during  which  time  the  drawer  failed,  the  Supreme  Court 
of  Illinois  held  that  the  holder  of  the  check  could  have  no 
recourse  upon  the  drawer  unless  he  showed  that  no  loss  occurred 
to  the  drawer  through  his  delay  in  presentation  of  the  check.' 
Where  one  having  funds  in  a  bank  gives  a  check  which  the  h 
neglects  to  present  for  payment  within  a  reasonable  time,  the 
drawer  cannot  be  held  liable  for  non-paymeut  in  current  fund* 
unless  the  holder  shows  not  only  that  the  funds  on  deposit  were 
depreciated  at  the  date  of  the  check,  but  also  that  they  were 
depreciated  at  the  time  of  the  deposit,  and  that,  therefore,  the 
drawer  had  no  right  to  draw  the  check,  or  to  expect  its  payment 
in  current  funds.4  The  holder  of  a  check  will  be  exercising  due 
diligence  when  he  presents  it  for  payment  in  accordance  with  the 
usage  of  the  banks  in  the  place  where  it  is  made  jwyable,  and  of 
the  persons  who  have  accounts  with  such  banks,  provided  this 
usage  be  lawful  and  well  known  or  recognized  by  the  mercantile 
community,  and  by  the  parties  to  the  check.5  One  giving  a 
check  may  expressly,  or  by  implication,  extend  the  time  during 
which  he  will  remain  liable  for  the  amount  of  the  check  before 
its  presentment  for  payment.6  The  drawer  of  a  check  cannot 

1  Clark      r.    National    Metropolitan  the  next  day  after  its  date  to  prawot 

Bank,  2  MacArthur  (D.  C.),  249.  it.     Veazie  Bank  r.  Winn.  40  Me.  60. 

'Ibid.     That   the    discharge  of  the  That  a  check  muni  be  pmeotcd  for 

drawer  of  a  bank  check  from  liability  payment  on  its  date  or  the  day  there- 

will  result  from  neglect  of  the  holder  after  where  all  the  parties  reside  in  the 

to    present    the    same    for   payment  same  place,  ace  liank  r.  Weil.  4  fis. 

within  a  reasonable  time,  and  that  the  Co.  Ct.  Rep.  M6L 

doctrine  applies  to  all  holders,  payees  •  Holmes  r.  Roc.  89  Mich.  1».     A* 

or  transferees,  see  Daniels  r.  Kyle,  5  to  the  duty  of  a  bunk  in  the  matter  of 

Ga.  245.  poytaS  the  check*  dmwn  upon  it  by  s 

» Willetts  r.  Paine,  (1867)  48  111.  482.  depositor,  are  MOM*  f.  Kranklln  Bank 

4  n.i.i  of  Baltimore.  84  Md.  574.  Right  of  ar 

•  Marrett  t>.   Brackett,   60  Me.  624.  tion  of  a  holder  of  a  check  again* 

The  holder  of  a  check  allowed  until  bonk  refusing  payment  when  drawer 


660  DEPOSITS  AND  CHECKS.  [§  327 

object  to  any  delay  in  presenting  it  unless  he  can  show  special  injury 
to  himself  arising  from  the  delay.1  The  drawer  of  a  check  will 
be  released  by  the  failure  to  give  him  notice  of  non-payment  of 
the  same  only  to  the  extent  of  the  injury  he  may  receive  thereby. 
In  case  of  failure  of  the  drawee,  then  proof  of  notice  of  non- 
payment would  be  necessary  to  rebut  the  presumption  of  injury 
arising  from  the  failure ;  and  when  the  drawer  has  no  funds  in 
the  hands  of  the  drawee  to  meet  the  check,  demand  and  notice 
will  be  necessary.2  The  drawer  of  a  check,  if  otherwise  liable, 
will  not  be  discharged  because  of  a  failure  to  present  the  check  at 
the  clearing  house  in  accordance  with  mercantile  usage,  even 
though  it  would  have  been  paid  if  presented  there,  when  it  has 
been  duly  presented  to  the  drawee  and  payment  demanded  and 
refused.3  Four  days'  delay  in  presenting  a  check  has  been  held 
not  too  much.4  A  delay  in  the  presentment  of  a  draft,  payable 
on  demand,  for  eleven  days  has  been  held  not  a  reasonable  time.5 

has  funds  in  bank.  Fogarties  ».  State  twenty  miles  from  the  place  where  the 
Bank,  12  Rich.  (S.  C.)  518.  As  to  a  bank  upon  which  it  was  drawn  was 
court's  preventing  the  vexatious  draw-  located,  to  a  merchant  whose  place  of 
ing  of  small  checks  against  a  deposit,  business  was  twenty -seven  miles  by 
see  Chicago  Marine  &  Fire  Ins.  Co.  v.  rail  in  another  direction;  and  had  to  be 
Stanford,  28  111.  168.  there  on  the  following  day,  'which 

1  Emery  «.  Hobson,  63  Me.  32.  was   Saturday.     On  Monday  he  left 

*  Pack  v.  Thomas,  13  Smedes  &  the  check  at  a  local  bank  for  collec- 
Marsh.  (Miss.)  11;  Graham  v.  Mors-  tion,  but  the  bank  on  which  it  was 
tadt,  (1890)  40  Mo.  App.  333.  drawn  failed  that  day.  The  court 

3Kleekamp  t>.  Meyer,  (1878),  5  Mo.  held  that  the  delay  in  presenting  the 
App.  444.  When  presentment  of  check  for  payment  was  not  such  as 
check  to  justify  an  action  against  the  would  release  the  debt  for  which  it 
drawer  is  not  necessary,  see  Gushing  was  given. 

v.  Gore,  (1816)  15  Mass.  69;  Franklin  5  Newark  Banking  Co.  v.  Bank  of 
Bank  v.  Freeman,  (1835)  16  Pick.  535.  Erie,  63  Pa.  St.  404.  As  to  reasonable 
Rules  in  actions  by  the  holders  of  delay  in  presenting  a  check  for  pay- 
checks against  the  drawers.  Ball  v.  ment,  see  Chouteau  v.  Rowse,  (1874) 
Allen,  (1819)  15  Mass.  433;  Ellis  v.  56  Mo.  65.  As  to  time  within  which  a 
Wheeler,  (1825)  3  Pick.  (Mass.)  18.  check  must  be  paid,  see  Wear  v.  Lee, 

4  Piece  v.  Daniel,  16  W.  N.  C.  (Pa.)  (1885)  87  Mo.  358.  As  to  the  effect  of 
35.  In  St.  John  v.  Homans,  (1844)  8  delay  in  presentment  of  a  check,  see 
Mo.  382,  where  all  the  parties  to  the  Flemming  v.  Denny,  2  Phil.  111.  As 
check  resided  in  the  same  state,  a  de-  to  right  of  action  after  presentment  and 
lay  of  eight  dajrs  iu  presenting  the  demand  and  failure  to  pay  by  drawee 
check  for  payment  was  held  sufficient  with  funds  of  depositors  in  hand,  see 
to  discharge  the  drawer.  In  Freiberg  Me  Grade  V.  German  Savings  Institu- 
te Cody,  55  Mich.  108,  it  appeared  that  tion,  (1877)  4  Mo.  App.  336;  Zelle  ». 
a  check  for  a  small  sum  was  given  German  Savings  Institution,  (1877)  4 
late  in  the  afternoon  at  a  lumber  camp,  Mo.  App.  401;  Senter  «.  Continental 


§  328]  DEPOSITS  AND  CHECK*,  ftf] 

A  delay  in  presenting  a  check  for  payment  would  be  exciued  fa 
case  the  holder  is  prevented  by  any  state  of  things  bejond  hU 
control  from  presenting  it  or  sending  it  to  be  presented.  Hut  in 
case  the  delay  is  protracted  to  a  coi>idfruble  length  of  time  the 
reason  must  be  shown.1  As  to  what  is  a  reasonable  time  within 
which  a  check  was  presented  may  be  submitted  to  tin-  jury  under 
appropriate  instructions.3  Where  a  drawer  has  no  fundn  and 
makes  no  provision  for  meeting  a  check  or  withdraws  lib  fund* 
before  its  presentation,  he  cannot  take  advantage  of  a  want  of 
diligence  in  presenting  it  for  payment.*  The  indorser  of  a 
check,  drawn  for  his  accommodation,  who  is  bound  to  provide 
funds  to  meet  it,  will  not  be  entitled  to  notice  of  non-payment.4 
The  custom  of  banks  in  doing  business  among  themselves  through 
the  clearing  house  does  not  alter  the  rule  that  a  check  must  be 
presented  to  the  bank  on  which  it  was  drawn,  at  least  during 
banking  hours  of  the  next  succeeding  day.5  In  an  action  U|M,M 
a  check  by  the  holder  against  a  bank  the  burden  will  be  upon  tlie 
holder  to  show  that  the  sum  called  for  by  the  check  stood  to  the 
credit  of  the  drawer  when  presented.6  A  reply  of  a  bank  to 
which  a  raised  check  is  sent  for  information,  that  it  is  all  right, 
would  be  a  guaranty  of  the  signature  and  the  state  of  the  draw- 
er's account,  and  not  of  the  genuineness  of  the  filling  in.T  The 
indorsement  of  a  raised  check  is  in  effect  a  representation  and 
warranty  to  the  drawee  that  it  is  genuine,  upon  which  the  drawee 
may  rely  in  making  payment,  for  reimbursement  by  the  indoraer 
after  discovery  of  the  fraud.8  A  bank  is  entitled  to  ettlMkh 
that  a  raised  check  was  a  forgery  and  to  recover  Iwk  the  money 
paid  thereon,  notwithstanding  its  recognition  and  payment,  tlie 
signature  being  genuine,  under  an  honest  mistake.* 

§  328.  When  a  draft  on  a  bank  fails  to  bind  the  funds  in 
bank. —  The  United  States  Supreme  Court  had  Iteforo  it  a  CAM 

Bank,   (1879)  7  Mo.  App.  532;   State  •  International    Bank   r.    Jones.    18 

Savings  Assn.  r.  Boatmen's  Savings  Bradw.  (111.)  594. 

Bank.  (1881)  11  Mo.  App.  292.  '  E»py    r.     Bank  of  Cincinnati.  18 

1  Moody  r.  Mack,  (1809)  43  Mo.  210.  Wall.  004. 

*  Sclby  r.  McCullough,  (1887)  26  Mo.  •  City  Bank  r.  Flirt  National  Bank. 

App.  66.  «  Tex.  208. 

«  Moody  r.  Mack,  (1869)  43  Mo.  210;  •  Notional  Bank  of  Commerce  r 

Sterrett  r.  Roscnorantz,  8  Phil.  54.  Uonal  Mechanic*1  Bank.  (1873)85  N.Y. 

«  Williams  r.  Hood,  1  Phil.  205.  Super.  Cl.  288;  affirmed  In  55  N.  Y. 

•Rosenblatt  r.  Ilabcrmann,  (1880)  8  211. 
Mo.  App.  486. 


662 


DEPOSITS  AND  CHECKS. 


[§328 


in  which  it  appeared  that  the  drawers  of  a  check  upon  a  bank 
making  an  assignment  for  the  benefit  of  creditors  just  afterwards, 
immediately  gave  notice  to  the  bank  of  this  assignment,  and 
requested  the  bank  to  hold  the  funds  in  its  hands  for  the  benefit 
of  the  assignee.  Virtually,  this  notice  to  the  bank  was  prior  to 
the  presentation  of  the  check  by  the  payee  of  the  latter,  and  the 
bank  refused  to  pay  the  check.  In  this  action  of  the  payee  of 
the  check  against  the  bank  for  the  recovery  of  the  amount  of  the 
check,  the  court  held  that  the  check  or  draft  did  not  bind  the 
funds  in  the  hands  of  the  bank  until  it  had  notice  of  the  draft  or 
check  by  presentation  for  payment,  or  otherwise ;  and  that,  until 
then,  other  checks  drawn  afterwards  might  be  paid,  or  other 
assignments  of  the  fund,  or  part  of  it,  might  secure  priority  by 
giving  prior  notice.1  A  banking  firm  of  Ohio  gave  its  draft  or 


'Laclede  Bank  v.  Schuler,  (1887) 
120  U.  S.  511;  s.  c.,  7  Sup.  Ct.  Rep. 
644.  Mr.  Justice  MILLER,  speaking 
for  the  court,  said:  "The  question  of 
how  far  and  under  what  circumstances 
a  check  of  a  depositor  in  a  bank  will 
be  considered  an  equitable  assignment 
to  the  payee  of  the  check  of  all  or  any 
portion  of  the  funds  or  deposits  to  the 
credit  of  the  drawer  in  the  bank,  is 
one  which  has  been  very  much  con- 
sidered of  late  years  in  the  courts,  and 
about  which  there  is  not  a  unanimity 
of  opinion.  In  this  court  it  is  very 
well  settled  that  such  a  check,  unless 
accepted  by  the  bank,  will  not  sustain 
an  action  at  law  by  the  drawee  against 
the  bank,  as  there  is  no  privity  of 
contract  between  them.  Marine  Bank 
0.  Fulton  Bank,  2  Wall.  252;  Bank  of 
Republic  0.  Millard,  10  Wall.  152; 
First  National  Bank  of  Washington  0. 
Whitman,  94  U.  S.  343.  But  while 
this  may  be  considered  as  the  estab- 
lished doctrine  of  this  court  in  regard 
to  the  rights  of  the  parties  at  law,  and 
is  probably  the  prevailing  doctrine  in 
nearly  all  the  courts,  it  is  urged  in 
this  case,  and  several  courts  have  so 
decided,  that  such  a  check  is  an  ap- 
propriation of  the  amount  for  which 
it  is  drawn  of  the  funds  of  the  drawer 


in  the  hands  of  the  bank.  Roberts  v. 
Austin  Corbin  &  Co.,  26  Iowa,  315; 
Fogarties  v.  State  Bank,  12  Rich.  Law, 
518;  s.  c.,  78  Am.  Dec.  468;  Munn  0. 
Burch,  25  111.  35;  German  Savings 
Inst.  «.  Adae,  1  McCrary,  501.  But 
however  this  doctrine  may  operate  to 
secure  an  equitable  interest  in  the 
fund  deposited  in  the  bank  to  the 
credit  of  the  drawer  after  notice  to 
the  bank  of  the  check,  or  presentation 
to  it  for  payment,  a  question  which  we 
do  not  here  decide,  we  are  of  opinion 
that,  as  to  the  bank  itself,  the  holder 
of  the  fund  and  its  duties  and  obliga- 
tions in  regard  to  it,  the  bank  remains 
unaffected  by  the  execution  of  such  a 
check  until  notice  has  been  given  to  it 
or  demand  made  upon  it  for  its  pay- 
ment." In  Schuler  t>.  Laclede  Bank, 
(1886),  27  Fed.  Rep.  424,  which  was 
affirmed  in  the  case  just  cited, BREWER, 
J.,  disposed  of  the  contentions  of  the 
holder  of  the  check  in  these  words : 
"This  question  must  be  solved  in  a 
court  of  equity  upon  equitable 
grounds,  and  I  think  that  it  is  equi- 
table for  a  bank,  upon  the  day  on 
which  a  note  becomes  due,  and  at  any 
time  during  the  day,  having  funds  of 
the  maker  in  its  possession,  to  apply 
those  funds  to  the  payment  of  that 


§  328]  DEPOSITS  AXD  CHECKS. 

chuck  upon  a  New  York  bank.  They  having  ma-It-  an  a«ign- 
inent  for  the  benefit  of  creditors  Ix-f.nv  it  \vii*  presented  to  the 
New  York  bank,  the  latter  upon  presentation  rvfu*cd  to  p«j  it, 
and  paid  over  the  funds  in  its  hand*  to  the  assignee  of  tin*  insol- 
vent firm.  The  holder  of  the  draft  or  cheek  brought  hi*  action 
against  the  assignee  for  the  amount.  In  considering  the  cue 
brought  before  them  the  Supreme  Court  of  Ohio  state-  1,  in  it* 
opinion,  the  practical  question  to  be  "  whether  the  unaccepted 
draft  for  a  part  only  of  the  amount  due  the  drawer  gave  the 
payee  or  holder  priority  over  the  other  creditors  of  the  drawer.** 
Their  conclusion  was  that  a  check  or  draft  for  a  part  only  of  the 
sum  due  the  drawer  does  not,  before  acceptance,  constitute  an 
equitable  assignment  of  the  amount  for  which  it  is  drawn  ;  and 
where,  after  it  is  drawn,  the  drawer  makes  an  assignment  of  all 
his  property  for"  the  benefit  of  his  creditors,  notice  of  which  is 
received  by  the  drawee  before  acceptance,  the  property  in  the 
whole  amount  then  remaining  to  the  credit  of  the  drawer  pMMt 
to  the  assignee  for  the  equal  benefit  of  all  his  creditors,  and  the 
holder  of  the  check  or  draft  has  no  priority  over  the  other 
creditors.1  The  court,  later  in  its  opinion,  said  :  u  While,  how- 


note,  although  by  so  doing  it  leaves  of  authority  i*.  we  think,  the 

nothing  standing  to  the  credit  of  the  way.     Mr.   Poraeroy,  in  hto  work  on 

maker  to  apply  on  checks  drawn  by  Equity   Jurisprudcnrr.   flection   1284. 

him.     As  between  the  bank,  the  holder  says    that.  'An  ordinary  bill  of  e«- 

of  a  note  due  and  the  payee  of  a  check  change  or  draft  drawn  generally  and 

upon   that   bank   the  equities  are  in  not  upon  any  part  icular  fund,  whrthsr 

favor  of  the  bank.     Or,  at  least,  if  the  accepted  or  not  by  I  he  drawer,  doe* 

equities   are  equal,   legal  title  to  the  not  operate  as  an  equiublcaadgtmu-nt. 

funds  and  possession  is  with  the  bank,  Its  operation  is  not  changed  even  when 

and  it  should  not  be  postponed."  funds  have  been  placed  in  the  drawee's 

1  Covert  v.  Rhodes,  (1891)  48  Ohio  St.  hands  as  a  mean*  of  payment;  for  IkS) 

66.   Arguendo,  it  was  said  by  the  court:  drawee    may   apply    the*?    fund*   lo 

"  Some  cases  and  text  writers,  we  are  another    u»e.    and   although  thl*  art 

aware,  maintain  with   much  earnest  might  violate  bU  duty  to  the  drawer. 

ness  the  position  taken  by  the  counsel  the  payee  would  obtain  nointerrrt  IB  or 

for  the  plaintiff,  that  a  draft  or  bank  claim  upon  the  apec-idc  fund.    Accord- 

check  for  part  of  the  amount  due  the  ing   to    the  great    preponderance  of 

drawer  is  an  equitable  assignment  pro  authority,  a  check  U  In  Oil*  mipert  a 

tanto,  giving  the  payee  or  holder  an  bill  of  exchange,  and  doe*  not  art  a* 

equitable  property  in  the  fund,  which  an  equitable  awdgnmenl  of  a  portion 

may  be  pursued  as  long  as  it  can  be  of   the   drawee'*    dcpo*h    equal    In 

certainly   identified,  except  into    the  amount  to  the  fact-  of  the  check.'    Ac- 

hands  of  third  persons  who  have  ac-  cording  to  the  mine  author.  In  c 

quired  possession  of  it  for  value,  and  that  the  doctrine  of  equitable  a«i|ra 

without  notice.     But  the  great  weight  ment  may  apply,   there    mm*    be  a 


664 


DEPOSITS  AND  CHECKS. 


[§328 


ever,  we  regard  it  as  well  settled  that  a  draft  or  check  for  a  part 
only  of  the  drawer's  deposit  or  sum  due  him  does  not  operate  as 
an  equitable  assignment,  a  different  rule  seems  to  obtain  where 
an  order,  draft  or  check  is  drawn  for  the  whole  amount  of  the 
deposit,  or  the  exact  sum  due.  There  may  be  in  such  cases,  it  is 
said,  a  sufficient  designation  of  the  specific  fund  to  be  transferred 
to  constitute  an  equitable  assignment."  l  A  draft  indorsed  to  a 


specific  fund  upon  which  the  assign- 
ment may  operate,  and  '  the  sure  cri- 
terion is  whether  order  or  direction  to 
the  drawee,  if  assented  to  by  him, 
would  create  an  absolute  personal  in- 
debtedness payable  by  him  at  all 
events,  or  whether  it  creates  an  obliga- 
tion only  to  make  payment  out  of  the 
particular  designated  fund.'"  The 
Ohio  court  resumed  :  "  The  obligation 
of  a  bank  to  its  general  depositors  is  not 
that  of  bailee  or  trustee,  but  that  of 
debtor  simply.  It  does  not  agree  to 
pay  checks  or  bills  drawn  on  it  out  of 
any  particular  fund;  nor  does  it  retain 
any  particular  fund  for  that  purpose. 
As  said  by  Mr.  Justice  DAYIS  in  Bank 
of  Republic  v.  Millard,  10  Wall.  152, 
155,  when  deposits  are  received  by  the 
bank,  '  unless  there  are  stipulations 
to  the  contrary,  they  belong  to  the 
bank,  become  part  of  its  general  fund, 
and  can  be  loaned  by  it  as  other  money. 
The  banker  is  accountable  for  the  de- 
posits which  he  receives  as  a  debtor, 
and  he  agrees  to  discharge  these  debts 
by  honoring  the  checks  which  the 
depositor  shall  from  time  to  time  draw 
on  him.  The  contract  between  the 
parties  is  purely  a  legal  one,  and  has 
nothing  in  the  nature  of  a  trust  in  it.' 
The  authorities  are,  without  exception, 
to  that  effect.  There  is  little,  if  any, 
conflict  of  authority  upon  the  proposi- 
tion that  on  notice  of  the  drawer's 
death,  before  acceptance  by  the  bank, 
its  right  to  pay  the  bill  or  check  ceases, 
and  its  indebtedness  to  the  drawer 
becomes  assets  of  his  estate.  The 
reason,  we  apprehend,  is  not  because 


the  bank  is  the  agent  of  the  owner  for 
the  disbursement  of  a  particular  fund, 
and  the  agency  is  terminated  by  the 
death  of  the  principal,  but  because, 
before  acceptance,  the  title  remains  in 
the  drawer,  and  devolves  immediately 
on  his  death  on  his  personal  repre- 
sentative by  operation  of  law.  The 
authorities  are  also  nearly  uniform  to 
the  effect  that  the  holder  of  such 
draft  or  check  cannot  maintain  an 
action  against  the  drawee  without  the 
latter's  acceptance.  The  reason  given 
is,  that  without  acceptance  there  is  no 
privity  between  them.  It  would  seem 
clear  that  if  before  acceptance,  the 
check  or  draft  operated  as  an  equitable 
assignment  pro  tanto,  such  an  action 
might  be  maintained;  for  an  equitable 
assignment  transfers  the  fund,  and 
the  refusal  of  the  drawee  to  pay 
would  be  a  conversion  by  him  of  the 
payee's  property,  for  which  suit  might 
at  once  be  brought."  The  court  fur- 
ther cited  in  support  of  their  views, 
besides  Laclede  Bank  v.  Schuler,  120 
U.  8.  515,  Grammel  n.  Carmer,  55 
Mich.  201;  Dickinson  ».  Coates,  Aa 
signee,  79  Mo.  250;  Billiard  v.  Randall, 
1  Gray,  605;  Attorney-General  v.  Con- 
tinental Life  Insurance  Co. ,  71  N.  Y. 
325;  Kimball  v.  Donald,  20  Mo.  577; 
Loyd  f>.  McCaffrey,  46  Pa.  St.  410; 
Chapman  r>.  White,  6  N.  Y.  412; 
Dykers  ».  Bank,  11  Paige,  612;  Hop- 
kinson  v.  Forster,  19  L.  R.  (Eq.)  74; 
Moses  v.  Bank,  34  Md.  574. 

1  Covert  v.  Rhodes,  48  Ohio  St.  66. 
Upon  this  it  was  said  by  the  Ohio 
court:  "  This-  distinction  is  made  by 


$  32S]  DEPOSITS  AXD  CHECK* 

l>;itik  f«.r  collection,  with  direction*  to  remit  New  York  exchange, 
was  }>ui<l  l»y  the  drawee  overdrawing  on  tin-  I  tank  receiving  it, 
and  the  draft  canceled.  The  bank  rvmitti-d  iu  check  for  th«- 
pnx-eeds,  but  asH^n.-.l  for  the  Ix-m-tit  of  ,-n-dii,,r>  U-fore  the 
check  was  paid.  The  Tennessee  Supreme  Court  held  in  neb 
case  that  no  tru-t  existed  in  favor  of  the  payee  of  the  draft,  and 
he  was  not  entitled  to  any  priority  of  payment  ovrr  other  cn-dit 
ore  hy  the  assignee.1  They  also  held,  there  being  a  contention 

many  well -considered  cases.  Among  account  was  attached  to  the  draft. 
thrui  Moon-  r.  Davis,  57  Mich.  251;  evidently  fur  the  purpose  of  bring 
Bank  r.  Railway  Coinjuiny.  52  Iowa,  sent  forwanl  with  It.  Wbea  thus 
878,  384;  Mundeville  r.  Welch,  5  sent  forwanl  it  would  explain  t» 
Wheat.  277;  Kingman  t>.  Perkins,  10.~>  the  drawees  the  account  oo  which  ft 
Mass.  Ill;  Macomber  r.  Doanc,  2  Al-  was  drawn,  but  it  muxl  also  have  been 
len,  541;  Robbing  r.  Bacon,  3  Me.  346;  understood  to  serve a  further  purpose. 
Gibson  t>.  Cooke,  20  Pick.  15-17.  In  namely,  to  be  evidence  in  (he  band*  of 
the  opinion  of  the  court  in  Moore  o.  the  drawees  that  the  account  waa  paid 
Davis,  67  Mich.  251,  COOLEY.  Ch.  J.,  when  the  drnfi  wan  taken  up  by  then 
discussing  the  distinction  between  the  There  could  he  no  sufficient  rraaon  for 
two  ^classes  of  cases,  says:  '  In  the  attaching  it  at  all.  unlca*  it  waa  an 
recent  case  of  Grammel  o.  Carmer,  55  dcrstood  that  payim-nt  of  the  draft 
Mich.  201,  the  question  whether  a  draft  would  IK*  payment  of  the  account  M 
was  an  assignment  of  the  fund  in  the  well.  By  the  general  commercial  law. 
drawer's  hands  to  the  extent  of  the  as  was  snid  in  Grammel  r.  (fenner,  the 
Rum  drawn  for.  was  considered  and  purchaser  of  the  draft  is  supposed  to 
I  in  the  negative.  That,  how-  take  it  in  reliance  u|xm  the  responsi 
ever,  was  the  case  of  a  banker's  draft,  bility  of  the  drawer,  and  he  ha*  no 
and  it  was  not  drawn  for  the  whole  other  reliance  until  it  U  accepted. 
fund  in  the  drawee's  hands.  Many  This  is  the  gem-mi  rule.  But  If  the 
cases  were  cited  in  the  opinion  fili«d  in  drr.ft  is  for  the  whole  amount  of  a 
tii:it  r.iM'.  and  the  following,  not  then  fund  the  d raft  may.  in  connection  with 
cited,  aro  to  the  same  effect:  Shand  r.  other  circumstance*,  tend  to  show  an 
1  )u  B.iisson,  L.  R,  1H  Kq.  283;  Lewis  r.  intent  that  it  should  operate  as  an  a* 
Traders'  Bank,  80  Minn.  184:  Jones  r.  signment."  The  <  >bio  court  thro  con 
Pacific  Wood  Company.  18  Nev.  859;  eluded  as  follow*:  •'Gardner  r  The 
Rosenthal  ».  Martin  Bank.  17  Blatchf.  Nail.  City  Bank.  89  Ohio  Hu  600.  be 
818;  Dolsent*.  Brown,  18  La.  Ann.  551;  longs  to  thin  latter  clan*  of  caw*. 
Sands  t>.  Matthews.  27  Ala.  899.'  There  the  draft  WM  fur  the  exact 
COOLET,  Ch.  J.,  then  distinguished  the  amount  due  the  drawer,  and  in  the 
cases  as  follows:  'But  this  case  dif-  opinion  Joiuciwix.  Ch  J..  carefully 
fers  from  Grammel  r.  Carmer.  55  Mich,  distinguishes!  the  caar  from  those  in 
201,  in  the  fact  that  the  draft  now  which  the  draft  wan  drawn  for  a  part 
in  question  was  drawn  for  the  exact  only  of  the  amount  owing  by  tfcs 
amount  of  a  sum  claimed  to  be  due  drawee." 

from  the  drawee  to  the  owner  for  a       '  Akin  f.  Jones,  (Tenn.  18M)  f7 
bill  of   merchandise,   and    that    the    W.  Kep.  «<». 


666  DEPOSITS  AND  CHECKS.  [§  329 

contra^  that  the  delivery  of  a  check  against  a  general  deposit  was 
not  a  legal  or  equitable  assignment  of  any  portion  of  the  fund.1 

§329.  Forged  checks — rules. —  One  purchasing  a  forged 
check  and  indorsing  it,  gives  it  credit  and  will  be  liable  to  the  party 
paying  it.2  The  indorsee  of  a  bank  check  obtains  no  title  to  the 

1  Akin  v.  Jones,  (Tenn.  1894)  27  S.  of  the  payee.  Until  presented  and  ac- 
W.  Rep.  669.  It  was  said  by  the  cepted,  it  is  inchoate.  It  vests  no  title, 
court:  "The  case  of  Imboden  v.  legal  or  equitable,  in  the  payee  to  the 
Perrie,  13  Lea,  504,  involved  more  of  fund.  Before  acceptance  the  drawer 
the  features  presented  in  this  case  than  may  withdraw  his  deposits.  The  bank 
any  other  reported  in  this  state.  In  owes  no  duty  to  the  holder  until  the 
that  case  the  question  arose  between  check  is  presented  for  payment, 
creditors.  One  creditor  held  a  check  Knowledge  that  checks  have  been 
of  the  debtor  against  a  general  deposit  drawn  does  not  make  it  obligatory 
of  the  debtor  in  bank,  while  the  other  upon  the  bank  to  retain  the  deposits 
was  an  attachment  creditor  of  that  to  meet  them.  These  rules  are  indis- 
fund.  The  question  was  fairly  raised  pensable  to  the  safe  transaction  of 
in  that  case  whether  the  check  worked  commercial  business.  *  *  *  '  The 
an  equitable  assignment  of  the  fund  in  case  of  Attorney-General  r.  Continen- 
bank  'to  the  checkholder  before  the  tal  Life  Ins.  Co.,  71  N.  Y.  325,  *  *  * 
presentation  of  the  check  or  notice  to  presented  the  exact  state  of  facts 
the  bank.  If  so,  the  check -holding  found  in  this  record.  In  that  case  the 
creditor  was  entitled  to  priority.  If  insurance  company  gave  its  check 
not,  then  the  attachment  had  priority,  upon  a  trust  company  in  payment  of  a 
Judge  TURKEY,  in  delivering  theopin-  loss,  the  company  having  at  the  time 
ion  of  the  court  against  the  defend-  on  deposit  a  sum  exceeding  the  amount 
ant's  theory  of  equitable  assignment,  of  the  check,  but  prior  to  its  presenta- 
cited  approvingly  the  opinion  of  Chief  tion  a  receiver  of  the  insurance  corn- 
Justice  CHURCH  in  Attorney -General  pany  was  appointed  who  withdrew  all 
v.  Continental  Life  Ins.  Co.,  71  N.  Y.  the  funds  deposited  with  the  trust 
325,  to  the  effect  that  checks  drawn  in  company.  In  an  action  by  this  check  - 
the  ordinary  form,  not  describing  any  holder  against  the  receiver  to  recover 
particular  fund  or  using  any  words  of  the  whole  amount  of  the  check  out  of 
transfer  of  the  whole,  or  any  part  of  the  funds  in  his  hands,  it  was  held  by 
any  amount  standing  to  the  credit  of  the  Court  of  Appeals  of  New  York 
the  drawer,  but  containing  only  the  that  the  check,  not  having  been  drawn 
usual  request,  are  of  the  same  effect  as  upon  a  particular  fund,  was  not  an 
inland  bills  of  exchange,  and  do  not  equitable  assignment  pro  tanto  of  a 
amount  to  an  assignment  of  the  funds  general  deposit,  and  that  the  check  - 
of  the  drawer  in  bank.  '  This  doc-  holder  was  not  entitled  to  payment  in 
trine,'  he  continues,  'accords  with  full  in  preference  to  the  claims  of  other 
the  relations  between  the  parties,  creditors."  See,  also,  Risley  P.  Bank, 
Banks  are  debtors  to  their  customers  83  N.  Y.  318;  ^tna  Nat.  Bank  v, 
for  the  amount  of  their  deposits.  A  Fourth  Nat.  Bank,  46  N.  Y.  87. 
check  is  a  request  of  the  customer  to  *  Merchants'  Bank  v.  Exchange 
pay  the  whole  or  a  portion  of  such  in-  Bank,  16  La.  457. 
debtedness  to  the  bearer  or  to  the  order 


§  329]  DEPOSITS  AND  CHECKS.  •      7 

same  where  the  indorsement  is  a  forger}-.1  Where  a  hank  uj^.n 
which  a  check  is  drawn  ha*  jmid  it  to  another  hank  with  which  ii 
was  deposited  by  one  receiving  it  with  an  unauthorized  indone- 
iiK-iit  of  the  name  of  the  payee,  tin-  hank  may,  ujx>n  discovery 
of  the  facts,  recover  the  money  which  it  has  paid  irrespective 
of  the  question  as  to  whether  or  not  it  had  IK-CM  called  u|*.n  hv 
the  drawee  to  pay  the  amount  again.'  The  fact  that  the  drawee 
of  a  check  may  have  brought  suit  against  other  person*  as  fraud- 
ulent receiptors  will  not  release  a  bank  which  has  paid  the 
check  upon  a  forged  indorsement.8  A  hunk  taking  drafts  with 
forged  indorsements  from  a  person  wrongfully  in  possession 
of  them,  collecting  and  surrendering  them  to  the  drawees, 
would  be  liable  to  the  owners  of  the  drafts  for  conver- 
sion.4 The  indorsement  of  the  owners,  named  M  payees  of 
these  checks,  were  forged  and  the  checks  passed  to  a  third  party 
or  value,  who  deposited  them  for  collection  with  a  hank.  The 
checks  were  collected  by  the  bank  and  the  proceeds  credited  to 
this  third  party.  The  court  held  that  a  joint  and  several  action 
was  maintainable  by  the  owners  of  the  checks  against  this  party 
and  the  bank  for  the  proceeds  of  the  checks.9  A  depositor  in  a 
bank,  who,  being  deceived  by  his  clerk,  drew  a  check  in  favor  of 
a  customer,  and  his  clerk  forging  an  indorsement  of  the  jwyee's 
name  on  which  the  bank  paid  the  check,  has  been  held  not  to  be 
precluded  from  disputing  the  bank's  right  to  charge  the  check  to 
his  account  because  of  entry  of  the  check  in  his  pass  book,  its 
return  by  the  bank  with  the  vouchers,  and  retention  by  the 
depositor,  without  objection  for  several  month*.'  It  in  not  tin- 
duty  of  a  bank  depositor  to  examine  his  pass  book  or  returned 
checks  with  a  view  to  detect  forgeries  in  the  indorsements.  He 
may  assume  that  the  bank  ascertained  the  genuineness  of  the 
indorsements  before  payment.7  A  bank  is  bound  also  to  ascertain 
the  genuineness  of  an  indorsement  upon  a  check,  and  a  drawee  of 

1  Indiana  National   Bank   r.    Holta  » White  r.  Mechanic*'  National  I  Wok 

claw,  (1884)  98  Ind.  85.  (Wl)  4  Dalj,  «ft. 

•  Central    National  Bank   r.    North  •  Wcl*h  r  German- American  Bank. 

River  Bank,  (1887)44  Hun.  114.  <1K7H»73  N    Y.  4S4;  »  r  .  »  Am  llrp. 

»  August  v.   Fourth  National  Bank,  175. 

(Sup.  Ct.   1888)    15  N.   Y.    St.  Itepr.  '  Ibid.     Sec.   abw.  Bank  of  British 

950  North  America  r.  Merchant*  National 

4  People  9.  Bank  of  North  America.  Bank  of  New  York.  (18B1)  IS  N.  Y. 

(1879)  75  N.  Y.  547.  Wkly.  Pi*  374. 


008  DEPOSITS  AND  CHECKS.  [§  329 

a  check,  payable  to  the  order  of  the  payee,  will  not  be  bound  by 
a  payment  made  by  the  bank  on  a  forged  indorsement  of  the 
payee's  name.1  The  responsibility  of  the  drawee,  who  pays  a 
forged  check,  for  the  genuineness  of  the  drawer's  signature,  is 
absolute  only  in  favor  of  one  who  has  not  by  his  own  fraud  or 
negligence  contributed  to  the  success  of  the  fraud  or  to  mislead 
the  drawee.  So,  if  a  payee  take  a  check  drawn  payable  to  his 
order,  from  a  stranger  or  other  third  person,  without  inquiry, 
although  in  good  faith  and  for  value,  and  give  it  currency  and 
credit  by  indorsing  it  before  securing  payment  of  it,  the  drawee 
may  recover  back  the  money  paid  on  it.2  In  case  a  bank  has  paid 
out  a  depositor's  money  on  forged  checks,  the  fact  that  the 
depositor  may  have  obtained  collateral  security  to  reimburse  him 
for  the  acts  of  the  forger,  would  be  no  reason  why  a  recovery 
may  not  be  had  of  the  bank,  where  nothing  has  been  realized  out 
of  the  security.3  If  the  drawee  of  a  bank  check  pays  a  forged 
check  to  the  holder,  he  will  not  be  entitled  to  recover  back  the 
money  so  paid,  where  there  has  been  no  fraud  practiced  upon 
him.4  But  the  drawee  or  payer  of  a  forged  bank  check  may 

1  Welsh  v.  German- American  Bank,  depositor  to  the  officers  of  the  bank  as 
(1878)  73  N.  Y.  42i;  s.  c.,  29  Am.  Rep.  the  person  who  was  authorized  to  re- 
175.  That  a  bank  pays  a  check,  the  ceive  money  on  the  depositor's  checks, 
signature  of  which  is  forged,  at  its  *  North  America  Bank  v.  Bangs, 
peril,  see  Frank  v.  Chemical  National  (1871)  106  Mass.  441.  In  Belknap  v. 
Bank  of  New  York,  (1881)  84  N.  T.  North  America  Bank,  (1868)  100  Mass. 
209,  affg.  45  N.  Y.  Super.  Ct.  452.  In  376,  a  drawer  of  a  check  payable  to 
Mackintosh  v.  Eliot  Bank,  (1877)  123  A.  B.  or  order,  who  sent  it  by  his  clerk 
Mass.  393,  the  bank  which  had  paid  to  the  post  office  to  be  mailed  inclosed 
out  money  on  a  check  purporting  to  in  a  sealed  letter,  was  held  not  guilty 
be  signed  by  one  of  its  depositors,  but  of  negligence  which  would  render 
the  signature  on  which  was  in  fact  him  liable  on  the  check  in  the  hands 
forged  by  the  depositors  clerk,  was  of  the  holder  in  good  faith  for  value, 
held,  in  the  absence  of  evidence  that  to  whom  the  clerk,  after  abstracting  it 
that  the  clerk  had  or  was  supposed  by  from  the  letter,  passed  it  altered  by 
the  bank  to  have  any  authority  to  sign  forging  the  words ''or  bearer"  after 
the  depositor's  name,  not  exempt  from  A.  B.  and  before  "or  order,"  and  ob- 
liability  to  the  depositor  by  proof  that  literating  the  latter  words, 
the  forgery  was  committed  on  a  blank  J  Bank  v.  Green,  3  Pennypacker 
form  taken  from  the  depositor's  check  (Pa.),  456.  As  to  a  bank  paying  a 
book,  which  was  left  lying  about  in  forged  check  and  being  bound  to  know 
his  office  during  the  day ;  that  the  check  the  signature  of  its  depositors,  see  Corn- 
was  stamped  with  a  hand  stamp  some-  mercial  &  Farmers'  National  Bank 
times  used  on  his  checks,  and  which  r>.  First  National  Bank,  30  Md.  11. 
was  accessible  to  any  one  in  his  office;  4  First  National  Bank  of  Quincy  v. 
that  the  clerk  was  allowed  to  fill  up  Ricker,  (1874)  71  111.  440.  The  court 
checks,  and  was  introduced  by  the  said:  "  Bankers  are  supposed  to  have 


§329]  i.i  i-oerre  AMD  CHECK*.  •  • 

recover  the  amount  paid  by  him  on  it,  where  the  holder  or  J*yee 
is  himself  at  fault,  or  hat)  been  guilty  «>f  fraudulent  practice* 
which  may  have  thrown  the  drawee  off  bin  guard.1  The  court 
further  held  that  where  the  holder  of  a  forged  cheek  presented  it 
to  the  drawee,  and  received  payment  <m  it,  and  withheld  knowl- 
edge which  lie  then  possessed  of  fact*  which  rendered  it  moral lv 
certain  that  the  check  was  a  forgery,  he  was  not  in  a  position  r.. 
set  up,  in  this  suit  brought  to  recover  back  the  money,  that  the 
drawee  was  obliged  to  know  the  signature  of  hi*  own  depotitom, 
and  that  he  was  estopped  to  say  that  he  was  mistaken.1  Should 

a  better  opportunity  to  know  the  gig-  lions  make  it  imperative  it  thall  be 
natures  of  their  depositors  to  checks  enforced.  The  general  rule,  no  doubt. 
than  a  drawee  that  of  a  single  corre-  has  its  exceptional  cases,  and  tbe  doc- 
spondcnt  whose  bills  are  druwn  with  trine  as  stated  by  I/ml  MA3csncu>in 
less  frequency,  and  are,  perhaps,  held  Price  P.  N title,  has  certainly  been  very 
to  a  higher  degree  of  diligence  in  that  much  limited  by  more  modern  decftft- 
regard.  The  principles  applicable  to  sinus.  The  difficulty  doea  not  lie  ia 
checks  and  to  bills  are  regarded  as  the  general  rule  itself,  for  it  U  un- 
sufficiently analogous  to  make  a  decis-  doubtcdly  supported  by  reason  and 
ion  rendered  upon  one  instrument  a  the  weight  of  authority,  but  in  its  ap- 
precedent  for  a  case  arising  on  the  plication  to  particular  ease* only." 
other.  Hence,  we  find  the  case  of  '  First  National  Bank  of  Quincy  r. 
Price  r.  Neal,  8  Burr.  1354,  is  referred  Kicker.  (1874)  71  111.  489.  It  appeared 
to  in  nearly  or  quite  all  the  decisions  in  this  case  that  the  holder  of  tbo 
on  this  question.  That  was  an  action  forged  check,  which  be  had  noalvad 
to  recover  back  money  paid  on  two  and  paid  for  without  knowing  that  it 
forged  bills.  It  was  declared  the  plain-  was  a  forger)',  afu-r  acquiring  know! 
tiff  could  not  recover  for  the  reason  edge  of  facts  calculated  to  arouse  su»- 
the  defendant  had  received  the  money  picion  tliat  it  was  a  forgery,  presented 
on  the  bills  indorsed  to  him  for  a  it  at  the  bank  on  which  it  was  drawn 
valuable  consideration  without  any  and  demanded  |uiymrnl.  without  dU 
suspicion  of  forgery,  and  that  it  was  closing  the  facts  which  aroused  hfe 
incumbent  on  the  plaintiff  to  be  satis-  suspicion;  be  was  told  by  the  teller  of 
fled  the  bill  drawn  on  him  was  in  the  the  bank  that  ho  did  nol  certainly 
drawer's  hand  before  he  accepted  or  know  the  signature  to  the  rbeck.  and 
paid  it,  but  it  was  not  incumbent  on  would  only  pay  it  on  condition  thai 
tli.  defendant  to  inquire  into  it.  The  the  holder  would  indorse  it;  thereupon 
doctrine  of  this  case,  so  far  as  it  holds  the  holder  did  indorse  it  and  received 
the  drawee  is  bound  to  know  the  the  money  on  It.  and  tbe  bank,  within 
handwriting  of  his  correspondent,  a  few  hours,  diicovered  the  forgwy 
when  applied  to  the  case  of  a  bill  ac-  and  then  ordered  that  the  money  be 
cepted  or  paid  by  him,  where  the  refunded. 

drawer's  name  lias  been  forged,  has  drawee  couki  recover  the  mooey  paid 

seldom,  if  ever,  been  debited  from,  tinder  this  state  of  facU. 
It  is  said  to  have  its  foundation  in  a       » First  National  Hank  of  Quincy  f 

sound  public  policy,  and  considerations  Ricker.  (1874)  VI  III. 

of  convenience  in  commercial  transac-  also  said:  "  It  to  contended  there  h  no 


670 


DEPOSITS  AND  CHECKS. 


[§  3L' 


a  savings  bank  pay  out  money  on  a  forged  order,  without  requir- 
ing a  compliance  with  the  by-laws  printed  in  a  depositor's  pass 
book,  the  payment  would  be  in  its  own  wrong,  though  the  pass 
book  may  have  been  produced  at  the  time.1  If,  however,  it 


duty  resting  on  the  innocent  holder  of 
a  check,  on  presenting  it  for  payment, 
to  communicate  to  the  bank  suspicions 
he  may  have  as  to  its  spurious  char- 
acter, if  at  the  time  he  took  it  he  had 
no  reason  to  suspect  it  was  a  forgery. 
The  cases  of  The  Bank  of  St.  Albans  v. 
The  Farmers'  Bank,  10  Vt.  141,  and 
Ward  v.  Allen,  2  Met.  (Mass.)  53,  are 
cited  in  support  of  this  proposition. 
We  have  looked  into  these  cases,  but 
we  do  not  think  they  sustain  the  doc- 
trine to  the  extent  asserted.  While  we 
have  the  highest  respect  for  the  courts 
that  rendered  those  decisions,  we  must 
be  permitted  to  express  our  dissent 
from  the  principle  insisted  upon,  as 
being  unsound  in  law  and  in  good  con- 
duct. No  warrant  can  be  found  for  its 
introduction  in  the  exigencies  of  bank- 
ing or  commercial  transactions.  Such 
a  doctrine,  in  our  opinion,  would  tend 
rather  to  debase  than  maintain  com- 
mercial integrity.  Where  exceptional 
circumstances  and  excusing  facts  are 
made  clearly  to  appear,  courts  have 
permitted  a  recovery,  and  in  some  in- 
stances very  slight  palliating  circum- 
stances have  been  declared  sufficient. 
The  case  of  Wilkinson  v.  Johnson,  3 
B.  &  C.  428,  is  a  well-reasoned  case  on 
this  point.  The  case  of  Goddard  v. 
Bank,  4  Comst.  (N.  Y.)  147,  is  a  still 
stronger  case  illustrative  of  the  excep- 
tions to  the  general  rule.  In  that  case 
the  plaintiffs  were  informed  a  draft 
had  been  drawn  by  their  correspond- 
ent, a  bank  in  Uhio,  on  the  American 
Exchange  Bank  at  New  York,  which 
had  been  protested,  and  was  then  in 
the  hands  of  the  notary.  The  plain- 
tiff called  to  see  the  notary  about 
taking  up  the  draft,  but,  owing  to  his 
absence,  did  not  see  the  draft.  On 
this  information  the  plaintiffs  acted, 
and  supposing  his  correspondent  (the 


Canal  Bank)  had,  by  mistake,  drawn 
on  the  Exchange  Bank  with  which  it 
had  just  before  kept  an  account,  in- 
stead of  drawing  on  the  plaintiffs, 
and  wishing  to  protect  the  credit  of 
the  drawer,  he  left  a  check  with  a 
party  in  the  office,  to  be  delivered  to 
the  notary,  to  take  up  the  draft,  and 
gave  directions  to  have  it  sent  to 
his  office  .that  day.  The  notary  took 
the  check  and  paid  the  money  to  the 
defendants,  but  failed  to  send  the  draft 
as  requested.  When  the  plaintiff 
called  the  next  day  on  the  notary  for 
the  draft,  on  its  production  he  immedi- 
ately pronounced  it  a  forgery,  and 
thereupon  went  to  the  defendant 
bank  and  demanded  the  money  back. 
On  this  state  ,of  facts  the  plaintiffs 
were  permitted  to  recover  on  the 
ground  they  were  guilty  of  no  negli- 
gence, as  the  notary,  when  he  received 
the  check,  and  handed  it  over  to  the 
defendant,  both  he  and  they  honestly 
affirmed  the  draft  was  genuine.  In 
McKleroy  v.  Southern  Bank  of  Ken- 
tucky, 14  La.  Ann.  458,  while  admit- 
ting the  full  force  of  the  general  rule, 
it  was,  nevertheless,  ruled,  where  a 
party  becomes  the  holder  of  a  forged 
draft  before  it  had  been  accepted,  and 
the  loss  had  already  attached  before 
payment  by  the  acceptors,  who  im- 
mediately, on  ascertaining  the  spurious 
character  of  the .  paper,  gave  notice  to 
the  holder,  such  a  case  was  an  excep- 
tion to  the  general  rule,  and  the  ac- 
ceptors were  not  estopped  from  prov- 
ing the  forgery  and  recovering  the 
money  back.  The  principle  upon 
which  the  case  is  decided  is,  the  holder 
had  suffered  no  loss,  it  having  already 
occurred,  and  he  ought  not  to  be  per- 
mitted to  profit  by  the  mere  accident 
of  payment." 
15  Bank  v.  Cupps,  91  Pa.  St.  815. 


I"  I 

.-hould  make  :i  payment  mi  Mid.  an  .,nl.-r  in  met  accordance  with 
.-ueh  by-law,  the  depositor  would  be  bound  bv  it.1 

;<  330.  Payment  of  forged  checks  or  payment  of  checks 
on  forged  indorsements.—  In  view  of  tin-  relation  U-twwu  the 
hanks  and  their  depositors  and  of  their  rights  and  obligation*,  the 
principle  is  universally  maintained  that  hank*  and  banker*  art* 
bound  to  know  the  signatures  of  their  own  customer*,  and  that 
they  p:iy  ehenks  purporting  to  be  drawn  by  them  at  their  jn-ril.1 
Where  a  bank,  holding  deposits,  subject  to  checks,  pays  a  forged 
check,  it  will  IMS  liable  for  the  amount,  witli  legal  interest  from 
judicial  demand.8  If,  when  the  bank  Ijook  of  a  depositor  u»  bal- 
anced and  returned  to  him  together  with  the  canceled  chock*  or 
vouchers,  he  has  knowledge  of  facts  from  which  ho  could,  by  the 
exercise  of  reasonable  care  and  inquiry,  have  discovered  forgeries, 
and  if,  owing  to  his  failure  to  make  the  discovery  and  communi 
cate  it,  the  bank  suffers  loss  or  is  placed  in  a  worse  position  than 
it  would  otherwise  have  occupied,  the  dc|>ositor  would  I«MO  hi* 
right  to  recover  money  paid  by  the  bank  on  forged  indorsement* 
of  his  checks.4  Such  loss  or  disadvantage  to  the  hank  would  not 
be  presumed  ;  it  would  be  required  to  prove  it.  t'nless  it  be 
affirmatively  shown,  the  depositor  would  not  be  estopj>ed  to 
recover  the  amount  of  such  payments.5  A  Iwnk  having  paid  a 
check  drawn  upon  it  cannot  recover  the  money  from  the  person 

1  Burrill  r.  Bunk,  92  Pa.  St.  134.  pnyev.  presume-!  to  be  flcUtiou*.  Ttx> 
As  to  the  effect  of  payment  of  a  check  names  of  the  drawer  »nd  acceptor 
upon  a  forged  indorsement,  see  Dodge  were  forged.  In  payment,  the  broker 
r.  National  Exchange  Bank,  (1870)  20  gave  upon  n  hank,  of  which  be  had 
Ohio  St.  286.  for  many  yearn  IM-CII  n  cuKtomcr.  a 

'Commercial  &  Farmers'  Nat.  Bank  c  luck  to  the  order  of  the  accrpton. 
v.  First  National  Bank,  HO  Md.  11.  The  names  of  the  acccptont  were  again 

*  Laborde  r.  Consolidated  Associa-  and  very  badly  forged  on  the  check. 
tiou,  4  Hob  (La.)  190;  Rtting  r.  Com-  and  the  check  wan  prorated  to  the 
mertial  Bank,  7  Hob.  (La.)  459.  bank  and  paid.  The  broker  bad  f«ft> 

4  Wind  r.  Fifth  National  Bank,  erally  drawn  hiKrlxt-kft  to  the  order  of 
(1889)  39  Mo.  App.  72.  thotw  for  whom  he  di*  ..uni<<d.  though 

4  Ibid.  In  Smith  r.  Mechanics'  lijuik,  there  wan  no  understanding  batwae* 
6  La.  Ann.  611,  the  facts  were  that  a  him  and  the  bank  u  to  the  mode  of 
broker  discounted  at  the  usual  rate,  their  buftim-wt  The  arrrptof*  were 
but  without  inquiry,  for  an  entire  not  customer*  of  the  bank,  in  which. 
stranger,  a  bill,  pur()orting  to  IK-  however,  they  paid  largr  amount* 
drawn  by  a  planter,  and  accepted  by  a  of  their  paper.  No  relations  wholcrcr 
well-known  house  in  New  Orleans,  exinted  between  the  broker  and  the 
and  indorsed  in  blank  by  an  unknown  acceptor*.  The  Supreme  Court  of 


672  DEPOSITS  AND  CHECKS.  [§  330 

to  whom  it  was  paid  on  the  ground  that  the  check  was  a  forged 
one.1  The  facts  that  a  forged  check  was  written  on  one  of  the 
depositor's  own  blanks  taken  from  his  book,  and  that  the  depos- 
itor had  furnished  his  signature  to  the  forger  and  had  grounds  of 
suspicion,  have  been  held  to  be  no  reasons  for  holding  the  depos- 
itor liable  for  a  payment  made  by  the  bank  upon  a  forged  check.2 
Checks  drawn  payable  to  the  order  of  plaintiff,  in  a  New  York 
case,  coming  into  the  hands  of  their  clerk,  he  fraudulently  indorsed 
their  names  and  transferred  the  checks  to  other  parties  and 
appropriated  the  money  received  from  them  to  his  own  use. 
Subsequently,  the  checks  were  deposited  in  a  bank,  the  money 
collected  by  the  bank  and  paid  to  their  depositors.  It  was  held 
that  the  plaintiffs  were  entitled  to  recover  the  amount  collected 
by  the  bank  in  their  action  against  it.3  The  fact  that  a  depositor 
receives,  under  a  mistake  as  to  the  fact  of  payment,  a  check  paid 
upon  a  forged  indorsement  of  the  name  of  the  payee,  as  one  prop- 
erly paid  and  charged  to  his  account,  will  not  deprive  him  of  his 
right  to  recover  the  amount  of  the  check  from  the  bank  which  has 
paid  it.4  If  a  bank  pays  money  on  a  forged  check,  no  matter  under 
what  circumstances  of  caution,  or  however  honest  the  belief  in  its 
genuineness,  if  the  depositor  himself  be  free  of  blame,  and  has 
done  nothing  to  mislead  th,e  bank,  all  the  loss  must  be  borne  by 
the  bank  for  it  acts  at  its  peril,  and  pays  out  its  own  funds,  and 
not  those  of  the  depositor.5  A  depositor  is  simply  bound  to 

Louisiana  held  that  the  bank,  although  4  Bank  of  British  North  America  v. 

itself  grossly  negligent,  was  entitled  t>.  Merchants'  National  Bank  of  New 

to  charge  the  broker's  check  to  his  York,  (1883)  91  N.  Y.   106,   affirming 

debit  in  account.     The  court  was  di-  48  N.    Y.    Super.    Ct.    1.     See,    also, 

vided,  and  the  justices  each  discussed  Thomson,  v.   Bank  of  British  North, 

the  questions  involved  very  fully  and  America,  82  N.  Y.  1.     That  a  bank 

interestingly  in  their  several  opinions,  paying  a  certificate  of  deposit  upon  a 

1  National    Bank    of  the  Common-  forged  indorsement  of  the  payee  may 

wealths.  Grocers' National  Bank,  (1867)  recover  the  amount  from   the   bank 

2  Daly,  289;  s.  c.,  35  How.  Pr.  412.  through  which  it  had  passed  for  col- 

*  Leavitt    v.    Stanton,    Hill    &    D.  lection,  see  Merchants'  Bank  v.  Marine 

Supp.  413.  Bank,  3  Gill  (Md.),  96.     That  a  bank 

3  Johnson  v.  First  National  Bank  of  is  not  bound  by  the  admission  of  its 

Hoboken,  (1875)  6  Hun,  124.     As  to  cashier  that  a  forged  bill  is  genuine, 

payment  of  forged  checks,  see  Stuy-  see  Merchants'  Bank  v.  Marine  Bank,  3 

vesant  Bank  v.  National   Mechanics'  Gill  (Md.),  96. 

Banking  Association,    (1872)  7  Lans.  » Hardy     &    Bros.    v.    Chesapeake 

197;  Allen  v.   Fourth  National  Bank  Bank,  (1879)  51  Md.  562,  586- 
of  New  York,  (1874)  37  N.  Y.  Super. 
Ct.  137;  affirmed  in  59  N.  Y.  12. 


§330]  DEPOSITS  AND  CHECKS.  01 

refrain  from  doing  any  act  that  would  reasonably  have  the  effect 
of  mislead ing  the  hank  to  its  hurt  ..r  injury,  and  not  fail  t 
any  act  that  positive  duty  requires  him  to  do  for  the  protection 
of  the  bank.  Should  a  bank  account  l)e  balanced  on  the  deposit- 
or's bank  book,  and  the  book  and  canceled  checks  returned  to  the 
depositor,  after  the  lapse  of  a  reasonable  time,  within  whieh  the 
checks  and  account  might  be  compared,  without  ol.j.-.-tinn  being 
made,  a  presumption  will  arise  that  the  account  a*  balanced  and 
the  checks  charged  in  the  account  are  correct.  ThU  presump- 
tion proceeds  upon  the  ground  simply  of  an  implied  admiaakra, 
and  is  only  prima  facie  in  its  effect.1  It  arises  from  the  natural 
and  usual  habits  of  careful  business  men  to  examine  and  scru- 
tinize such  accounts  when  rendered  ;  but  it  is  liable  to  be  repelled 
by  showing  that  the  error  or  fraud  complained  of  was  not  discov- 
erable by  the  exercise  of  reasonable  care  and  diligence,  or  that 
there  was  no  such  appearance  of  things  as  to  excite  the  suspicion 
of  a  reasonable  man,  or  that,  for  any  reason,  the  dej>ocitor  had 
not  had  an  opportunity  to  examine  the  accounts.1  If  a 
depositor  who  is  in  the  habit  of  drawing  checks  upon  his  deposit 
account,  should,  by  word  or  acts,  cause  the  hank,  the  latter  acting 
upon  such  reasonable  grounds  as  prudent  business  men  generally 
act,  to  make  payment  on  a  forged  check,  the  depositor  would  not 
be  allowed,  as  against  the  bank,  to  set  up  the  forgery  that  he,  br 
his  conduct,  had  induced  the  bank  to  act  on  as  a  genuine  check.1 
Where  on  a  forged  indorsement  a  bank  has  jwiid  a  cheek,  the 
bank  is  not  responsible  to  the  drawer  where  the  jxirson  who  com- 
mitted the  forgery  is  identified  to  the  bank  by  one  who  Mievea 
him  to  be  the  payee,  and  is  in  fact  the  person  to  whom  the 
drawer  had  delivered  the  check,  and  whom  he  U'lieves  to  bo  the 
payee.  And  should  the  drawer  of  such  a  cheek,  for  more  than  ft 
month  after  discovering  that  it  had  been  jwiid  upon  *  forged 
indorsement,  neglect  to  notify  the  bank  that  he  will  hold  it  respon- 
sible  therefor,  the  bank  will  be  released  from  liability  even  though 
it  had  notice  of  the  forgery  as  soon  as  the  drawer  had.'  In  a 
depositor's  suit  against  a  bank  in  Maryland,  aomo  of  the  checks 
paid  by  the  bank  were  forged  by  a  confidential  clerk  intrtwted  by 

1  Wiggins  t.  Burkham,  10  Wall.  120.  « United     SUU»    r.    National    Es 

•Weisser  v.  Dcnison,  10  N.  Y.  08,  change  Bank.  (1891)  44  Fed.  Hep.  188 

76;  National  Bank  r.  Whitman,  94  U.  A»    »ustaining    the   flnt    point.    M 

8.  ::i::.  346.  Gloucester  Bank  t.  Salem   Bank, 

8  Hardy    &    Bros.     r.    Chesapeake  Mas*.  88;  Bank  of  U.  a  r.  Bank 

Bank.  (1879)  51  Md.  089,  088.  Georgia,  10  Wheat  888;  PrU»  t.  Neal. 
85 


674  DEPOSITS  AND  CHECKS.  [§  330 

them  to  make  the  entry  of  all  checks  in  their  bank  book.  In 
making  the  fraudulent  entry  of  these  forged  checks  in  the  depos- 
itor's bank  book  the  Court  of  Appeals  held  that  he  was  not  the 
agent  of  his  employers  for  any  such  purpose ;  also,  that  the 
clerk's  fraudulent  knowledge  in  regard  to  acts  and  transactions 
outside  of  and  beyond  his  employment  could  not  be  imputed  to 
his  principal.  The  court  also  held  that  in  this  case  the  jury 
should  have  been  required  to  find  either  that  the  depositors  had 
knowledge  in  fact  that  the  forgeries  had  been  committed,  or  that, 
from  carelessness  and  indifference  to  the  rights  of  others,  they 
failed  to  inform  themselves  from  sources  of  information  readily 
accessible  to  them,  and  which,  by  the  exercise  of  ordinary  dili- 
gence of  business  men,  would  have  disclosed  to  them  the  fact  that 
the  forgeries  had  been  committed.  If  such  facts  were  found  to 
exist,  then  it  must  be  also  found,  in  order  to  work  an  estoppel 
upon  the  depositor  to  claim  that  the  checks  paid  were  forged,  that 
the  bank  acted  in  honoring  and  paying  forged  checks  presented 
after  other  forged  checks  had  been  returned  with  the  balanced 
bank  books  to  the  depositors,  in  reference  to  the  conduct  of  the 
latter  in  failing  to  make  known  an  objection  to  the  account,  as 
stated  and  balanced  in  the  bank  book  so  returned,  and  that  such 
omission  and  neglect  of  the  depositors  did  in  fact  mislead  the 
bank  into  the  error  of  paying  the  forged  checks  presented  after 
the  other  forged  checks  had  been  returned  with  the  bsilanced  bank 
book  to  the  bank.  The  court  distinguished  De  Feriet  v.  Bank  of 
America,  23  La.  Ann.  310,  in  these  words :  "  There,  when  the 
first  check  was  forged  by  the  plaintiff's  confidential  clerk,  and 
paid  by  the  bank,  the  plaintiff  was  notified  of  the  draft  upon  his 
account  and  went  at  once  to  the  bank,  and  upon  being  shown  the 

3  Burr.  1355.  As  sustaining  the  sec-  tained  out  of  money  due  the  collecting 
ond  point,  see  Redington  v.  Woods,  bank  from  the  United  States  the 
45  Cal.  406;  Cooke  «.  United  States,  amount  of  the  check.  In  this  action 
91  U.  S.  396;  United  States  v.  Bank,  6  by  the  collecting  bank  against  the 
Fed.  Rep.  134.  It  appeared  in  the  United  States  for  the  money  retained 
case  of  Wells,  Fargo  &  Co.  v.  United  by  the  assistant  treasurer,  it  was  held 
States,  (1891)  45  Fed.  Rep.  337,  that  a  that  the  money  collected  by  the  col- 
pension  check,  drawn  by  mistake  for  lecting  bank  upon  the  pension  check 
$1,280.20  instead  of  §18,  was  indorsed  which  it  had  paid  over  to  its  principal, 
by  the  payee  to  a  bank,  and  by  that  the  forwarding  bank,  could  not  be  re- 
bank  indorsed  for  collection  to  another  covered  from  the  collecting  bank,  and 
which  indorsed  it  to  the  assistant  the  Intter,  therefore,  could  recover  the 
treasurer  of  the  United  States,  who  money  due  it  which  had  been  retained 
paid  it.  The  assistant  treasurer  re-  from  the  United  States. 


§  331] 


DEPOSITS  AJJD  CBKCKB.  675 


check,  while  he  stated  that  hi-  had  not  signed  the  check  himself, 
lie  refused  to  denounce  it  as  a  forgery.     After  seeing  the  clerk, 
the  plaintiff  reported   Lack  to  the  Unk  that  tlio  check  WM  ail 
right.     The  clerk  made  deposit.-,  to  i,,ak.-  tin-  <-hcrk  good,  and  the 
plaintiff  himself  drew  upon  the  deposit.-,  thu-  made,      ] 
ued  the  forger  in  his  employ;  and,  subaequriitly,  the  saint 
forged  another  eheck  which  the  bank  paid  ;  and,  upon  discovery 
of  the  second  forgery,  the  plaintiff  denounced  it.     But  it  wat  held 
that,  by  his  conduct  in  ratifying  the  act  of  the  clerk  in  drawing 
the  first  forged  check,  the  plaintiff  was  precluded  from  holding 
the  bank  liable  for  the  payment  of  the  second ;  that  the  bank 
was  misled  by  the  approval  and  ratification  of  the  first  forgery, 
and  that  it  was,  therefore,  excusable  for  paying  the  second  forged 
check  drawn  in  all  respects  similar  to  the  first.     In  that  cast' 
was  no  question  as  to  the  want  of  knowledge  on  the  part  of  the 
plaintiff  of  the  first  forgery  committed  by  the  clerk,  and  hu  full 
ratification  and  adoption  of  the  act,  nor  was  there  any  in  regard 
to  the  fact  that  the  bank  had  been  misled." 

§331.  Payment  of  raised  checks.— The  United  State* 
Supreme  Court  reversed  the  judgment  of  the  Circuit  Court  in 
favor  of  a  depositor  against  a  bank,  holding  that  a  debitor  in  a 
bank,  who  sends  his  pass  book  to  be  written  up  and  receive*  it 
back  with  entries  of  credits  and  debits  and  his  paid  check*  M 
vouchers  for  the  latter,  is  bound  personally  or  by  an  authorized 
agent,  and  with  due  diligence,  to  examine  the  pa**  book  and 
vouchers,  and  to  report  to  the  bank,  without  unreasonable  delay, 
any  errors  which  may  be  discovered  in  them  ;  and  if  he  fails  to 
do  so,  and  if  the  bank  is  thereby  misled  to  its  prejudice,  he  can- 
not afterwards  dispute  the  correctness  of  the  balance  shown  bj 
the  pass  book.  Further,  it  held  that  if  a  dejiositor  in  a  hank 
delegates  to  a  clerk  the  examination  of  his  written-up  paw  book 
and  paid  checks  returned  therewith  as  vouchers,  without  proper 
supervision  of  the  clerk's  conduct  in  the  examination,  he  doe» 
not  BO  discharge  his  duty  to  the  bank  as  to  protect  himself  from 
loss,  if  it  turns  out  that  without  his  knowledge  the  clerk  com- 
mitted  forgery  in  raising  the  amounts  of  some  of  those  check*, 
and  thereby  misled  the  bank  to  its  prejudice,  in  spite  of  doe  care 
on  the  part  of  its  officers.1 

1  Leather    Manufacturers'    Bank    r.    well    and    fully  considered    opinion. 
Morgan,  (1886)  117  U.  8.  96.     In  a  HARLAX,  J.,  for  the  court  i«ylew<d 


676 


DEPOSITS  AND  CHECKS. 


[§331 


the  leading  cases  pertinent  to  the 
questions  before  the  court,  and  de- 
clared the  law  in  such  cases  in  the  fol- 
lowing words  :  "  While  it  is  true  that 
the  relation  of  a  bank  and  its  depositor 
is  one  simply  of  debtor  and  creditor 
(Phoenix  Bank  «.  Risley,  111  U.  S.  125, 
127),  and  that  the  depositor  is  not 
chargeable  with  any  payments  except 
such  as  are  made  in  conformity  with 
his  orders,  it  is  within  common  knowl- 
edge that  the  object  of  a  pass  book  is 
to  inform  the  depositor  from  time  to 
time  of  the  condition  of  his  account 
as  it  appears  upon  the  books  of  the 
bank.  It  not  only  enables  him  to  dis- 
cover errors  to  his  prejudice,  but  sup- 
plies evidence  in  his  favor  in  the  event 
of  litigation  or  dispute  with  the  bank. 
In  this  way  it  operates  to  protect  him 
against  the  carelessness  or  fraud  of  the 
bank.  The  sending  of  his  pass  book 
to  be  written  up  and  returned  with 
the  vouchers,  is,  therefore,  in  effect,  a 
demand  to  know  what  the  bank  claims 
to  be  the  state  of  his  account.  And 
the  return  of  the  book,  with  the 
vouchers,  is  the  answer  to  that  demand, 
and,  in  effect,  imports  a  request  by  the 
bank  that  the  depositor  will,  in  proper 
time,  examine  the  account  so  rendered, 
and  either  sanction  or  repudiate  it. 
In  Devaynes  v.  Noble,  1  Meriv.  530, 
535,  it  appeared  that  the  course  of 
dealing  between  banker  and  customer, 
in  London,  was  the  subject  of  inquiry 
in  the  High  Court  of  Chancery  as 
early  as  1815.  The  report  of  the  mas- 
ter stated,  among  other  things,  that 
for  the  purpose  of  having  the  pass 
book  '  made  up  by  the  bankers  from 
their  own  books  of  account,  the  cus- 
tomer returns  it  to  them  from  time  to 
time  as  he  thinks  fit ;  and,  the  proper 
entries  being  made  by  them  up  to  the 
day  on  which  it  is  left  for  that  pur- 
pose, they  deliver  it  again  to  the  cus- 
tomer, who  thereupon  examines  it, 
and,  if  there  appears  any  error  or 
omission,  brings  or  sends  it  back  to  be 


rectified ;  or,  if  not,  his  silence  is  re- 
garded as  an  admission  that  the  entries 
are  correct.'  This  report  is  quite  as 
applicable  to  the  existing  usages  of 
this  country  as  it  was  to  the  usages  of 
business  in  London  at  the  time  it  was 
made.  The  depositor  cannot,  there- 
fore, without  injustice  to  the  bank, 
omit  all  examination  of  his  account, 
when  thus  rendered  at  his  request. 
His  failure  to  make  it,  or  to  have  it 
made,  within  a  reasonable  time  after 
opportunity  given  for  that  purpose,  is 
inconsistent  with  the  object  for  which 
he  obtains  and  uses  a  pass  book.  It 
was  observed  in  First  National  Bank 
v.  Whitman,  94  U.  S.  343,  346  — 
although  the  observation  was  not,  per- 
haps, necessary  in  the  decision  of  the 
case  —  that  the  ordinary  writing  up  of 
a  bank  book,  with  a  return  of 
vouchers  or  statement  of  accounts, 
precludes  no  one  from  ascertaining 
the  truth  and  claiming  its  benefit. 
Such  undoubtedly  is  a  correct  state- 
ment of  a  general  rule.  It  was  made 
in  a  case  where  the  account  included  a 
check,  in  respect  to  which  it  was  sub- 
sequently discovered  that  the  name  of 
the  payee  had  been  forged.  But  it  did 
not  appear  that  either  the  bank  or  the 
drawer  of  the  check  was  guilty  of 
negligence.  The  drawer  was  not  pre- 
sumed to  know  the  signature  of  the 
payee;  his  examination  of  the  account 
would  not  necessarily  have  disclosed 
the  forgery  of  the  payee's  name;  there- 
fore, his  failure  to  discover  that  fact 
sooner  than  he  did  was  not  to  be  at- 
tributed to  want  of  care.  Without  im- 
pugning the  general  rule  that  an  ac- 
count rendered  which  has  become  an 
account  stated,  is  open  to  correction 
for  mistake  or  fraud  (Perkins  v.  Hart, 
11  Wheat.  237,  256;  Wiggins  v.  Burk- 
ham,  10  Wall.  129,  132),  other  princi- 
ples come  into  operation,  where  a  party 
to  a  stated  account,  who  is  under  a 
duty,  from  the  usages  of  business  or 
otherwise,  to  examine  it  within  a  rea- 


§  -'{31]  DEPOSITS  AND  CHECKS.  677 

sonablc  time  after  having  an  oppor-  of  knowing  if  they  are  genuine;  If 
t  unity  to  do  so,  and  give  timely  notice  thaw  means  are  not  employed  It  b  cer- 
of  his  objections  thereto,  neglects  alto-  tainly  evidenceof  a  neglect  of  that  duty 
p-tli.T  to  make  such  examination  him-  which  the  public  have  a  right  to  r» 
self,  or  to  have  it  made,  in  -.x*l  faith,  quirv.  And  in  respect  to  persona 
by  another  for  him,  by  reason  of  which  equally  innocent,  w here  one  b  bound  to 
negligence,  the  other  party  relying  know  and  art  upon  hi*  knowledge,  and 
upon  the  account  as  having  bn n  ac-  the  other  has  no  menu*  i*f  knowledge, 
quiesced  in  or  approved,  hu  failed  to  there  seems  to  be  no  ream)  f««r  burden- 
take  steps  for  his  protection  which  he  ing  the  hitter  with  any  IOM  in  exooera- 
could  ami  would  have  taken  had  such  lion  of  the  former.  There  b  nothing 
notice  been  given.  In  other  words,  unconscientious  in  retaining  the  MUD 
parties  to  a  stated  account  may  be  es-  received  from  the  bank,  in  payment  of 
topped  by  their  conduct  from  qiics-  such  notes,  which  it*  own  act*  have 
tioning  its  correctness."  After  some  deliberately  asttuined  to  be  genuine. 
discussion  of  the  doctrine  of  estoppel  If  this  doctrine  be  applicable  to  ordi- 
and  the  citation  of  cases  bearing  u|x>n  nary  cases,  it  must  apply  with  greater 
the  doctrine,  it  is  said:  "Upon  this  strength  to  cases  where  the  forgery 
doctrine  substantially  rests  the  decis-  has  not  been  detected  until  after  a  coo- 
ion  in  Bank  of  United  States  t>.  Bank  of  sideruble  lapse  of  time.  Even.'  he 
Georgia,  10  Wheat.  333,  343,  where  the  added,  'in  relation  to  forged  bilb  of 
question  was  as  to  the  right  of  the  third  persons  received  in  payment  of  a 
Hank  of  Georgia  to  cancel  a  credit  debt,  there  has  been  a  qualification  em- 
given  to  the  Hank  of  the  United  States  .unified  on  the  general  doctrine  that 
in  the  general  account  the  latter  kept  the  notice  and  return  must  be  within  a 
with  the  former  for  the  face  value  of  reasonable  time;  and  any  neglect  will 
certain  kink  notes,  purporting  to  be  absolve  the  payor  from  responsibility.' 
genuine  notes  of  the  Hank  of  Georgia.  It  was,  therefore,  held  that,  as  the 
and  which  came  to  the  hands  of  the  Hank  of  Georgia  could  by  ordinary 
other  batik  in  the  regular  course  of  circumspection  have  detected  the 
business  and  for  value.  The  notes  fraud,  it  must  account  to  iu  depositor 
were  received  by  the  Hank  of  Georgia  according  to  the  entry  made  in  ila 
as  genuine,  but  being  discovered  nine-  books  at  the  time  of  receiving  the 
teen  days  thereafter  to  be  counterfeits,  notes.  Further  on  it  was  said:  Thb 
they  were  tendered  back  to  the  Bank  court,  in  the  [cases  Bank  of  United 
of  the  United  States,  which  refused  to  States  r.  Bank  of  Georgia.  10  Wheat. 
receive  them.  The  court  held  that  the  883,  and  Cookc  r.  United  State*.  91  U. 
loss  must  fall  upon  the  Hank  of  Geor-  8.  889,  recognizing  the  same  principle) 
gia.  Mr.  Justice  STORY,  who  deliv-  refers,  with  approval,  to  Gkwrertrr 
ered  the  opinion  of  the  court,  after  Bank  r.  Snlem  Bank.  1?  Mas*.  88.  43. 
observing  that  the  notes  were  received  In  that  case  it  appeared  Uml  the  Salem 
and  adopted  by  the  Bank  of  Georgia  as  Bank  exchanged  with  the  Gloucester 
its  genuine  notes,  and  treated  as  cash.  Bank,  for  value,  certain  bank  notes 
and  that  the  bank  must  be  presumed  which  purjxuted  to  be,  and  which 
to  use  reasonable  care,  by  private  l>oth  banks  at  the  lime  believed  t 
marks  and  otherwise,  to  secure  itself  the  genuine  notra  of  the  Gloui-eeter 
against  forgeries  and  imjKwitions.  said:  Bank,  and  which  the  latU-r  bank  dW 
•Under  such  circumstances,  the  re-  not.  until  about  flfty  days  aflrr  tho 
ceipt  by  a  bank  of  forged  notes,  pur-  exchange,  discover  to  be  forgerba, 
porting  to  be  its  own,  must  be  deemed  The  question  was  whether  the  Salem 
an  adoption  of  them.  It  has  the  means  Bank  wa»  bound  to  account  for  tb* 


678 


DEPOSITS  AND  CHECKS. 


[§331 


value  of  the  notes  so  ascertained  to  be 
counterfeit.  Chief  Justice  PARKER, 
speaking  for  the  whole  court,  observed 
that  the  parties  being  equally  innocent 
and  ignorant,  the  loss  should  remain 
where  the  chance  of  business  had 
placed  it,  and  that  in  all  such  cases  the 
just  and  sound  principle  of  decision 
was  that  if  the  loss  can  be  traced  to 
the  fault  or  negligence  of  either  party, 
it  should  be  fixed  upon  him.  He  safd : 
'And  the  true  rule  is  that  the  party 
receiving  such  notes  must  examine 
them  as  soon  as  he  has  opportunity, 
and  return  them  immediately.  If  he 
does  not,  he  is  negligent;  and  negli- 
gence will  defeat  his  right  of  action. 
This  principle  will  apply  in  all  cases 
where  forged  notes  have  been  re- 
ceived, but  certainly  with  more 
strength  where  the  party  receiving 
them  is  the  one  purporting  to  be  bound 
to  pay.  For  he  knows  better  than  any 
other  whether  they  are  his  notes  or  not, 
and  if  he  pays  them,  or  receives  them 
in  payment,  and  continues  silent  after 
he  has  had  sufficient  opportunity  to 
examine  them,  he  should  be  considered 
as  having  adopted  them  as  his  own.' 
These  cases  are  referred  to  for  the  pur- 
pose of  showing  some  of  the  circum- 
stances under  which  the  courts,  to 
promote  the  ends  of  justice,  have  sus- 
tained the  general  principle  that  where 
a  duty  is  cast  upon  a  person,  by  the 
usages  of  business  or  otherwise,  to 
disclose  the  truth  —  which  he  has  the 
means,  by  ordinary  diligence,  of  ascer- 
taining —  and  he  neglects  or  omits  to 
discharge  that  duty,  whereby  another 
is  misled  in  the  very  transaction  to 
which  the  duty  relates,  he  will  not  be 
permitted,  to  the  injury  of  the  one 
misled,  to  question  the  construction 
rationally  placed  by  the  latter  upon  his 
conduct."  The  court  then  applied  the 
principle  just  referred  to  to  the  facts 
in  this  case,  and  said:  "  It  seems  to  us 
that  if  the  case  had  been  submitted  to 
the  jury,  and  they  had  found  such 


negligence  upon  the  part  of  the  de- 
positor as  precluded  him  from  disput- 
ing the  correctness  of  the  account  ren- 
dered by  the  bank,  the  verdict  could 
not  have  been  set  aside  as  wholly  un- 
supported by  the  evidence.  In  their 
relations  with  depositors,  banks  are 
held,  as  they  ought  to  be,  to  rigid  re- 
sponsibility. But  the  principles  gov- 
erning those  relations  ought  not  to  be 
so  extended  as  to  invite  or  encourage 
such  negligence  by  depositors  in  the 
examination  of  their  bank  accounts, 
as  is  inconsistent  with  the  relations  of 
the  parties  or  with  those  established 
rules  and  usages  sanctioned  by  busi- 
ness men  of  ordinary  prudence  and 
sagacity,  which  are  or  ought  to  be 
known  to  depositors.  We  must  not 
be  understood  as  holding  that  the  ex- 
amination by  a  depositor  of  his  account 
must  be  so  close  and  thorough  as  to 
exclude  the  possibility  of  any  error 
whatever  being  overlooked  by  him. 
Xor  do  we  mean  to  hold  that  the  de- 
positor is  wanting  in  proper  care  when 
he  imposes  upon  some  competent  per- 
son the  duty  of  making  that  examina- 
tion and  of  giving  timely  notice  to  the 
bank  of  objections  to  the  account.  If 
the  examination  is  made  by  such 
an  agent  or  clerk  in  good  faith  and 
with  ordinary  diligence,  and  due  notice 
given  of  any  error  in  the  account,  the 
depositor  discharges  his  duty  to  the 
bank.  But  when,  as  in  this  case,  the 
agent  commits  the  forgeries  which, 
misled  the  bank  and  injured  the  de- 
positor, and,  therefore,  has  an  interest 
in  concealing  the  facts,  the  principal 
occupies  no  better  position  than  he 
would  have  done  had  no  one  been 
designated  by  him  to  make  the  re- 
quired examination,  without,  at  least, 
showing  that  he  exercised  reasonable 
diligence  in  supervising  the  conduct 
of  the  agent  while  the  latter  was  dis- 
charging the  trust  committed  to  him. 
In  the  absence  of  such  supervision, 
the  mere  designation  of  an  agent  to 


§331] 


DEPOSITS  AXD  CHECKS. 


discharge  a  duty  resting  primarily 
upon  the  principal,  cannot  be  deemed 
the  equivalent  of  performance  by  the 
latter.  While  no  rule  can  b«  laid 
down  that  will  cover  every  transaction 
between  a  bank  and  its  depositor,  it  in 
sufficient  to  say  that  the  latter' s  duty  is 
discharged  whm  In  exercises  such  dili 
gence  as  is  required  by  the  eireuin 
stances  of  the  particular  case,  iii<  hid 
ing  the  relations  of  the  parties,  and 
the  established  or  known  usages  of 
banking  business."  The  court,  refer- 
ring to  Weisser  r.  Denison,  10  N.  Y. 
68,  70;  Welsh  r.  German-American 
Tiank.  78  N.  Y.  434;  Frank  r. 
Chemical  Bank,  84  N.  Y.  209,  218. 
which  showed  a  settled  course  of 
decision  in  the  highest  court  of  the 
state  of  New  York  sustaining  the 
grounds  UJKHI  which  the  Circuit  Court 
proceeded  in  giving  its  judgment, 
said :  "  Then-  (ire,  it  must  be  conceded, 
some  expressions  in  the  first  two  cases 
which,  at  first  glance,  seem  to  justify 
the  position  of  counsel.  But  it  is  to 
be  observed,  in  reference  to  the  case 
of  Weisser  v.  Denison,  that  it  is  said 
in  the  opinion  of  the  court  that,  as  the 
bank  had  not  taken  any  action,  nor 
lost  any  rights,  in  consequence  of  the 
silence  of  the  depositor,  the  only  effect 
of  such  silence  was  to  cast  the  burden 
upon  him  to  show  fraud,  error  or  mis- 
take in  the  account  rendered  by  the 
bank.  From  Welsh  r.  German- 
American  Bank,  it  is  clear  that  the 
comparison  by  the  depositor  of  his 
check  book  with  his  pass  book  would 
not  necessarily  have  disclosed  the 
fraud  of  his  check,  for  the  check 
when  paid  by  the  bank  was.  in  respect 
of  date,  amount,  and  name  of  payee, 
as  the  depositor  intended  it  to  !>«-.  and 
the  fraud  was  in  the  subsequent 
forgery  by  the  clerk  of  the  payee's 
name.  As  the  depositor  was  not  pre- 
sumed to  know,  and  as  it  did  not  ap- 
pear that  he  in  fact  knew,  the  signa- 
ture of  the  payee,  it  could  not  be  said 


that  be  wa»  guilty  of  oegttgencr  In 
not  discovering,  upon  receiving  his 
pus  book,  the  fact  thai  ok  derk.  or 
some  one  else,  had  forged  ibe  payee's 
name  In  the  indorsement.  The  latest 
expression  of  toe  views  of  the  Court 
of  Appeals  of  \.  *  York  is  in  Prank 
r.  Chemical  National  Bank.  From 
what  U  there  wid  it  U  evident  thai 
that  learned  tribunal  does  not  give  lu 
sanction  to  tbe  broad  proposition  that  a 
depositor  who  obtains  periodical  state- 
ments of  his  account,  with  tbe  vopchsra. 
is  under  no  duty  whatever  to  the  1 
to  examine  them,  and  give 
within  a  reasonable  time,  of  errors  dis- 
covered therein.  Tbe  court  in  thai 
case,  speaking  by  Judge  Axourwa. 
who  delivered  the  opinion  In  Welsh  e. 
German- American  Bank,  refers  to 
Weisser  e.  Denison.  After  obsrrving 
that  it  was  unnecessary  to  restate  the 
ground  of  that  decision,  and  ad  verting 
to  the  argument  that  where  a  pass 
book  was  kept,  which  was  balanced 
from  time  to  time  and  returned  to  tbe 
depositor,  with  the  Touchers  for  tbe 
charges  made  by  the  bnnk.  Including 
forged  checks,  the  latter  U  under  a 
duty  to  the  bunk  to  •^f"**"*  the  ac- 
count and  vouchers,  with  a  view  to  as- 
certain whether  the  account  U  correct. 
he  proceeds:  '  It  does  not  serm  to  be  un- 
reasonable, in  view  of  tin*  mur 
business  and  the  custom  of  banks  to 
surrender  their  vouchers  OB  Ibe  peri- 
odical writing  up  of  tbe  accounts  of 
depositors,  to  rxact  from  the 
some  attention  to  the  account  when  it 
is  made  up.  or  to  bold  that  the  neftt- 
gent  omission  of  all  examination  may. 
when  injury  has  resulted  to  the  bank. 
which  it  would  not  bate  suffered  if 
such  examination  had  been  made  and 
the  bank  bad  received  timely  nolle*  of 
the  objections,  pm-lude  the  depositor 
from  afterwards  queiuioning  Ha  cor 
rectnesa.  But  where  bogus  check* 
have  been  paid  and  charged  In  the  ar 
count  and  returned  to  the  depositor. 


680  DEPOSITS  AND  CHECKS.  [§  331 

he  is  under  no  duty  to  the  bank  to  so  exercising  due  diligence  to  give  it  in- 
conduct  the  examination  that  it  will  formation  that  the  payment  was  un- 
necessarily lead  to  the  discovery  of  the  authorized;  and  this  included  not  only 
fraud.  If  he  examines  the  vouchers  due  diligence  in  giving  notice  after 
personally,  and  is  himself  deceived  by  the  forgery,  but  also  due  diligence  in 
the  skillful  character  of  the  forgery,  discovering  it.'  If  the  plaintiffs  knew 
his  omission  to  discover  it  will  not  shift  of  the  mistake,  or  if  they  had  that  no- 
upon  him  the  loss  which,  in  the  first  tice  of  it  which  consists  in  the  knowl- 
instance,  is  the  loss  of  the  bank.  Banks  edge  of  facts  which,  by  the  exercise  of 
are  bound  to  know  the  signatures  of  due  care  and  diligence,  will  disclose 
their  customers,  and  they  pay  checks  it,  they  failed  in  their  duty;  and  adop- 
purporting  to  be  drawn  by  them  at  tion  of  the  check  and  ratification  of  the 
their  peril.  If  the  bank  pays  forged  payment  will  be  implied.  They  can- 
checks  it  commits  the  first  offense.  It  not  now  require  the  defendant  to  cor- 
cannot  visit  the  consequences  upon  the  rect  a  mistake  to  its  injury  from  which 
innocent  depositor,  who,  after  the  fact,  it  might  have  protected  itself  but  for 
is  also  deceived  by  the  simulated  paper,  the  negligence  of  the  plaintiffs. 
So,  if  the  depositor,  in  the  ordinary  Whether  the  plaintiffs  were  required, 
course  of  business,  commits  the  ex-  in  the  exercise  of  due  diligence,  to  read 
amination  of  the  bank  account  and  the  monthly  statements  or  to  examine 
vouchers  to  clerks  or  agents,  and  they  the  checks,  and  how  careful  an  ex- 
fail  to  discover  checks  which  are  amination  they  were  bound  to  make, 
forged,  the  duty  of  the  depositor  to  the  and  what  inferences  are  to  be  drawn, 
bank  is  discharged,  although  the  prin-  depend  upon  the  nature  and  course  of 
cipal,  if  he  had  made  the  examination  dealing  between  the  parties,  and  the 
personally,  would  have  detected  them,  particular  circumstances  under  which 
The  alleged  duty,  at  most,  only  re-  the  statements  and  checks  were  de- 
quires  the  depositor  to  use  ordinary  delivered  to  them.'  So  in  Hardy  v. 
care;  and  if  this  is  exercised,  whether  Chesapeake  Bank,  51  Md.  562,  591, 
by  himself  or  his  agents,  the  bank  can-  which  was  also  a  case  where  checks 
not  justly  complain,  although  the  for-  forged  by  the  confidential  clerk  of  the 
geries  are  not  discovered  until  it  is  too  depositor  had  been  paid  by  the  bank, 
late  to  retrieve  its  position  or  make  and,  as  shown  by  the  pass  book, 
reclamation  from  the  forger.'  The  were  charged  to  his  account,  the 
court  distinguished  Manufacturers'  court,  upon  an  elaborate  review  of  the 
National  Bank  v.  Barnes,  65  111.  69,  to  authorities,  said,  upon  the  general 
which  they  were  referred  in  behalf  of  question,  that  '  there  is  a  duty  owing 
the  depositor.  Afterwards,  there  was  from  the  customer  to  the  bank  to  act 
a  reference  to  other  cases,  as  follows:  with  that  ordinary  diligence  and  care 
'  An  instructive  case  is  that  of  Dana  r.  that  prudent  business  men  generally 
Bank  of  the  Republic,  132  Mass.  156,  bestow  on  such  cases,  in  the  examina- 
158,  where  the  issrfe  was  between  a  tion  and  comparison  of  the  debits  and 
bank  and  its  depositor  in  reference  to  credits  contained  in  his  bank  or  pass 
a  check  which  the  latter's  clerk  altered  book,  in  order  to  detect  any  errors  or 
after  it  had  been  signed,  and  before  it  mistakes  therein.  More  than  this,  un- 
was  paid  by  the  bank.  The  court  said  der  ordinary  circumstances,  could  not 
that  the  plaintiffs,  who  were  the  de-  be  required.' " 
positors,  owed  to  the  bank  '  the  duty  of 


rilAI'TKIi    XII. 
COLLECTION- 


§  882.  General  rules. 
333.  Duty  of  bank. 
884.  Rules  as  to  notes  payable  at 
bank. 

335.  When  a  bank  is  liable  for  failure 

to  collect  notes. 

336.  What  action  on  its  part  will  re- 

lieve a  collecting  bank  from 
liability. 


§887.  Rolea     M     to 

draft*. 
Ml  Negligence  of    a  bank    M  to 

check  held  for  collection. 
889.  When  a  bank  collecting  •  draft 

U  liable  to  the  owner. 
340.  When  tndoner  of  check 

licved  from  liability. 


§  332.  General  rules. —  An  indorsement  of  a  promwory  note 
"  for  collection  ''  makes  the  indorsee  an  agent  for  the  collection  of 
the  note.1  Such  an  indorsement  is  restrictive  and  cannot  be 
shown,  by  parol,  to  be  absolute.1  A  bank,  though  it  may  have  no 
interest  in  it,  for  certain  purposes  must  be  considered  the  holder 
of  a  note  left  with  it  for  collection.8  A  bank  has  authority  onlv 

•*  * 

to  receive  payment  of  a  note  placed  with  it  for  collection ;  it  can- 
not sell  or  transfer  it.4  A  bank  receiving  notes  for  collection 
from  its  regular  correspondent,  cannot  apply  them  to  balancing 
the  account  between  them  where  it  knows  the  notes  were  «cnl  for 

1  Rock    County   National    Bank    r.  upon  Bank  of  Washington  r.  Triplet! 

Hollister,  21  Minn.  385.  &  Neale,  1  Pet.  20.  and   Van  Waft  r. 

«  Third  National  Bank  r.  Clark,  23  Woolley.  8  B.  A  C.  489;  Hamilton  *. 

Minn.    263.     As    to    kind    of   agency  Cunningham.  2  Brock.  850;  Stowe  » 

a  bank  has  when  a  note  or  bill  is  placed  Bank  of  Cape  Fear.  S  Der.  408;  Brat*  h 

with  it  for  collection,  its  duty  and  it.  Bank  at  Montgomery  r  Knox.  1  Ala 

liability   for    negligence    in    the    «ii-  148     They  differ  with  the  LooMMft 

charge  of  that  duty,  sre  Bank  of  Mo-  Supreme  Court  in   Durnford  r.   Pair 

bile  t.  Huggins,  (1841)  8  Ala.  206.    In  tenon.     7    Mart.    460;    Crawford    e. 

this  case  the  Alabama  Supreme  Court  l»uixiana  Slate  Bank,  1  Mart.  (X.  t 

differs  as  to  the  duty  to  cause    the  214;  Montillet  r.  Bank  of  the  I 

note  to  be    protested   with    the    New  Stale*).  1  Mart.  (N.  8.)  865;    Pritchanl 

York  courts  in  Smedcs  r.  Him  Bank.  r.   IxMiiaUna   State  Bank.  2  I*    41V 

20  Johns.  872:  s.  r.,  on  error.  JJCowen.  Miranda  r.  City  Bank.  6  La.  741.  They 

668;    McKtnater    r.   Bank   of  Utica.  9  comment    on    Allen  r.    Suvdam.    17 

Wend.    46;    B.  c.,  on  error.  11  Wend.  Wend.  868;  8t.  John  r.  O'Ooael.   1 

478.      They  refer  to  Colt  r.  Noble,  5  Port,  (Ala.)  464. 

Masa  187;  Tunno  v.  Lague,  2  John*.  •Burnham  r.  W«  t 

Cas.  1.     The  question  of  damapea  In  4  Wolff   r.    Walter. 

such  cases  is  fully  discuaaed  by  the  8W;  Fuller  r  Bennett.  M  Mkk  Vtt. 
Alabama  courts,  and   they   comment 
86 


682  COLLECTIONS.  [ 

collection  and  that  they  belonged  to  a  third  person.1  Paper  coming 
from  one  bank  to  another  indorsed,  and  with  directions  to  collect 
it,  and  there  being  nothing  to  indicate  jthat  the  paper  does  not 
belong  to  the  bank  remitting  it,  may  be  regarded  the  paper  of  the 
latter,  although  it  may  have  been  deposited  by  the  indorser  in  the 
remitting  bank  for  collection.2  One  depositing  with  a  bank  for 
collection  negotiable  paper  payable  at  a  distant  point,  is  charge- 
able with  knowledge  of  the  custom  of  banks  to  intrust  the  paper 
to  other  banks  for  collection  at  the  place  where  payment  is  to  be 
made.  The  bank  receiving  such  paper  becomes  responsible  to 
the  depositor  as  agent,  with  authority  to  employ  another  bank  to 
collect  it,  and  will  not  be  liable  for  the  negligence  of  its  corre- 
spondent in  making  the  collection,  if  it  has  used  reasonable  care 
in  the  selection  of  its  correspondent.3  A  bill  of  exchange  or  note 
received  by  a  bank  for  collection  which  is  payable  at  a  distant 
place,  must  be  seasonably  transmitted  by  the  receiving  bank  to  a 
suitable  bank  or  other  agent  at  the  place  of  payment.4  A  bank 
should  neither  send  a  check  received  by  it  for  collection  directly 
to  the  bank  on  which  it  is  drawn,  nor  accept  in  payment  a  draft 
of  the  latter  on  another  bank.  But  the  collecting  bank's  negli- 
gence would  be  condoned  by  an  order  from  the  depositor  to  hold 
such  a  draft  for  a  few  days.5  A  suitable  agent  must  be  some 
other  than  the  one  who  is  to  make  the  payment.6  In  receiving  a 
note  for  collection  a  bank  assumes  the  duty  of  taking  the  proper 
steps  to  fix  the  liability  of  the  indorser,  and  for  a  neglect  of  that  duty 
is  responsible  to  the  extent  of  the  damages  suffered  thereby.7 
Commercial  paper  having  been  received  by  a  bank  for  collection, 
there  is  an  implied  undertaking  on  its  part  that  in  case  of  its  dis- 
honor, the  bank  will  take  all  steps  necessary  to  protect  the  hold- 
ers' rights  against  all  previous  parties  to  the  paper.8  A  bank 

1  Sweeny  v.  Easter,  1  Wall.  166.  5  Hazlett  t>.  Bank,   132  Pa.   St.  118; 

'Cody  ».    City  National   Bank,  55  s.  c.,  25  AY.  N.  C.  282. 

Mich.  379.  6  Ibid.     Bank  v.  Goodman,    109  Pa. 

3  Guelich  v.  National  State  Bank,  56  St.  422. 

Iowa.  434.     As  to  the  duty  of  a  bank  7  West  v.  St.  Paul  National    Bank, 

when  a  note  is  placed  with  it  for  col-  (1893)  54  Minn.  466;  s.   c.,  56  N.  W. 

lection,  see  Fabens  v.  Mercantile  Bank,  Rep.  54;  Borup  c.  Niniuger,  5  Minn. 

(1839)  23  Pick.  (Mass.)  330;    Phipps  v.  523;    Jagger     v.    National     German- 

Millbury  Bank,   (1844)  8  Met.  (Mass.)  American  Bank,   53  Minn.  386;  s.  c., 

79;  Steele  v.  Russell,  5  Neb.  214.  55  N.  W.  Rep.  545. 

4  Drovers'  National  Bank  v.  Anglo-  8  Jagger  r.  National  German- Ameri- 
American  P.  &  P.  Co.,  18  Bradw.  (111.)  can  Bank  of  St.  Paul,  (1893)  53  Minn, 
191.  386;  s.  c.,  55  N.  W.  Rep.  545. 


COLLECTIONS.  ,  .  ; 

reasonable  care  and  hkill  in  Delecting  an  agent  to  pits 
sent  paper  ivc<-ivr<l  f.»r  collection  at  a  di»tunt  place  will  not  be 
liable  for  that  agent's  default.1  The  duty  of  a  hank,  win 

ives  a  bill  or  note  for  collection,  ami  it*  *nnttniarion  tu 
another  place  is  necessary,  is  discharged  by  Bending  it  in  du<- 
season  to  a  competent,  reliable  agrnt,  with  proper  instruction*  for 
its  collection.3  A  collecting  bunk,  in  another  city,  caiiii- 


1  Stacy  r.  Dane  County  Bank,  12  bank  for  collection,  and  thry 
Wis.  629;  Lee  r.  Bank,  1  Chest.  (Pa.)  it  in  due  scaaon  to  a  cnmprCrot 
109.  As  to  a  nute  payable  at  another  at  the  place  of  the  r^Htppg  of  UM 
place,  left  for  collection  with  a  bunk,  drawee,  with  the  Dece«ury  dim  tiooa, 
:ui>l  its  seasonably  transmitting  it  to  that  they  tbert-hy  fully  diaclttrgv  tbrir 
a  suitable  bank  in  that  place  for  col-  duty  and  incur  no  further  liability, 
lection,  and  the  transmitter  not  bring  In  nup|>ort  of  the  rule  the  court  rrfer* 
li.-il'lc  for  any  negligence  of  the  latter,  to  the  cafiea  of  EMt-Iladdam  Hank  r. 
ihnis  ' .  Mercantile  Bank,  (1889)  Scovil.  12  Conn.  808,  and  FabetM  «. 
2.;  I'i.-k.  330;  Dorchester  &  Milton  The  Mercantile  Hank.  83  Pick.  90. 
Hank  r.  New  England  Bank,  (1848)  The  court  also  refer  to  and  approve 
1  Cush.  (Mass.)  177.  of  the  ca*e  of  Allen  r.  Mm-haoU" 

1  JEtna.  Insurance  Co.  r.  Alton  City  Bank  of  X.  Y.,  15  Wrod.  482.  when 
Bank,  (1861)  25  111.  243.  As  to  the  the  saint-  doctrine  U  announced  iotbcM 
question  of  liability  of  a  bank,  occur-  words:  '  And  we  find,  on  an  examina- 
ring  from  the  acts  of  its  correspond-  lion  of  these  caae*.  they  fully  sustain  tho 
ent.s,  the  Illinois  court  said:  "Upon  rule  announced  in  thi*  cue.'  Hi*  true 
examination  of  the  adjudged  cases  it  that  the  caae  of  Allen  r.  UM  Her- 
will  be  found  tlmt  entire  harmony  upon  clmnt.V  Bank,  22  Wend.  '.M.V  decided 
this  question  does  not  prevail.  In  the  by  the  Court  of  Krror*.  announce*  » 
case  of  The  Mechanics'  Bank  r.  Earp,  different  rule  and  reverae*  thcdecMoa 
4  Kuwle,  384,  it  was  held  that  a  bank  of  the  Supreme  Court.  In  that  COM 
in  which  bills  had  been  deposited,  the  decision  wan  by  a  divided  court, 
having  only  received  them  for  trans-  the  chancellor  delivering  a  di**enlinff 
mission  to  their  agents  for  collection,  opinion.  The  Ia*t  caae  extrnd*  UM 
at  the  place  of  the  residence  of  the  rule,  ao  that  a  bank  receiving  con 
drawees,  with  the  instructions  of  the  mercial  p«|>er  for  collection  i«  liable 
depositors,  was  not  liable  for  the  fail-  for  losa  mulling  from  atffect,  to 
uro  of  the  bank  to  whom  the  bills  were  banks  receiving  *uch  paper  for  Iran*- 
tninsniittccl  to  collect  the  money.  In  nibwion.  where  IOM  occur*  by  ocgUxt 
that  case  the  court  refers  to  the  oaaea  of  the  agent  Ui  whom  ft  to  Umnati. 
of  Lawrence  t.  Stonington  Bank,  0  and  make*  no  distinction  in  UM  iwo 
Conn.  528,  and  The  Bank  of  Wash-  claam  of  ca»«.  Wbcrr  a  bonk  w- 
ington  t>.  Triplett  &  Neale,  1  Pet.  ccivca  a  bill  or  noCr  for  collcctioa 
25,  and  Jackson  «.  Union  Bauk,  6  again*  a  drawer  or  maker,  raddcal  at 
Harr.  &  J.  (Md.)  148,  as  sustaining  the  place  of  the  bank,  or  worn-  the 
the  rule  announced.  Again,  in  the  bink  undertake*  for  (to  roUrrUoa  by 
case  of  The  Bank  of  New  Orlcana  r.  their  own  officer*,  lucre  out  or  no 
Smith,  8  Hill  (N.  Y.).  560.  the  court  douU  thai  It  would  be  Habfe  for  any 
held  that  when  a  bill  is  left  with  a  low  that  might  re»ul!  from 


684  COLLECTIONS.  [§  332 

failure  of  its  correspondent,  the  transmitting  bank,  credit  the 
proceeds  of  a  draft  or  note,  sent  to  it  for  collection,  to  its  own 
account.  It  is  liable  to  the  owner.1  A  bank  will  not  be  ren- 
dered liable  for  its  omission  to  have  a  negotiable  note,  deposited 
with  it  for  collection,  protested,  where  a  by-law  of  the  bank 
required  the  costs  of  protesting  to  be  deposited  with  it,  which  had 
not  been  done.2  If  bankers  undertaking  to  collect  bills,  checks 
or  notes  for  others  neglect  to  give  notice  of  the  default  of  the 
makers,  where  it  is  the  usage  of  banks  to  give  such  notice,  they 
will  be  liable  to  the  holders  in  damages.3  A  banker  cannot  hold 
the  proceeds  of  a  note,  sent  to  him  for  collection  and  credit  by  a 
correspondent,  against  the  real  owner  of  the  note  to  apply  on  the 
credit  of  collections  sent  him  by  this  correspondent,  because  he 
may  keep  an  account  with  that  correspondent  for  his  convenience, 
made  up  of  money  put  there  by  him  to  draw  exchange  against 
it.4  Where  banks  had  kept  account  current  with  each  other  for 
years,  crediting  the  one  the  other  with  paper  received,  etc.,  and 
the  paper  appeared  to  be  the  property  of  the  bank  remitting  it, 
it  has  been  held  that  there  was  a  lien  for  general  balance  on  the 
paper  so  transmitted,  no  matter  who  was  the  owner.5  The  bank, 
to  which  was  originally  transmitted,  for  collection,  drafts  drawn 
on  a  corporation,  sending  them  to  a  third  bank  for  collection,  and 
the  latter  taking  acceptances  from  the  officer  on  whom  they  were 
drawn,  instead  of  the  corporation  itself,  has  been  held  liable  to 
the  bank  originally  transmitting  the  drafts  for  the  damage  ensu- 
ing from  the  act  of  the  third  bank.6  The  accidental  loss  or  dis- 
appearance in  a  bank  of  a  bill  sent  to  it  for  collection  would  be 
presumptive  proof  of  negligence.7  Where  one  places  in  a  bank, 
for  collection,  notes  and  drafts  on  third  persons,  giving  no  instruc- 
tions as  to  the  kind  of  funds  in  which  it  may  collect  them,  should 

As  to  a  bank  being   relieved  of  re-  Johns.  372;  Bank  of  Utica  v.  McKin- 

sponsibility  by  using  due  diligence  in  ster,  (1833)  11  Wend.   473;    Curtis  v. 

the  selection  of  the  correspondent  to  Leavitt,  15  N.  Y.  9,  167. 

which  it  transmits  for  collection  a  bill  4Bury  T.  Woods,  (1885)17  Mo.  App. 

or  note  left  with  it  for  collection,  see  345. . 

Daly  v.  Butchers    &  Drovers'  Bank,  6  Bank  of  Metropolis  v.  New  Eng- 

(1874)  56  Mo.  94.  land  Bank,  1  How.  234. 

"Hackett  v.  Reynolds,   114  Pa.   St.  « Exchange  National  Bank*.  Third 

328.  National  Bank,  112  U.  8.  276. 

1  Pendleton  v.   Bank  of  Kentucky,  7  Chicopee    Bank     v.    Philadelphia 

(1824)  1  Mon.  (Ky.)  171.  Bank,  8  Wall.  641. 

"Smedes    v.  Utica  Bank,  (1823)  20 


§  333]  OOLLBCnoXa. 


the  bank  m-civr  piivim.-nt  in  a  rum-nrv  thru  in  general  u» 
a  depreciated  character  as  compared  with  g«>ld,  the  bank  wil 
held  liable  only  for  the  real  value  of  Mich  depreciated  currency.1 
A  bank  receiving  a  elu-ck  in  j»a\iiu-nt  nf  a  n..t«-  hi-ld  l»v  it  again*! 
the  drawer,  after  the  check  has  been  paid,  <-uniiot  refute  to  deliver 
up  the  note  for  cancellation  on  tin-  ground  tlmt  it  had  n->i 
matured.3  A  collection  made  by  a  hank  after  it  hac  appended, 
must  be  held  by  it  as  agent  in  trust  for  the  owner.'  The  negli- 
gence of  a  collecting  bank  in  not  presenting  a  draft  fur  payment, 
is  the  negligence  of  the  holder.4  A  bank's  duty,  where  a  note 
is  left  with  it  for  protest,  is  to  exercise  ordinary  and  reasonable 
diligence  in  giving  notice.5  A  known  custom  to  demand  |>ay- 
ment  of  a  note,  left  with  a  bank  for  collection,  without  actually 
presenting  the  note  to  the  maker  in  person,  would  be  binding 
upon  indorsers.6  A  known  custom  of  a  bank  to  demand  pay- 
ment on  the  day  before,  or  the  day  after,  a  note  falls  due,  would 
be  binding  on  an  indorser.7 

§  333-  Duty  of  bank.  —  When  a  bill  or  note  is  received  by  a 
bank  for  collection  in  the  ordinary  course  of  business,  without 
any  special  agreement  on  the  subject,  and  the  bank  in  duo  time 

1  Henry   r.    North.  Bank  of  Ala.,  63  in  the  matter  of  demand  and  prot«*t,M» 

Ala.  527,  in  which  the  collections  were  Warren  Bank  r.  Suffolk  Bank,  (1691) 

made  in  confederate  money.  10  Cu»u.  (Mam.)  582. 

*  Union      Savings     Association     e.  •  Jones  r.  Fale-a.  (1808)  4  MMK.  W5; 

Clayton,  (1878)  6  Mo.  App.  587.  Whitwell  r.  Johnson,  (1821)  17  MM*. 

»  Jockusch  v.  Towscy,  51  Tex.  129.  452,    City   Bank  r.   Culler.    (18M)  • 

4  Harvey  t>.  Bank,   119  Pa.  St.  212.  Pick.  (Mass.)  414. 

»  Mount  r.  First  National  Bank,  87  'Jonea  r.  Falo«.  (1H08)  4  Matt,  t 

Iowa,  l"»7.     As  to  liability  of  a  bank,  City    Bnnk   r.   Cutter,   i 

receiving  note  for  collection  and  fail-  (Maw.)  414.     What  I*  a  *ulBHmt  de- 

ing  to  notify  indorsers  of  its  protest,  mand  for  |»yracnt  of  a  mile  left 

and  thereby  discharging  them,  for  the  a  bank  for  ailleciion.  «re  Trwll 

holder's  loss,  see  Bunk  of  Washington  r.  Wendell,  1  N.  II.  I 

Triplett,  1  Pet.  25;  Bird  t».  Louisiana  usage  on  the  pnrt  of  bank 

State  Bank,  93  U.  S.  96.     As  to  the  ,1  mandn  on  maker*  of  iM*e».  and 

duty  of  bankers  in  such  cases,  see  Brit-  Ucen  to  lodonrra.  nee  Uoroln  A  Keni 

ton  r.  Niccolls,  104  U.  S.  757.     A»  to  beck  Bank  r.  Page,  (1H 

liability  for  neglect  on  the  part  of  a  Smith  r  Whitin*. 

bank  receiving  a  note  for  collection,  BOO  Blanchanl  r.  llilUanl.  i 

Thompson  r.  Bank,  3  Hill  (S.  C.).  77.  85;  Central  Iknk  r.  Ifcrta, 

As  to  a  bank's  being  protected  from  Pick.  (MM.)  f 

Kability  by  its  iwagc.  and  not  bdng  E*ger,  (1M6)  9  Mat.  (MM* 
liable  for  the  negligence  of  a  notary 


COLLECTIONS.  [§333 

delivers  it  to  the  notary  usually  employed  by  it  in  such  matters 
so  that  the  necessary  demand,  protest  and  notice  may  be  made 
and  given,  the  bank  will  not  be  answerable  for  loss  resulting  from 
the  failure  of  the  notary  to  perform  his  duty.1  Personal  notice 
to  the  indorser  may  be  dispensed  with,  and  he  will  be  charged  by 
the  bare  deposit  of  notice  in  the  post  office,  even  if  it  never 
comes  to  hand.2  In  case  a  note  payable  on  demand,  at  a  particu- 
lar place,  be  lost,  a  court  of  equity  affords  no  remedy  to  the 
owner  before  a  demand  for  payment  has  been  made  at  the  place 
designated.8  A  notice  to  a  distant  indorser  of  the  protest,  etc., 
of  a  note  payable  at  bank  must  ordinarily  be  sent  to  his  nearest 
post  office,  but  this  rule  may  be  dispensed  with  if  shown  that  the 
notice  was  sent  to  the  place  where  the  indorser  would  get  the 
earliest  intelligence.4  In  case  the  holder  of  a  note  delivers  it  to 
a  bank  with  the  understanding  that  this  bank  shall  forward  the 
note  to  another  bank  for  collection,  and  it  is  so  forwarded  and 
received,  the  latter  bank  will  be  responsible  to  the  owner  of  the 
note  for  any  negligence  in  its  collection  whereof  the  owner  of 
the  note  may  suffer  loss.5  So  where  the  latter  bank  delivers  such 
note  to  the  notary  public  for  demand,  protest  and  notice,  such 
notary  was  the  attorney  of  the  bank  and  was  incompetent  for  the 
purpose  of  making  such  demand  and  serving  such  notice,  and  the 
demand  was  not  properly  made  and  notice  was  not  properly 
served,  so  that  the  inclorsers  of  the  note  were  entirely  discharged, 
the  bank  was  held  responsible  to  the  owner  of  the  note.6  A  bank 
having  received  a  note  for  collection  with  direction  that  it  should 
receive  payment  of  the  note  in  New  York  exchange,  it  being  a 
bank  of  exchange  as  well  as  of  deposit,  the  Iowa  Supreme  Court 
held  the  acceptance  in  payment  by  the  bank  of  its  own  certificate 

1  Citizens'  Bank  of  Baltimore  v.  for  neglect  in  protesting,  etc.,  notes 

Howell,  8  Md.  530.  deposited  with  them  for  collection, 

1  Bell  v.  Hagerstown  Bank,  7  Gill  see  Chapman  v.  McCrea,  (1878)  63  Ind. 

(Md.),  223.  360.  As  to  available  defense  of  bank 

3  Streater  V.  Bank  of  Cape  Fear,  2  when  charged  with  such  neglect,  see 
Jones  Eq.  (N.  C.)  31.  Locke  v.  'Merchants,  National   Bank, 

4  Bank  of  the  United  States  v.  Lane,  (1879)  66  Ind.  353.     Liability  of  bank 
8  Hawks  (N.  C.),  453.     An  illustration  for  failure  to  present  a  bill  to  the 
of  a  lack  of  diligence  on  the  part  of  a  drawee,  see  Tyson  v.  State  Bank,  (1842) 
bank  in  sending  notice  of  dishonor  of  6  Blackf.  (Ind.)  225. 

a  protested  bill  of  exchange  to  the       5  Bank  of  Lindsborg  v.  Ober,  (1884) 
indorser.     Runyon  v.  Montfort,  Busb.    31  Kans.  599. 
(N.  C.)  371.     As  to  liability  of  banks       •  Ibid. 


OOLLJSCTIOKS.  '  -  7 


<>f  deposit  payable  on  demand  wait  a  discharge  of  the 

.  notwithstanding  it>  1'nilun-  i..  n-mit  the  amount  to  the  cred- 
itor and  afterward*  becoming  iiiHilvi-nt,  it  appearing  tliat  on  the 
•  lav  it  ivcciv.-d  tlii-  payment  the  Kank  wa»  paying  it*  obligation* 
ami  had  in.  .in  v  on  hand  with  which  tin-  certificate  could  have 
IH-.-II  paid  in  cash  if  demanded,  although  it  wa«  actually  insolvent, 
that  tact  in  )t  being  known  to  the  holder  of  the  certificate.1  Tlie 
measure  of  damages  in  an  action  against  a  hank  with  which  a  bill 
has  been  deposited  for  collection,  and  it  ha*  failed  to  take  j  roper 
steps  to  charge  the  drawer  or  indorsee,  whereby  the  holder  of 
the  bill  was  unable  to  collect  it,  is  the  fare  of  the  bill,  with 
interest.2  By  delivering  a  bill  held,  by  it  for  collection  to  a  notary 
with  instructions  to  protest  on  the  wrong  day.  a  liank  would  ren- 
der itself  liable  to  the  owner  of  the  bill.1  It  seem*  though  thai 
where  negotiable  pa{>er  is  delivered  to  a  hank  for  collection 
merely,  the  bank's  duty  will  be  discharged  by  a  proper  demand 
of  payment,  and  by  giving  notice  of  its  non-|>ayinent  to  the 
bank's  principal  only,  without  giving  the  projier  notice  al*o  to 
otlu-r  indorsers,  unless  sonic  contract  or  commercial  linage  bo 
shown  to  raise  a  more  extended  obligation.4  In  a  Ma**achuMtt* 
case  it  appeared  that  a  bank,  holding  a  note  for  collection, 
received  the  amount  from  an  agent  of  the  maker,  ami  by  mwtake 
gave  up  to  him  a  similar  note  of  another  person  and  returned  the 
first  note  to  its  owner,  to  whom  the  maker  jrnid  it  on  demand, 
and  immediately,  though  four  days  after  the  jwyment  to  the 
bank,  examined  the  note  in  his  agent's  hands,  and,  discovering  th* 
mistake,  returned  it  to  the  bank  and  demanded  Iwck  hi*  money. 
The  Supreme  Court  of  Judicature  held  that  he  was  entitled  to 
recover  it  back,  with  interest  from  the  time  of  the  demand. 
although  the  bank  had  meanwhile  juiid  the  amount  to  the  owner 
of  the  other  note,  the  maker  of  which  was  insolvent  and  the 

1  British  &  American  Mortgage  Co.  *  Commercial  Bank  of  Kroiu-  . 

v.  Tibballs.  68  Iowa,  46H.  Varnum.  (1M73)  4l»  N     Y.  M*     As  to 

*  American   Ex  pram  Co.    r.    Haire.  the  liability  of  •  colkrUof  bank  tak 

(1868)  21  Ind.   4.     For  an  illustration  ing  a  draft  which  may  be  dbhoaond. 

of  the  owner  of  n   promissory   note  »«•  Flrrt  National  Rank  of  MradrilW 

placed  for  collection  through  a  bank  r.   Fourth   National  Iknk. 

and   it«  correspondent  not  sustaining  890;  a.  c..  W  Am    Itrp   61* 

damage,   see    Indig   r.    National  City  «  State   Bank   of  Tmy   r    Bank   of 

Bank  of   Brooklyn,  (1880)  80  N.  Y.  the  Capitol.  (IH68)  I?  Abb.  Pr  «*4.  a 

100  c..  41  Barb.  849:  S7  ilow    IT.  W. 


688  COLLECTIONS.  [§  333 

indorsers  discharged  for  want  of  demand.1  A  contract  to  be  so 
responsible,  expressly  proven  or  inferable  from  an  unequivocal 
course  of  dealing,  is  necessary  to  hold  a  banker  receiving  paper 
for  collection  absolutely  responsible  for  the  amount  previous  to 
collection.2  A  bank  will  not  be  discharged  from  its  obligations 
to  procure  a  proper  presentment  and  notice  in  case  of  non-pay- 
ment of  a  note  deposited  with  it  by  one  of  its  customers  for  col- 
lection with  a  request  to  have  it  protested  if  not  paid,  by 
merely  employing  a  notary  for  the  purpose  of  making  a  demand.8 
Where  presentment  is  not  necessary  to  charge  the  parties,  and 
would  be  useless  if  made,  a  bank  with  which  a  draft  is  placed 
for  collection  would  not  be  liable  for  neglect  to  present  it.4  A 
maker  of  a  note  paying  it  to  the  bank  holding  it  for  collection 
cannot  recover  the  payment  from  the  bank  on  the  ground  that 
the  bank  has  failed  to  remit  to  the  owner.5  A  bank  will  not 
be  held  liable  for  an  omission  to  protest  notes  deposited  with  it 
for  safe-keeping  and  not  for  collection.6  The  plaintiff  bank  in 
a  Connecticut  case  brought  its  action  to  recover  of  a  national 
bank  in  the  hands  of  a  receiver  the  amount  of  notes  or  bills  sent 
by  it  for  collection  to  this  bank.  The  circumstances  were  these : 
Its  cashier  had  given  notice  to  the  cashier  of  the  defendant  bank 
to  protest  and  return  all  paper  not  paid.  The  notes,  drafts  and 
checks  of  one  of  the  makers  which  had  been  sent  by  the  plaintiff 
bank  to  the  cashier  of  defendant  bank  for  collection  and  charged 

1  Andrews  v.  Suffolk  Bank,  (1859)  quired  of  a  bank  receiving  a  note  or 

12  Gray  (Mass.),  461.  bill  for  collection,  and  its  liability  in 

1  Scott  v.  Ocean  Bank,  (1861)  23  N.  default  of  such  diligence,  see  Capitol 

Y.  289,  affirming  5  Bosw.  192.  State  Bank  T.  Lane,  52  Miss.  677.  As 

1  Ayrault  v.  Pacific  Bank,  (1868)  6  to  the  rules  governing  as  to  demand 

Robt.  (N.  Y.)  337;  affirmed  in  47  N.  Y.  and  presentment  of  notes  payable  at 

570.  bank,  see  Lewis  v.  Planters'  Bank,  3 

4  Mobley  v.  Clark,  (1858)  28  Barb.  How.  (Miss.)  267;  Ellis  n.  Commercial 
390.  In  Jacobsohn  v.  Belmont,  7  Bank  of  Natchez,  7  How.  (Miss.)  294; 
Bosw.  14,  a  banker,  who,  under  pecu-  Harrison  v.  Crowder,  6  Smedes  & 
liar  circumstances,  acted  with  the  Marsh.  (Miss.)  464;  Barlow  v.  Plant- 
knowledge  and  concurrence  of  the  ers'  Bank,  7  How.  (Miss.)  129.  When 
owner  of  the  paper  in  delaying  to  pre-  the  note  remains  during  the  whole  day 
sent  it  for  collection  was  held  not  of  the  day  it  falls  due,  allowing  days 
liable  for  negligence.  of  grace,  see  Duncan  r.  Watson,  6 

6  Smith  v.  Essex  Co.  Bank,  (1856)  Cush.  (Miss.)  187;  Goodloe  v.  Godly, 

22  Barb.  627.  13  Smedes  &  Marsh.  (Miss.) 233;  Bland 

8  New  Orleans  Canal  Co.  v.  Escoffie,  v.  Commercial  &  Railroad  Bank,  3 

2  La.  Ann.  830.  As  to  diligence  re-  Smedes  &  Marsh.  (Miss.)  250. 


;^1  COLLECTIONS. 

to  the  latter  and  posted  in  the  account  against  the  defendant 
l)iink.  were  not  paid  by  him  or  the  acceptor-  an.l  were  protected 
or  returned,  and  no  notice  of  their  non-payment  WM  given  t- 
plaintiff.  A  semi-monthly  statement  of  the  account  WM  tent  b\ 
the  cashier  of  the  remitting  bank  to  the  ea>hi.-r  of  tlie  collecting 
l»nk  and  its  correctness  acknowledged  by  the  Utter.  The 
Supreme  Court  held  that  the  remitting  Iwuik  had  a  right,  after  a 
reasonal.lf  time  had  elapsed  without  notice  of  non-payment  or  a 
return  of  the  papers,  to  charge  the  amount  of  the  notea,  bill- 
and  checks  to  the  defendant  bank  and  to  recover  maaranip»it  f«r 
an  account  stated.1  In  case  the  holder  of  a  note  deliver* 
a  bank,  with  directions  as  to  the  appropriation,  but  not  the 
manner  of  realizing  the  proceeds,  the  Iwink  will  be  authorized  to 
discount  the  note  or  collect  it  at  maturity.* 

§  334.  Rules  as  to  notes  payable  at  bank. — The  preaump- 
tion  is  proper  that  when  a  note  is  made  payable  at  a  bank 
the  parties  expect  collections  to  l>e  made  through  the  bank,  and. 
though  the  bank  holding  the  money  is  technically  the  agent  of 
the  depositor,  yet  the  money  that  may  lie  deposited  to  meet  nucli 
a  note  is  deposited  for  the  holder  of  the  note,  and  it  would 
require  no  act  of  the  depositor  to  authorize  the  bank  to  jwy  it.' 
Where  a  note  was  made  payable  at  a  bank  and  the  maker  d«»|iu*- 
ited  witli  the  bank  the  amount  necessary  to  fully  dix-liarge  it, 
and  the  bank  afterwards  failed,  the  Iowa  Supreme  Court  held 

1  National  Pahquioque  Bank  r.  First  luding    with    Sccley.   to    permit    bU 

National   Bank   of    Bethel,   (1870)  86  paper  to  accumulate  in  the  bank  tin 

Conn.  325.     In  this  case  the  bank  de-  paid,    by    failing  to  enter  the   p»P«* 

fended  partly  on  the  ground  of  fraud-  upon  the  book*  of  the  bank,  ami  to 

ulent  practices  of  its  cashier  in  col-  inform  the  director*  of  iu  poaMaria* 

lusion    with     the    drawee.     Of     this  and  non-payment,  and  in  permitlUtj; 

branch  of  the  defense,  the  court  said:  the  account  of  the  plaintiff  to  arcti 

"It  is   perfectly   apparent    that    the  raulntc  in   «uch  an   unu*u»!   mmnort 

cashier  of  the  defendant  bank  received  and  totmch  an  unuMial  extra!  without 

tli.   notes,  drafts  and  checks  sent  by  informing  them  of  iL     ll  abo  abow* 

tin-    plaintiffs   for  collection;  that  he  grosw  negligence  in  the  otHerr*  of  the 

had    ostensibly    the    powers    usually  defendant  bank  in  intrmting  It*  ratlf* 

trhrn  to  the  cashier  of  such  an  aaso-  management    to    (the    owhicr). 

ciation;  that  it  was  his  duty  to  collect  these  fact*  do  not  ...n-tituie  »  defaaae. 

them  or  to  protest  and  return 'them;  unlew    knowledge  of    ihm 

:iii<l    that   by  retaining  them  without  brought  home  to  the  plaint  if 

collection,  protest  or  notice,  he  made  •  Drown  r.  Pawturket  Bank.  (18 

the  defendant  bank  liable  to  the  plain-  15  l»ick.  (MaM.)  A 

tiffs    for  their  amount.     The  finding  •  Uricr  r  Horan.  55  lowm.  7 
shows  gross  fraud  on  his  part,  by  col- 

87 


090  COLLECTIONS.  [§  334 

that  the  deposit  was  a  full  defense  to  the  action  of  the  payee  or 
indorsee  against  the  maker.1  Notes  payable  at  bank  must  be  pre- 
sented to  the  bank  for  payment  to  charge  the  indorser.2  A  bank- 
would  not  be  authorized  to  receive  the  money  for  the  payee  of  a 
note  not  in  its  possession  simply  because  the  note  was  made  pay- 
able at  that  bank.8  When  a  note  payable  at  a  bank  is  held  by  it, 
the  note  should  remain  in  the  bank  until  the  completion  of  busi- 
ness hours.4  The  known  custom  of  a  bank,  that  notice  to  the 
directors  thereof,  who  are  indorsers  on  notes,  should  be  left  on  the 
cashier's  desk,  instead  of  being  delivered  to  the  directors,  would 
be  binding  on  the  directors.5  The  practice  of  banks  to  give 
notice  to  the  makers  of  notes  of  the  time  of  their  maturity  can- 
not, where  such  notice  has  been  delivered,  be  substituted  for  a 
demand  for  payment  so  as  to  charge  the  indorser.6  A  bank 
which  by  mistake  has  certified  a  promissory  note  made  payable  at 
its  banking  house  to  be  "  good  "  can  correct  such  mistake  before 
rights  and  liabilities  have  been  incurred  or  losses  sustained  in  con- 
sequence of  it.7  "When  a  note  is  made  payable  at  a  bank,  all  that 
the  holder  is  required  to  do  is  to  make  demand  for  payment  at 
the  bank.8  Where  a  note  payable  at  bank  is  left  there,  and 
remains  during  banking  hours  on  the  last  day  of  grace,  and  no 
funds  are  provided  for  taking  it  up,  that  would  be  sufficient  evi- 
dence of  demand  and  refusal  of  payment.9  In  the  absence  of 

1  Ibid.  cumstances,    was  entitled  to  recover 

2  Sullivan    v.    Mitchell,    1  Carolina  from  the  principal  and    his   trustees 
Law  Repository  (N.  C.),  482;  Smith  ».  the  amount  of    the  note  so  canceled 
McLean,  N.  C.  Term  Rep.  72.  and  delivered  up. 

3  Cheney  v.  Libby,  134  U.  S.  68.  BWeld  r.  Gorham,  (1813)  10  Mass. 

4  Planters'  Bank  v.  Markham,  5  How.  366.     As  to  notice  of  protest  by  mail 
(Miss.)  397.    In   Dewey  v.   Bowers,  4  where  that  method  of  service  is  the 
Ired.    (N.    C.)  538,   a    bank   received  usage,  see  Benedicts.  Rose,  16  S.  C.  629. 
from  the  maker  of  a  note  which  it  had  As  to  notice  by  a  bank  of  non-pay- 
discounted  a  draft  on  New  York  and  ment  of  note,  see  Bank  v.  Wallace,  13 
agreed  to  apply  the  proceeds,  if  the  S.  C.  347. 

draft  was  collected,  to  the  payment  of  6  Farmers'    Bank    of    Maryland    v. 

the  note  after  declining  to  receive  the  Duvall,  7  G.  &  J.  (Md.)  78. 

draft  in  discharge  of  the  note.  After-  7  Second  National  Bank  of  Baltimore 

wards  the   cashier  of    the  bank,  by  «.    Western  National   Bank  of  Balti- 

mistake,  supposing  the  draft  to  have  more,  (1878)  51  Md.  128. 

been  paid,  canceled   the  note  and  de-  8Bank  v.  Flagg,  1  Hill  (S.  C.),  177. 

livered    it  to  the   principal.     It  was  9  Lafayette    Bank    v.  Mclaughlin, 

soon  ascertained   that   the  draft  had  (Super.  Ct.  Cincinnati,  1846)  4  West. 

been    protested  and    never  paid.     It  Law  J.  70. 

was  held  that  the  bank,  under  the  cir- 


I  I  COLLECTIONS. 

any  special  contract,  a  bank  with  which  note*  are  deposited  ia 
only  hound  to  receive  the  m.im-y,  if  paid,  and,  if  not  j^id.  to  fix 
the  liability  of  tho  parties  by  due  demand  and  notice.1  The 
maker  of  a  note  payable  at  bank  will  !*•  presumed  to  eonat; 
be  governed  by  the  ctMom  of  the  bank  with  regard  to  making 
them  and  of  payment  of  Mich  note*.'  Where,  by  the  custom  of 
a  bank,  notes  payable  there  and  in  its  pomcsHon  and  not  paid  dur- 
ing banking  hours  on  the  day  on  which  they  fall  due,  are  con- 
sidered as  dishonored,  without  any  formal  demand,  then  no  men 
formal  demand  and  presentment  would  lie  necettary  to  charge  an 
indorser.3  Where  the  bank  at  which  a  note  i»  payable  ia  the 
holder,  it  would  1x3  a  sufficient  demand  for  the  officers  of  the  bank 
to  hand  it  to  a  notary  after  banking  hours,  telling  htm  there  are  no 
funds  to  meet  it.4  When  discounting  a  note  or  bill,  tdiould  a  hank 
inquire  of  the  one  presenting  it  as  to  the  indorner'g  reodenee,  and 
send  a  notice  to  the  place  named,  this  would  be  sufficient  to 
charge  the  indorser,  even  though  he  may  never  have  resided  at 
the  place  named.5  A  person  indorsing  a  note  with  the  knowl- 
edge of  a  custom  of  a  bank  not  to  give  out  notes  for  protect 
until  three  o'clock  on  the  third  day  of  grace  would  be  hound 
thereby.8  Where  the  known  and  established  usage  in  a  bank  a« 
to  papers,  the  third  day  of  grace  on  which  falls  on  Sunday,  u  not 
to  demand  payment  until  Monday,  the  bank  receiving  a  note,  tin- 
third  day  of  grace  falling  on  Sunday,  to  be  collected  according 
to  the  known  and  established  mode  of  transacting  it*  btuineat, 

'Crow  v.   Mechanics'  Bank,  12  La.       » Palmer  r.  Whitney.  (1868)  il  lod. 
Ann.  692.  58.     In  Commercial  &  Itailroad  bank 

*  Harrison  t>.  Crowder,  6  Smedes  &    r.  Hamer.  7  How.  iMU.)  44*.  H  w»» 

,    (Miss.)  464.  held  that  generally  a  n<*c  payable  la 

»  Cohea  r.  Hunt.  2  Smedes  &  Marsh,  bank  ithould  be  presented  for  pay  meat 

(Miss.)  227.     In   Mount  r.  First  Na-  during   banking  hour*,  but  wbcrv  U 

Unhid  Bank,  37  Iowa,  457.  the  note  wan  the  custom  of  the  bank  to  keep  h 

was  left   with  the   bunk   for  protest  back  door  o|«cn.  with  iU  U  H.  r 

without  direction  as  to  where  notice  after  banking  hour*  to an*w< 

to  the  indorser  was  to  be  sent.     The  then  made,  ami  a  n«*o  wa» 

notice  was  sent  by  mistake  to  a  pcrnon  rented,   and   the  idler  aiwwemt. 

of  the  same  name  as  that  of  the  in-  cording  to  lh*  truth  of  lh*  tmm, 

dorscr  and  living  in  the  neighborhood,  there  were  then  no  fund*  tod  bad  I 

The  court  held  that  the  bank  wa»  not  been  during  the  day  to  pay  (*•  aoU 

liable  for  negligence.  tbe  prwenlmenl  waa  food. 

*  U     S    Bunk    r.    Caracal.   2    Prt.       *  Bank  of  Columbia  r     Me  K«uiy. 
543  8  Crancb  Cir.  (1.  861. 


692  COLLECTIONS.  [§  335 

would  not  be  liable  to  damage  for  omitting  to  demand  payment 
on  Saturday.1 

§  335-  When  a  bank  is  liable  for  failure  to  collect  a  note. 

—  An  Ohio  bank  having  purchased  a  note  payable  at  the  bank- 
ing office  of  another  bank,  from  the  payee,  the  payee  indorsing 
the  same,  sent  it  to  the  bank,  at  which  the  note  was  payable,  for 
collection.  The  note  was  not  paid  when  it  matured,  and  the 
bank  owning  the  note  brought  its  action  against  the  bank,  its 
agent,  for  collection,  upon  the  ground  that  by  its  negligence  the 
owner  had  lost  its  right  to  hold  the  indorser  liable.  The  trial 
court  rendered  a  judgment  in  favor  of  the  defendant.  This  judg- 
ment was  reversed  by  the  Supreme  Court  of  Ohio,  which  held 
that  the  bank  which  held  the  note  for  collection  had  been  guilty 
of  negligence  in  the  matter  and  was  thereby  liable  to  the  owner 
of  the  note.2 

'Patriotic  Bank  v.  Farmers'  Bank  and  shows  such  a  statement  of  the 
of  Alexandria,  2  Cranch  Cir.  Ct.  560.  facts  which  explain  its  ruling,  that  we 
As  to  liability  of  bank  for  negligence  in  give  it  in  the  words  of  the  court.  It 
such  matters,  see  Bank  ».  Burns,  12  was  said:  "The  real  contention  be- 
Colo.  539;  s.  c.,  21  Pac.  Rep.  714;  tween  the  parties  was  whether  [the 
Drovers'  Nat.  Bank  v.  Anglo-American  payee],  the  indorser  of  the  promissory 
Packing  &  Prov.  Co.,  117  111.  100;  s.  note,  had  been  discharged  from  liabil- 
c.,  7  N.  E.  Rep.  601;  Bank  v.  Good-  ity  to  the  [plaintiff]  by  reason  of  the 
man,  109  Pa.  St.  424;  B.C.,  2  Atl.  Rep.  negligence  of  the  [defendant].  The 
687;  Farwell  v.  Curtis,  7  Biss.  162;  note  had  been  transmitted  to  the  [de- 
Indig  «.  Bank,  80  N.  Y.  100;  Briggs  fendant]  for  collection  and  was  not 
v.  Bank,  89  N.  Y.  182.  In  Holmes  «.  paid  at  maturity.  If  [defendant]  by 
Roe,  62  Mich.  199,  it  was  held  that  its  negligence  had  discharged  the  in- 
where  the  person  receiving  a  check  dorser,  then  it  should  be  held  liable  for 
upon  a  banker  and  the  banker  on  the  damage  it  thereby  caused;  but  if, 
whom  it  is  drawn  are  in  the  same  notwithstanding  the  alleged  negli- 
place,  in  the  absence  of  special  cir-  gence,  [the  indorser]  remained  liable, 
cumstances  it  must  be  presented  for  it  should  be  exonerated,  for  all  the 
payment  the  same  day  or,  at  least,  the  duty  it  owed  to  the  [plaintiff],  in  case 
day  after  it  is  received;  but,  if  in  dif-  the  note  was  not  paid,  was  to  take 
f erent  places,  the  check  must  be  for-  such  action  as  would  charge  the  in- 
warded  for  presentment  on  the  day  dorser.  AVhen  the  note  matured  the 
after  it  is  received  at  the  latest.  See,  [defendant]  in  error  notified  the  makers 
also,  Hamilton  v.  Winona  Salt  &  Lum-  and  one  of  them  came  to  its  banking 
ber  Co.,  (1893)  95  Mich.  436.  house.  A  plain  and  simple  duty  then 

8  Bank  v.  Bank.  (1892)  49  Ohio  St.  confronted  the  [defendant]:  Either  to 
351.  The  opinion  of  the  court  evinces  require  payment  of  the  note,  or,  in  de- 
a  full  and  careful  discussion  of  the  fault  thereof,  to  take  such  action  as 
law  relating  to  the  questions  involved,  by  the  law  merchant  was  necessary  to 


COLLECTIONS. 

§  336.  What  action  on  its  part  will  relieve  a  collecting 
bank  from  liability.  -Tin-  fait,-,!  State  Circuit  Court  .,f 
A|.|>c:il>  for  tin-  sixth  circuit  has  held  tlmt  a  bank  retiring  aoer- 
titicato  i.f  «li-|Hi>it  tamed  by  a  bunk  f«-r  eiilleetiun  nnd  until 
to  the  bank  which  itwued  it,  with  a  nijucMt  for  a  remittance,  WM 
guilty  of  in ••rli-rence.  But  in  thia  particularcafte  it  a|»|ieaivd  that 
tlie  plaintiff  bank  on  May  8,  1888,  mailed  to  the  defendant  bank 
the  certificate  of  deposit  for  collection,  and  on  May  ninth  the  lai~ 

charge  tin-  indorscr.  It  did  neither,  indoner.  1  Panon*  oo  Note*  A 
That  the  note  was  conditionally  paid  is  HilU.  514;  Dobree  r.  EM!  wood. 
suggested;  what  that  may  mean  in  this  &  P.  230;  Simpna  r  Tun 
connection  is  not  clear.  No  doubt.  Hump.  419;  Ituwe  r.  Tipper.  |:: 
that,  as  between  the  holder  and  the  '.M'J;  Mania  r.  Maxwell,  t  CVunp.  SIO. 
maker  of  a  promissory  note,  a  condi-  Therefore.  If  the  letter  of  [the  maker*) 
tiniial  payment  may  be  made;  but  the  had  been  ttunVii-nt  in  form  and  «tib- 
rules  of  the  commercial  law  require  a  stance  to  fix  the  liability  uf  (the  payee 
holder,  who  intends  to  hold  an  in-  indorser]  it  WM  mailed  i«*»  Utc  ami 
dorser  liable,  to  give  notice  to  the  tat-  for  tlmt  rcaiton  he  WM  dWbarged. 
ter  of  the  default  of  the  maker.  Any-  This  release  of  [the  indoner)  WM  MI 
tiling  less  than  a  full  and  absolute  accomplished  fact  befurv  UK*  nwkm 
payment  is  a  default,  but  nothing  less  of  the  note  applied  to  him  to  extra*! 
than  that  measures  the  duty  of  the  the  time  of  payment.  The  omiMian 
ni:ikcr.  In  this  case,  however,  there  of  the  bank  to  require  payment,  or  la 
•was  no  conditional  payment  made,  default  thereof  to  pive  the  nrm«ury 
True,  the  [defendant]  had  in  its  hands  notice  to  charge  [the  indomrr)  *»« 
the  means  of  enforcing  payment,  but  caused  by  the  BolirilMion  of  tbo 
did  nothing;  it  simply  accepted  the  makers.  *  *  *  The  mcwt  careful 
maker's  promise  that,  if  [the  payee]  scrutiny  of  the  record  fail*  to  dtadon 
did  not  give  further  time,  they  would  that  (the  indorM-r].  up  to  thb  Ume. 
pay  the  note.  If  the  [defendant]  had  Raid  or  did  anything  to  tni*Ir»>l  the 
iris  «ii  notice  to  the  [plaintiff]  of  the  bank  or  to  induce  it  to  relax  it*  vigil- 
default  of  the  maker,  it  would  have  ance,  or  omit  any  *t*-p  nmmmrj  la 
discharged  its  duty,  for  it  would  have  law  to  charge  hint  a»  indonrr.  (Th« 
afforded  the  latter  an  opportunity  to  indorwr].  therefore,  had  a  perfect  4* 
give  notice  to  [the  indorscr].  I^awson  fenuc  againxt  any  actl«m  taken  to 
r.  Hank,  1  Ohio  St.  206.  Where,  how-  charge  him  an  an  Indorwr.  uulcM  by 
ever,  a  holder  of  a  promissory  note  hU  »ub»k'quenl  conduct  be  ha*  for- 
-  by  an  immediate  indorser.  and  feitnl  hi*  right  to  »rt  up  tbfal  d»« 
serves  notice  of  non-payment  upon  one  fetue."  After  dbruMlng  whether 
more  remote,  he  cannot  avail  himwlf  there  wa*  »u(Brienl  nollrr  to  the  In- 
of  the  time  the  immediate  indoracr  dorner  and  whether  be  wa*  e»« 
would  have  had  to  serve  the  remote  to  defend.  Ibe  court  then  OMM! 
one  if  the  holder  had  given  notice  to  query:  "  WM  due  Uilifvoor  abowa  la 
the  former;  but  the  holder  In  that  ease  giving  thU  notice  T"  TM»  WM  Mi- 
ni list  give  notice  to  the  remote  Indower  awercd  •»  followg:  "Tb*  but  d«jr  of 
within  the  same  time  that  he  In  re  grace  WM  October  17  aixl  tbe  IrtUr 
quired  to  give  it  to  the  immediate  wa*  not  mailed  until  Ibe  1Mb.  IWQ 


G94 


COLLECTIONS. 


[§33G 


ter  mailed  it  to  the  bank  issuing  it.  On  June  first  the  defendant 
bank  credited  the  plaintiff  bank  with  the  item  in  the  account 
current  for  May,  and  wrote  that  nothing  had  been  heard  from 
the  bank  issuing  the  certificate  after  repeated  inquiries,  and 
requested  that  the  matter  be  investigated  and  a  duplicate  or  a 


days  later.  To  constitute  due  dili- 
gence it  should  have  been  deposited 
in  the  post  office  in  time  to  have  de- 
parted in  the  earliest  mail  to  the  resi- 
dence of  [the  indorser]  that  departed 
after  business  hours  on  the  18th.  Law- 
son  v.  Bank,  1  Ohio  St.  206.  It  is  true 
that  if  the  [defendant]  had  chosen  to 
give  notice  of  non-payment  to  the 
[plaintiff]  that  the  [plaintiff]  would 
have  had  one  day  after  it  re- 
ceived notice  within  which  to  give 
notice  to  [the  indorser]  and  in  that 
case  a  notice  to  [by?]  the  [plain- 
tiff] to  [the  indorser]  on  the  19th  of 
October  would  have  been  in  time.  1 
Pars,  on  Notes  &  Bills,  513;  Lawson 
v.  Bank,  1  Ohio  St.  206.  On  October 
17,  18S8,  the  day  after  the  note  ma- 
tured, one  of  the  makers  *  *  * 
was  called  into  this  bank  and  his  at- 
tention was  directed  to  it;  the  makers 
then  had  funds  in  the  bank  which 
could  have  been  applied  to  its  pay- 
ment, but  upon  [this  maker's]  repre- 
sentation that  his  firm  was  pressed 
for  means  it  was  induced  to  indulge 
them  until  they  could  apply  to  [the 
payee]  for  a  short  extension  of  the 
time  of  payment,  promising  to  pay  it 
if  [he]  refused  to  extend  the  time. 
After  two  days' delay,  they  mailed  the 
letter  of  October  19,  to  which  he  re- 
ceived in  answer  [the  payee's]  letter  of 
the  20th,  granting  the  favor,  of  which 
the  bank  was  at  once  advised;  it  there- 
upon continued  to  receive  and  pay  out 
for  the  makers  large  sums  of  money 
imtil  November  1,  1888,  on  which  day 
the  makers  assigned  their  property  in 
trust  for  their  creditors,  having  assets 
sufficient  to  pay  only  a  few  cents  on 


the  dollar  of  their  indebtedness.  No 
doubt  but  for  this  letter  of  [the  payee's] 
the  bank  would  have  charged  this 
note  against  the  maker's  deposits,  and 
in  that  way  demand  its  payment.  If 
[the  indorser]  had  been  influenced  by 
the  facts,  and  chose  to  grant  an  exten- 
sion to  the  makers,  and  the  bank 
relying  thereon  had  paid  out  all  the 
funds  of  the  makers  before  the  assign- 
ment was  made,  and  thus  lost  its 
means  of  indemnity,  he  should  be  held 
to  abide  the  consequences.  But  he 
had  no  such  knowledge.  He  neither 
knew  that  he  had  been  discharged  by 
the  bank's  neglect,  nor  that  the  bank 
had  indemnity  within  its  control.  His 
granting  the  extension  was  an  indis- 
creet act  in  itself,  and  he  should  not 
be  charged  with  consequences  that  he 
had  no  reason  to  suspect  would 
flow  from  it.  On  the  contrary, 
this  bank  [the  defendant  here]  was 
an  actor  in  the  entire  transaction. 
With  means  of  payment  in  its  hands, 
it  chose  to  indulge  the  makers  in 
direct  violation  of  its  duty  to  the 
[plaintiff].  It  knew  this  indulgence 
was  granted  to  the  makers  of  the  note, 
expressly,  to  enable  them  to  apply  for 
an  extension  of  payment  to  one  who, 
upon  the  face  of  the  paper,  was  only 
liable  in  case  it  did  the  very  duty 
that  it  must  of  necessity  violate  to 
grant  the  indulgence.  And  when  the 
letter  from  [the  indorser]  was  made 
known  to  it,  and  it  proceeded  to  act 
upon  the  extensions  granted,  it  had  no 
reason  to  believe  that  he  had  granted 
the  extension  with  knowledge  of  the 
facts,  and  it  took  no  action  to  ad  vise  him 
of  their  existence.  Under  these  circum- 


£  :;;57J  COLLECTION*. 

remittance  obtained  from  the  ugnee  of  the  certificate.     On  June 
twenty-si-eond,   having   received   no  n:  .  thia  letter,  the 

<lct'.-!i.laiit  bank  wrote  the  plaintiff  Unk  that  repeated  letter* 
about  the  item  had  remained  unanswered,  that  they  hud  w 
the  j)laintilT  hank  fi.r  :i  duplicate,  and  that  the\  now  charged  the 
plaintiff  bank  with  tin-  item,  which  wa*  accordingly  done  in  the 
account  current  for  June.  This  closed  the  correspondence  with 
reference  to  the  matter.  The  i--u«-r-  ««f  thi*  certificate  o«n  tinned 
in  good  credit  until  after  January  1,  !**9,  when  tliejr  failed. 
The  Court  of  Appeals  held  that  under  these  fact*  the  defendant 
bank  was  not  responsible  to  the  plaintitl  bank  for  morv  than 
nominal  damages,  approving  of  the  instruction  of  tin-  lower  e.uirt 
that  those  letters  and  the  charging  Imck  amou:.  rennncia* 

tion  of  the  defendant's  agency  tso  far  as  the  defendant  could 
renounce  it,  adding  that  the  defendant  could  not,  by  it-  rein, 
tion,  put  an  end  to  the  agency  as  the  facts  then  wen-,  and  relieve 
itself  from  liability  without  the  consent,  express  or  implied,  of 
the  plaintiff,  and  that  such  consent  would  !*•  implied  from  the 
Mlence  of  the  plaintiff  after  being  informed  of  the  renunciation ; 
and  that  if  the  plaintiff  made  no  objection  to  the  renunciation. 
the  defendant  was  not  liable  for  damage  thereafter  resulting  from 
events  subsequent,  and  not  from  the  sending  of  the  certificaU'  to 
the  issuers  for  collection.1 

§  337-  Rules  as  to  checks  and  drafts.—  A  bank  receiving 
a  bill  for  collection  from  another  Iwnk,  becomes  the  agent  of  Un- 
remitting bank  and  not  of  the  owner  of  the  bill,  and,  in  the 
absence  of  agreement  to  the  contrary,  would  be  an>werable  to  the 
remitting  bank  for  neglect  in  the  discharge  of  its  duties  as  agent, 
\\hereby  that  bank  sustains  loss  or  damage.*     It  is  the  duty  of  a 
bank  receiving  for  collection  a  bill  payable  at  a  future  time  tonao 
due  diligence  in  presenting  it  and  in  giving  notice  of  a  failu: 
due  acceptance,  or  where  a  Iwnk  receive*  a  bill  for  eol lection,  pre- 
sents it  for  acceptance,  and  gives  no  notice  of  non-aceeptui: 

stances  [the  defendant]  mu»t  be  held  '  Fin*  Nat.   Rank  of  Bvaacvflb 

to  have  assumed  the  risk*  that  natu-  Fourth  Nat.  H*«k  of  IxMibrillr.  (!••> 

rally  flowed  from  it*  actions,  one  of  5«  Fed.  Krp  W7 

which  was  that  [the  indorser)  mi*hl  •  Commercial  Baak  r  l'«*oa  BM»k. 

avail  himself  of  a  defense   thus    af-  (1H54)  11  N.  Y.  ' 

forded  to  him  by  its  own  negligence." 


GOG  COLLECTIONS. 

will  be  held  liable  to  the  owner  for  the  amount  of  the  bill  in  case 
the  acceptance  be  defective.1  A  bank  acting  merely  as  collecting 
agent  of  drafts,  without  knowledge  that  the  money  collected  was 
to  be  received  in  any  way  for  its  own  benefit,  or  to  be  applied  on 
an  indebtedness  to  it,  or  on  its  own  account,  will  not  be  held  to 
have  received  the  money  in  payment  of  its  indebtedness  or  on  its 
account.2  A  bank  receiving  a  draft  for  collection,  with  instructions 
from  the  holder  of  the  draft  to  collect  the  money  due  on  it  and 
hold  the  same  until  called  for,  by  crediting  it  to  the  account  of 
another  in  violation  of  the  instructions,  will  become  liable  to  the 
holder  for  whom  collection  was  made.3  Where  a  collection  of  a 
draft  is  made  for  the  owner  under  a  direction  of  himself,  or 
some  one  accompanying  him,  given  in  his  presence  and  hearing, 
to  hold  the  money  until  one  or  the  other  of  the  two  should  give 
further  directions  as  to  the  disposition  of  the  money,  and  this 
other  person  afterwards  have  the  money  paid  to  himself  or  placed 
to  his  credit  to  make  good  an  overdraft  on  his  own  account,  the 
bank  would  not  be  liable  to  the  owner  for  the  sum  collected.4  It 
is  the  duty  of  the  bank  with  which  a  check  or  bill  is  deposited 
for  collection,  to  transmit  it  to  a  suitable  agent  to  demand  pay- 
ment in  such  a  manner  that  no  loss  may  happen  to  any  party  to 
the  check,  whether  the  drawer,  indorser  or  indorsee.5  The 
acceptor  of  a  bill  of  exchange,  discounted  by  a  bank,  with  bill  of 
lading  attached,  which  the  acceptor  or  other  bank  regarded  as 
genuine  at  time  of  acceptance,  but  which  proved  to  be  a  forgery, 
has  been  held  bound  to  pay  the  bill  to  the  bank  at  maturity.6 
The  rule  upon  which  this  holding  was  made  was  that  bad  faith  in 
taking  negotiable  paper,  which  will  defeat  recovery  thereon,  must 
be  something  more  than  failure  to  inquire  into  their  considera- 
tion, because  of  rumors  or  general  reputation  as  to  bad  character 
of  maker  or  drawer.7  The  words  "  for  collection,"  appended  to 

1  Walker  v.  Bank  of  State  of  New  *  Goetz  v.  Bank  of  Kansas  City,  119 

York,  (1854)  9  N.  Y.  582,  affirming  13  U.  S.  551. 

Barb.  636.  '  Ibid.     When  the  holders  of  drafts 

8  Merchants'    Bank    of    Canada    v.  must  bear  the  loss  where  they  have  not 

Union  R.  R.  &    Transportation   Co.,  been  returned  or  presented  in  a  rea- 

(1877)  69  N.  Y.  373.  sonable  time  and  the  drawer  has  be- 

3  International  Bank  r.  Ferris,  118  come  insolvent.     Collingwood  v.  Mer 
111.  465.  chants'  Bank,  15  Neb.  121. 

4  Ibid. 

6  Drovers'  National  Bank  v.  Provis- 
ion Co.,  117  111.  100. 


COLLECTIONS.  ,    . 

an  indorsement  up,,,,  a  .-1,,.,-k.  limit  the  effect  which  the  indone- 
iiu-iit  would  have  without  thi-in  ami  give  authority  t.,  t!,,-  holder 
only  to  collect  for  tin-  brut-fit  of  tin-  im|,,rM-r.'  It'mav  be  shown 
by  :i  bank  taking  a  certified  check  mi  another  bail k,  either  m  a 
payment,  .>n  account,  or  for  tint  pur|*»K..  only  of  collection,  that 
the  check  ha.l  availed  nothing  where  the  bank  «o  receiving  the 
check  may  have  discharged  its  duty  by  an  effort  to  oolle- 
A  bank  receiving  a  check  for  collection  and  retain  four 

days  without  presenting  it  for  payment,  or  nmkin- 
its  collection,  or  giving  any  notice  to  the  d,-;  f  iu  non- 

payment,  has  been  held  in  North  Carolina  liable  for  U«  ensuing 
therefrom.8      Where  a  bank  received  a  check  u|»»n  it.M-lf  for  col- 
lection, being  at  the  time  a  largo  creditor  of  the  drawer,  and 
failed  without  excuse  to  notify  the  depositor  of  the  m»ii-|ia\ : 
of  the  check,  it  was  held  guilty,  in  law,  of  negligence,  and  that 
by  its  action  the  bank  had  made  the  check  its  own  and  wa*  liable 
for  its  whole  amount.4      A  bank  receiving  a  check  for  p.  ,11, . 
payable  at  a  day  subsequent,  would  bo  liable  to  the  owner  f.-r 
failing  to  present  it  at  the  proper  time  where  it  had  present 
for  payment  without  allowing  days  of  grace.8      A  bank  receiving 

1  Hoffman  r.  First  National  Hank  of  required  t. .  M  ml  it  lo  the  principal  of- 

Jersey  City,  1?  Vroora  (N.  .1.).  604.  fire  in    New  York  city.     Two  day* 

*  Drovers'    National  Bank  r.  Provis-  aft,  r  the  chcx  k  wa*  given  It  wa»  rr- 

ion  Co..  117  III.  100.     In  Bickfonl   r.  turned  in  due  counvo  of  collection  to 

First  National  Bank  of  Chicago.  (1M66)  the   Newark  bank,  which  had  nxmn 

•VI  111.  288,  tbc  check  was  drawn  and  while  failed.     It  wa*  hrld  that  tfcSf* 

•  •rrtiiinl  and  di>|M>sit,-d  in  a  Imnk  after  was  no  negligence  in  the  pmrotaUn* 

t'-n    o'clock    A.   M.,    and    before   three  of  this  check  which  would  prrreotlB* 

o'clock  r.  M.  on  a  rcrtain  day,  where  it  company   recovering    the    amouat  of 

remained  until   next  tnoniing,  when  it  tbc  cheek  fn,m  tin-  drawer 
was  taken  in  the  usual  course  of  busi-       '  Hank  of  New  llanovrr  r.  Keaao. 

ness   to   the    bank    on   which   it  wan  76 N.  ('.  Jt4«i 

<lniun      The  bank  won  closed  and  con-       *  Ibid.     An  illustration  of  no  want 

tinned  so.     The  check   was  protested  want  of  reasonable diHjfrocc  intJteprr 

for  non-payment  and  due  notice  given.  sentaUon  of   a    check    for    payment 

Tbc   Rupremc  Court  of  Illinois  held  Werk    r.    Mail    Itirrr  Valley    Bank. 

that  then;  was  suflicient  diligence  to  (1838)  8  Ohio  Hi.  301.     A»tmbr  rff..  t 

hold  the  owner  of  the  check.     In  New  of  delay  in  presenting  check  for  p»> 

York,  etc..  R.  K.  Co.  r.  Smith.  4  N.  J.  meiu.  are  Stewart  r.  Smith.  (1H7)  17 

L-iw    J.  84,      a    ccrtilied    check  wan  Ohio    St.   88;   McOfvgor    r. 

given  on  a  New  York  bank  U>  the  agent  ( 1H.V))  1  IMnnry  (Ohio).  947. 
of  the  milrood  company  in  Newark.        •  Ivor)-  r  liank  of  MlMouri. 

By  a  rule  of  the  company  the  agent  8*  Mo.  47«V 
could  not  indorse  the  check,  but  wa« 
88 


C98  COLLECTIONS.  [§  '•'>'•>' 

from  a  depositor  a  check  upon  another  bank  for  collection,  should 
the  collection  fail,  without  fault  of  the  bank  receiving  the  check 
for  collection,  has  a  right  to  return  the  check  and  cancel  the 
credit  given  the  depositor  for  the  amount.1  The  bank  in  an 
Indiana  case,  holding  a  check  drawn  in  its  favor,  indorsed  it  to  a 
bank  "  for  collection  for  account  of  "  itself,  and  sent  it  by  mail  to 
this  bank  with  a  letter  from  its  cashier,  stating,  "  I  inclose  for 
collection  and  cr.,  as  stated  below "  (specifying  this  and  other 
checks  and  drafts  sent).  The  check  was  placed  by  this  bank  on 
its  collection  register,  where  were  entered  only  such  checks 
received  for  collection  as  were  treated  as  the  property  of  the 
parties  sending  them,  no  credit  being  given  therefor  until  they 
were  collected.  The  cashier  of  this  bank  indorsed  the  check  for  col- 
lection and  transmitted  it  to  a  third  bank,  with  authority  by  letter 
to  credit  the  second  bank  with  the  proceeds  when  collected.  On 
the  same  day  the  transmitting  bank  failed  and  went  into  the 
hands  of  a  bank  examiner.  Two  days  afterwards  the  third  bank 
collected  the  check,  with  notice  by  newspaper  report  of  the 
failure  of  the  second  bank,  but  not  notifying  the  drawee  of  this 
fact  of  which  they  had  no  notice.  The  collecting  bank  then 
credited  the  failed  bank  with  the  amount  collected  on  the  check, 
it  being  then,  on  account  of  previous  dealings,  legally  indebted 
to  it.  The  bank  examiner  also  having  in  charge  the  books  of  the 
failed  bank,  without  the  consent  of  the  remitting  bank,  credited 
it  and  charged  the  collecting  bank  with  the  amount  of  the  check 
on  the  books  of  the  failed  bank,  which,  at  the  time  it  received 
the  check,  was  largely  indebted  to  the  remitting  bank.  In  this 
action,  brought  by  the  latter  against  the  collecting  bank,  the  court 
held  that  it  was  entitled  to  recover ;  that  the  indorsement  of  the 
check  to  the  failed  bank  did  not  vest  title  in  it,  or  give  it  any 
right  to  the  proceeds  ;  that  the  accompanying  letter  meant  that  it 
should  collect  for  the  remitting  bank  and  place  the  proceeds  to 
its  credit  and  not  that  the  failed  bank  should  treat  the  check  as 
its  own  or  credit  the  remitting  bank  therewith  before  collection  ; 
that  the  transaction  did  not  make  the  former  the  debtor  of  the  latter 
before  the  check  was  collected,  or  deprive  the  latter  of  its  rights 
to  the  check  or  its  proceeds  before  its  collection  by  the  former ; 

1  Decatur    National  Bank  v.   Mur-    aid,  51  Cal.  64;  Boyd  t.  Emerson,  29 
phy,  (1881)  9  Bradw.  (111.)  112.     See,    E.  C.  L.  68. 
also,  National  Gold  Bank  v.  McDon- 


•'•"1  OOLUWTIOSIt. 

that  the  collecting  bank  wa*  the  agent  of  the  failed  bank,  and 
liein;r  notified  liy  tin-  indor~«-iiir!it  on  tin-  eheek  that  the  latter 
was  not  the  owner  of  it  or  entitled  to  iU  proceed*,  the  former 
had  no  right  to  credit  the  amount  to  the  latter  on  it*  indebted- 
ness to  the  former;  that  the  n..tii-«-  it  hn<l  of  the  failure  of  iU 
<-..rn-|i..!i«lfiit  was  sufficient  to  r.-.juin-  the  collecting  bonk 
.rulsite  Its  action  with  a  view  to  the  right*  of  the  remitting 
bank,  as  affected  by  the  failure  of  its  correspondent;  thai 
directions  in  the  letter  of  the  cashier  of  the  remitting  bank  to  the 
failed  bank  constituted  an  authority  to  mingle  the  fund  with  the 
general  funds  of  the  bank  when  collected,  whereby  tin?  former 
bank  would  become  a  general  creditor  of  the  latter  instead  of 
being  entitled  to  the  fund  ;  that  the  insolvency  and  ftunpenaion  of 
the  latter  operated  as  a  revocation  of  such  authority,  and  if  it 
had  authority  to  collect  at  all  after  its  suspension,  the  former 
bank  would  l>e  entitled  to  the  specific  fund,  and  the  collecting 
bank,  being  an  agent  of  the  failed  Iwink,  had  no  more  (tower  or 
right  as  to  the  specific  fund  than  its  princijwl  ;  tliat  tlw  rig! 
the  remitting  bank  were  not  injuriously  affected  by  anything  done 
bv  the  bank  examiner  with  its  knowledge  or  consent,  and  that  the 
fact  that  the  collecting  bank  had  credited  the  amount  collected 
upon  its  debt  against  the  failed  bank,  did  not  dincliaryv  it  from 
liability.1  A  bank  to  which  an  inland  bill  of  exchange  w 
tnui.-mitted  for  collection  through  the  intervention  of  Another 
bank,  becomes  the  agent  of  the  payee  and  is  answerable  to  htm 
alone  for  any  breach  of  its  duty  in  relation  to  the  bill 
Where  accounts  are  kept  between  different  l»ank»s  and  one  of 
tlicni  fails  to  pay  over  money  received  on  drafts  or  bilU  of 
exchange  collected  for  the  other,  the  remedy  i*  againut  the 
defaulting  bank,  and  not  against  the  drawer  of  the  hill  or  draft 
Should  a  l>ank  receive  a  bill  for  collection  and  omit  to  preM*nt  it 
at  the  proper  time  or  place  for  payment,  and  a  bat  be  MlrflilMd 
in  consequence  of  such  an  omission  to  prwent  it  for  payment,  tlie 
bank  would  be  liable  to  the  extent  of  the  low*.1  And  tin*  ri^ht 
of  action  against  the  bank  would  not  be  waived  by  the  owner  o 
the  bill  withdrawing  it  from  the  custody  of  the  bank  ;  nor  would 


'  First  National  Bunk  r.  Fin*  N»-  »  Kupfer   r.  lUnk  of  Otka*. 

tional  Bank.  (1881)  76  Ind.  561.  W  III.  *». 

«  Farmers'  Bank  r.  Owen.  5  Cranch  *  Branch    lUnk  •! 
Cir.  Ct.  504. 


700  COLLECTIONS.  [§  337 

the  bank  be  discharged  from  its  liability  to  answer  for  its  negli- 
gence by  the  pursuit  of  any  of  the  parties  liable  upon  the  bill.1 
The  facts  of  a  case  in  the  federal  court  for  the  district  of 
Colorado  were  as  follows :  The  bank  sued  here  received  from  the 
plaintiff  bank  a  sight  draft  for  collection,  drawn  by  the  plaintiff 
bank  on  a  third  bank  against  funds  actually  to  the  credit  of  the 
drawer ;  the  defendant  received  this  draft  for  collection  January 
tenth,  and  transmitted  it  directly  to  the  drawee,  its  correspondent, 
on  the  same  day  ;  it  should  have  reached  the  drawee  in  two  days  ; 
the  drawee  continued  good  until  January  twenty-ninth,  when  it 
failed.  The  drawee  did  not  acknowledge  the  receipt  of  the  draft, 
and,  in  fact,  the  draft  miscarried  and  never  reached  the  drawee ; 
the  defendant  made  no  inquiries  about  it  until  February  ninth  ; 
the  plaintiff  and  defendant  both  supposed,  meanwhile,  that  the 
draft  had  been  paid ;  the  defendant  gave  the  plaintiff  no  notice 
of  any  kind  in  respect  of  the  draft  until  February  eleventh.  In 
its  action  against  the  collecting  bank  to  recover  the  amount  of 
the  draft,  the  collecting  bank  was  held  liable  on  the  ground  that, 
by  its  negligent  omission  of  duty,  a  loss  had  resulted  to  the  plain- 
tiff.2 The  measure  of  damages  in  such  a  case  was  held  to  be  the 

1  Ibid.     As  to  the  time  within  which  in  respect  to  inquiry  and  notice.     The 
the  holder  of  a  bill  of  exchange  must  defendant  bank  allowed  an  unreason- 
present  it  for  acceptance,  see  Bank  of  able  time  to  elapse  before  it  made  in- 
Bennington  v.  Raymond,  12  Vt.  401.  quiry  concerning  the  draft,  and  more 

2  First  National  Bank  of  Trinidad  than  a  reasonable  time  had  elapsed  be- 
v.  First    National    Bank    of    Denver,  fore  the  failure  of  the    Kansas  City 
(1878)   4    Dill.    290.     DILLON,    C.    J.,  Bank    occurred.     It  was    this    negli- 
said:     "  I  have  fully  examined  the  ad-  gence  that  caused  the  loss,  since  it  is 
judged  cases  relating  to  the  duty  and  established  by  the  evidence  that  the 
responsibility  of  a  bank  which  under-  draft  would  have  been  paid  if  it  had 
takes  to  act  as  a  collecting  agent  for  been  presented  at  any  time  before  the 
its  customers  or  for  other  banks.     They  suspension    of    the    drawee    on    the 
clearly  show  that  the  defendant  bank  29th  day  of    January.     Here,    then, 
ought  to  have  ascertained,  within  a  was  an  unexcused  delay  for  fifteen  or 
reasonable    time,   whether    the    draft  sixteen  days  to  make  any  inquiry  or 
transmitted  had  been  received  by  its  give  any  notice.     Aside  from  the  cus- 
correspondent,  and  if  not  to  have  ad-  torn  or  usage  pleaded  in  defense  *  *  * 
vised  the  plaintiff  thereof.     The  prac-  the  decisions  in  England  and  in  this 
tice  of  banks  to  send  such  checks  or  country  are  uniform  that  such  delay  to 
drafts  directly  to  tJie  drawee  (as  in  this  make  inquiry  and  omission  to  notify 
case)  is  attended  with   some  obvious  the    party  interested,   as  occurred  in 
additional  peril,  and  does  not  weaken,  this  case,  impose  a  liability  if  loss  is 
if  indeed  it  does  not  increase,  the  dili-  thereby  occasioned." 

gence  required  of  the  collecting  bank 


§  337]  COLLECTIONS.  701 

full  amount  <>f  the  draft.1  In  an  early  Connecticut  can  it 
ii]>]>e;iivd  that  the  plaintiff  had  drawn  a  hill  of  exchange,  payable 
t<>  his  order,  upon  a  person  residing  in  the  citv  win-re  the  defend- 
ant hank  <li<l  business;  that  he  ind<»tx*d  it  in  hlank  and  lodged  it 
with  a  New  York  hank  for  collection  ;  that  the  oathior  of  that 
bank  indorsed  it  in  hlank  and  forwarded  it  to  a  bank  in  Connecti- 
cut, the  cashier  of  which  indorsed  it  in  the  Mame  manner  and 
transmitted  it  to  defendant  bank,  each  of  these  indorsement*  being 
made  for  the  purpose  of  collection  only.  The  money  wa»  paid 
to  the  defendant  hank  by  the  acceptor,  and  the  defendant  claimed 
in  this  action  of  the  drawer  the  right  of  treating  it  at  a  collection 
on  account  of  the  Connecticut  bank,  through  which  it  came  to 
defendant,  and  to  set  off  the  avails  of  the  collection  to  the  « 
of  that  bank  upon  the  general  account  between  the  bank*.  The 
Supreme  Court  of  Connecticut  held  that  the  defendant  wat  not 
the  factor  or  banker  of  the  Connecticut  bank  through  which  it 
received  the  bill,  and  as  agent,  or  in  any  other  capacity,  di 
have,  a  lien  on  the  avails  of  the  bill  for  the  general  balance  of  it* 
account  with  that  bank.2  They  further  held  that  the  custom  «.f 
transmitting  bills  for  collection  from  one  bank  to  another,  and 
crediting  on  account  the  avails  received,  whatever  effect  it  might 
have  had  between  themselves,  could  not  affect  the  claims  of  a 
third  person,  who  may  have  confided  the  collection  of  a  bill  to 
one  of  them,  without  assent,  either  express  or  implied,  to  the 
m<  ><le  of  transacting  their  business.'  Where  a  draft  was  deposited 

1  First  National  Bank  of  Trinidad  r.  to  be  nearest  In  value  to  thr  sum  ad- 

First  National  Bunk  of  Denver,  (1878)  vanccd.  but  without  may  special  a*r*e- 

4  Dill.  290.  racnt  to  tbnl  effect.     TbU  dew  not  in 

•  Lawrence      r.     Stonington     Bunk  validate  tbc  banker's  general  Hrn  upon 

(1827)  6  Conn.  520.     The  court  referred  all  the  other  bilU  In  hi*  (Mod*,  but  he 

as  follows   to    certain   English  OM«:  may  retain  them  In  ordvr  losreunitfce 

"In  Jourdainc  r.  Leprone.  1  Esp.  60.  payment  of  his  general  balance.    Tbcw 

It  wua  mid  by  Lord   HEX  vox  that  a  cases.  »nd  other*  to  tb*  MM  cflWl. 

banker  had  a  lien  on  a  note  |>aid  Into  arc  Inappropriate  to  the  one  brforv  u« 

his  house,  and  of  course  a  right  to  re-  The  transaction  of  sending  not«»  for 

tain  it  for  his  general  balance.     The  collection  from  one   bank   to  •ootbrr 

doctrine  more  clearly  appears  from  the  has  BO  analogy  to  the  payment  oC  notaa 

case  of  Davis  t.  Bowshcr.  5  Term  Hep.  to  a  hanker  and  obtaining  dbcount  on 

488.     A  customer  lodges  bill*  of  ex-  a  part  of  them." 
chan ge  in  the  bands  of  his  banker  g«O-       "Lawrence     r.    Htoninftoa     Rank. 

erally.  and  when  the  banker  advance*  (1837)8  Conn.  591.    Thai  Wlb  of  c» 

money  to  him  he  applies  it  to  the  din-  change    miwl    be    pcwotod 

count  of  such  of  the  bills  as  happen  drawn*  in  a  rmauoablc  ttmr.  and  that 


7 1  ''2  COLLECTIONS.  [§  337 

iii  a  bank  without  directions  that  it  should  be  treated  as  a  separate 
fund,  and  was  forwarded  for  collection  to  another  bank,  which 
failed,  and  the  drafts  and  deposits  between  the  two  banks  had 
been  constantly  changing,  it  has  been  held  that  the  owner  of  the 
draft  should  share  pro  rata  with  other  creditors.1  "Where  shown 
in  an  action  against  a  bank  for  money  received  to  its  credit  that 
the  bank  was  employed  to  collect  certain  drafts,  and  that  the 
money  was  paid  to  its  correspondent,  a  bank  in  the  place  where 
the  drawee  lived,  and  that  the  correspondent  forwarded  a  draft 
for  the  money  to  the  defendant,  it  would  devolve  upon  the  latter 
to  show  that,  through  no  default  or  want  of  diligence  on  its  part, 
the  draft  was  not  paid.2  Where  acceptance  of  a  draft  is  refused,  it 
is  not  necessary  to  present  the  draft  for  payment.3  A  bank 
receiving  a  bill  for  collection  becomes  the  agent  of  the  owner, 
and  in  the  discharge  of  its  obligations  as  his  agent  is  bound  to 
present  it  for  acceptance  without  reasonable  delay,  and  to  present 
it  for  payment  upon  maturity  ;  if  not  accepted  or  not  paid  when 
presented  the  bank  should  take  such  steps  by  protest  and  notice 
as  are  necessary  to  charge  the  drawer  and  indorser.  Otherwise, 

what  is  a  reasonable  time  depends  upon  ent  in  settling  the  latter's  indebtedness 

the  facts  in  each  case,  see  Montelius  D.  to  it,  see  Millikin  v .  Shapleigh,  (1865) 

Charles,  76  111.  303;  Walsh  t>.  Dart,  23  36  Mo.  596. 

Wis.  334;  Knott  v.  Venable,  42  Ala.        3  Exeter  Bank  r.  Gordon,  8  N.  H. 

186;  Veazie  Bank  v.  Winn,  40  Me.  60;  66,  78.     In    Nunnemaker    t.    Lanier, 

East  River  Bank  «.  Gedney,  4  E.  D.  (1867)  48  Barb.  234,  the  bankers  had 

Smith,  582;  Phoenix  Ins.  Co.  v.  Allen,  received  for  collection  a  draft  upon  a 

11  Mich.  501;  Fugitt  v.  Nixon,  44  Mo.  trust  company,  and  on  presenting  the 

295;  Aymar  v.  Beers,  7  Cow.  705;  Sice  same  at  their  office  received  in  pay- 

v.  Cunningham,  1  Cow.  397;  Robinson  ment  the  check  of  the  trust  company 

«.  Ames,  20  Johns.  146;  Bachellor  D.  upon  a  bank  and  surrendered  the  draft. 

Priest,  12  Pick.  399;  Wallace  v.  Agry,  The  bankers  neglected  to  present  the 

4  Mason,  336<  check  for  payment  on  the  day  they 

1  Edson  V.  Angell,  58  Mich.  336.  received  it,  and  before  banking  hours 

*  Simpson  v.  Waldby,  63  Mich.  439.  on  the  next  business  day   the  trust 

As  to  the  responsibility  of  a  bank  em-  company  suspended  payment  and  its 

ployed  to  collect  drafts  upon  parties  at  check  was  dishonored  on  presentation, 

a  distance  for  the  failure  or  dishonesty  The  Supreme  Court  of  New  York  held 

of  its  correspondent  selected  by  itself,  that  the  bankers,  by  surrendering  the 

see  Simpson  r.  Waldby,  63  Mich,  439.  draft,  assumed   the   responsibility  of 

As  to  the  right  of  the  owner  of  a  bill  taking  the  check  of  the  trust  company 

remitted  through  a  bank  for  collection  in  payment,  and  that  the  existence  of 

to  recover  it  of    the  bank,  notwith-  a  custom  in  the  city  of   New  York 

standing    the     latter's     placing    the  among  business  men  to  take  the  checks 

amount  to  the  credit  of  its  correspond-  of  the  trust  company  without  certifica- 


.    . 


it    In-coines   liable   t<>   tli,.  owner  for  tlu-  darnage*  which  he  may 
<u>tain  by  Mich  nr-l.-rr  t.,  |N-rf..nii  it-  du  tic*,  nnlcM  there  be  torn* 
•incut  r.i  tin-  contrary,  e\pre~.  ,,r  implied.1 


U&.  Negligence  of  a  bank  as  to  check  held  for  collection 

In  .1  late  Kan-.-H  case  tin-  jwyec  of  a  check  ujx.ii  a  hank  brought 
action  aiir:iin>t  the  drawer.  ha.-  ing  his  ui-timi  U|*>ri  the  fact  tliat  • 
was  money  to  ili,.  credit  of  the  drawer  in  the  Unk.  ami  the  hank 
becoming  insolvent,  had  made  an  alignment,  and  tht*  rheck  ««TKE 
back  unpaid.  It  appeared  that  the  payee  «,f  the  check  had  placed 
it  in  the  hands  of  his  bank  as  his  agent  for  collection.  and  the 
latter  had  >ent  it  to  the  drawee  for  collect  i<m.  The  .|tic»tion  f.,r 
<l«>ci-ion  by  the  Supreme  Court  of  Karma*  wan  Mated  to  be 
\vlu-ther  the  ne<ili^'iice  of  the  jwyec  and  hw  agent,  hU  Iwnk.  in 
.-ciHlin-r  the  check  directly  to  the  drawee  operated,  under  the 
facts  agreed  upon,  to  discharge  the  drawer  from  liabih 
court  said:  "  From  the  agreed  statement  it  appear*  that  the 
check  reached  Richfield  on  the  12th  of  December,  1**M»,  after 
l>ii-iii«---  hours;  that  the  bank  on  which  it  wait  drawn  waa  open, 
d»>ing  a  general  business,  receiving  dejMMjits  ttnd  jiayiiig  IHOIM 
cheeks  during  its  regular  banking  hours  on  the  thirteenth.  l>ur 
ing  that  day  a  letter  was  written,  addressed  to  the  [  payee'i.  bank), 
with  which  was  inclosed  the  check  and  the  statement  *  No  fund* 
in  bank/  This  letter  was  dej>osited  in  the  |M*t  ortiee  after  hank- 
ing hours,  and  received  at  (the  place  where  the  check  wan  drawn) 
after  business  hours  on  the  fourteenth.  The  refusal  to  (my  wa«, 
therefore,  not  communicated  to  any  one  until  the  fourteenth.  Can 
it  be  presumed  that  if  the  check  had  lieen  regularly  preMMitvd  over 
the  counter  to  the  Richfield  liank  on  the  thirteenth  a  faW* 
answer  would  have  lieen  given,  as  was  in  fact  given  by  letter  and 
payment  refused?  It  is  admitted  that  the  defendant  had  mom 
than  money  enough  to  his  credit  to  meet  the  check.  Had  pm» 
sentmcnt  been  made  by  another  agent  of  the  plaintiff  and  pay- 
ment refused,  steps  might  have  been  taken  immediately  to  pro- 
tect the  drawer's  rights  ;  but,  the  check  being  in  the  hand*  of 
the  drawee,  of  course  no  effort  could  lie  made  by  it  t.»  proaaeato 
itself,  and  the  fact  that  payment  wan  refused  was  mil  oommunt 

tion.   in    the    same  manner  MI  bank       >  MootfoAcry  Gout?  Hank  •.  Al 
checks,  was  no  defeose  Ui  ao  acUno  by    baoy  City  Bank.  (IHH)  7  N.  Y.  4fe 
the  owners  of  the  draft  to  recover  the 
amount  of  the  nine. 


704  COLLECTIONS.  [§  338 

cated  to  the  [payee's  bank]  until  the  night  of  the  day  following 
the  last  one  on  which  the  Richfield  Bank  was  open  for  business. 
It  might  be  that  the  answer  '  No  funds  in  bank '  was  literally 
true,  and  that  the  Richfield  Bank  had  not  the  money  with  which 
to  make  payment  at  any  time  during  the  day  of  the  thirteenth  ; 
but  we  are  not  at  liberty  to  indulge  in  any  presumptions  of  that 
kind,  the  agreed  facts  showing  that  it  received  deposits  and  paid 
checks  during  the  whole  of  that  business  day.  This  case  must  be 
decided  in  accordance  with  established  principles,  and  the  fact 
that  the  Richfield  Bank  was  a  small  concern  in  a  very  sparsely 
peopled  part  of  the  state,  and  perhaps  never  had  any  large 
amount  of  funds  in  its  possession,  cannot  be  made  a  pretext  for 
breaking  down  those  wholesome  rules  of  business  which  have 
been  built  up  and  defined  with  so  much  care  and  precision.  The 
request  in  this  case  by  letter  was  not  an  ordinary  demand  of  pay- 
ment calling  for  current  funds,  but  was  a  request  for  Kansas  City 
exchange,  which  the  drawee  would  of  course  be  at  perfect  liberty 
to  refuse.  In  cases  of  this  kind  a  hardship  necessarily  results  to 
one  party  or  another.  Courts,  in  their  decisions,  must  be  guided 
by  fixed  rules.  The  plaintiff,  having  trusted  in  the  good  faith  of 
the  Richfield  Bank  by  sending  the  check  to  it,  must  bear  the 
burden  of  the  loss  occasioned  by  its  failure  occurring  after  the 
day  on  which  regular  presentment  should  have  been  made."  *  It 

1  Anderson  v.  Rodgers,  (Kans.  1894)  will  not  be  discharged  from  liability; 
36  Pac.  Rep.  1067,  1069.  The  ruling  but  when  a  person,  having  funds  on 
was  the  result  of  an  application  of  the  deposit  in  a  bank,  draws  a  check 
principles  declared  in  these  words:  "It  against  them,  the  holder  of  the  check, 
is  true,  as  was  said  by  this  court  in  if  he  delays  its  presentment,  assumes 
Gregg  v.  George,  16  Kans.  546,  that  'in  the  risk  of  the  failure  of  the  bank.  It 
order  to  charge  the  drawee  of  a  check,  is  said  in  Daniels  on  Negotiable  Instru- 
the  same  strict  rule  of  diligence  in  ments,  (§  586):  '  The  fact  that  the 
making  demand  and  giving  notice  of  check  is  presumed  to  be  drawn  against 
non-payment  does  not  obtain  as  in  cases  deposited  funds  makes  it  of  even 
of  ordinary  bills  of  exchange.  As  a  greater  importance  than,  in  the  case  of 
general  rule  he  is  not  discharged  un-  a  bill,  that  a  check  should  be  pre- 
less  he  suffers  some  loss  in  conse-  sented,  and  that  the  drawer  should  be 
quence  of  the  delay  of  the  holder.'  If  notified  of  non-payment  in  order  that 
the  drawee  of  a  check  has  no  funds  on  he  may  speedily  inquire  into  the  causes 
deposit  to  meet  it,  or  if,  having  funds  of  refusal,  and  be  placed  in  a  position 
in  the  bank  at  the  time,  he  afterwards  to  secure  his  funds  which  were  de- 
withdraws  them,  and  the  check  is  not  posited  in  the  bank.'  The  rule,  how- 
paid  on  that  account,  the  drawee  ever,  as  to  the  time  allowed  the  holder 
[drawer?],  having  suffered  no  injury  for  presentment  of  a  check,  in  order 
by  reason  of  delay  in  its  presentment,  to  relieve  him  from  the  risk  of  loss  by 


§  339]  .I.IK-M.  7,   . 

would  not  be  negligence  on  the  part  of  a  hank  receiving  a  cheek 
from  one  of  its  customers  for  n,H,.<-ti..ii  t..  forward  thr  ,•!„•• 
mail ;  but  if,  failing  to  hear  from  it  within  a  rauonablc  time,  the 
bank  neglects  to  make  inquiry  or  give  notir.-,  thi*  would  l«  neg- 
ligence, and  the  bank  would  make  it*elf  liable  fur  enduing  low 
occasioned  by  the  drawer's  insolvency.1 

§  339-  When  a  bank  collecting  a  draft  is  liable  to  the 
owner. —  It  was  held  in  the  federal  court  for  the  dutrict  of 
Indiana  that  a  bank  which  was  an  indorsee  for  collection  i»r 

failure  of    the   drawer,    is  definitely  contemplation  of  law.  to  enforce  la 
fixed  by  the  authorities:  (1)  Where  the   behalf  of  another  a  claim  again*  ftarlf  ' 
payee  to  whom  the  check  is  delivered  This    proposition    U    sustain*  •: 
receives  it  in  the  place  where  the  bank  abundant  authorities     DrornV  Nat. 
on  which   it  is  drawn  is  located,  he  Bank  r.  Anglo-American  Packing  & 
must  present  it  by  the  close  of  bank-  Provision  Co..  11?  111.  100. 
ing  hours  on  the  next  business  day.  E.  Rep.  001;   Bank  r.  Burn*.  IS  Colo. 
(2)  Where  the  check,  as  in  this  case,  is  539;  8.  c.,  21  Pac.  It-  j.   714.    iUnk  r. 
drawn  on  a  bank  located  at  a  place  Goodman,  100  Pa.  St.  438;  a,c..  t  All. 
distant  from  that  in  which  it  was  re-  Rep.  687;    First  Nat.  Bank  of  Eran* 
reived  by  the  payee,  it  must  bu  sent  villc  r.  Fourth  Nat.  Bank  of  I>»uurUlc. 
for  presentment  for  payment  by  mail  6  C.  C.  A.  183:   «.  c..  56  Fed.  Rep. 
on  the  next  secular  day  after  it  is  re-  967;  Farwell  r.  CurtU.  7  BUa.  I6u 
ceived,  and  presented  on  the  next  day  Fed.  Canes,    No.  4.690  "    It  wa»  la- 
after  its   receipt.      In    this    case  the  sisted  before  the  court  that  »n««^^«% 
check  seems  to  have  been  forwarded  as  the  check  was  forwarded  in  dot 
for  payment  in  due  time,  but  it  was  time  and  came  into  the  hand*  of  the 
sent  directly  to  the  dmwce  by  mail,  drawee,  which  refused  payment,  ami 
with   the   request   that   the    bank    of  returned    the   check   with  the  Mate- 
Richfield  remit  the  amount  by  mail  in  mcnt  "  No  funds  in  bank."  the  defend- 
exchange     on     Kansas     City.      The  ant  was  not  injured  by  the  in- -I.  of 
[payee's  bank],  therefore,  elected  the  presentment;   that  an  answer  of  "  No 
drawee  of  the  check  as  its  agent  for  funds,"  sent  by  mail.  wa*  an  effectual 
collection.     That  this  was  negligence  a    refusal    to    pay  a*   though    made 
is  well  settled  by  the  authorities.     It  across  the  counter  at  the  bank     To 
is  said  in  Daniel  on  Negotiable  Instru-  this  the  court  said:    "  Where  due  piv 
ments  (volume   1,  §  828a).   'For  the  scntmcnt  U  not  made  the  burden  of 
purposes  of  collection,  the  collecting  proof  is  upon  the  bolder  of  toe  check 
bank   must  employ    a   suitable   sub-  to  show  that  the  drawer  ha*  oo(  *uf  • 
agent.    It  must  not  transmit  its  checks  fered  injury."     Kurd   r.   McClung.  I 
or  bills  directly  to  the  bank  or  party  W.  Va,  166;  8  Pam.  Note*  A  B  I 
by  whom  payment  is  to  be  made,  with  Dan.  Neg.  In*t.  |  13*.    Uantek  * 
the  request  that  remittances  be  made  Kyle,  1  Ga.  804. 
therefor.      It   is  considered    that   no       'SlUpsey  *.  Bowery  National  Bank, 
firm,  bank,  corporation  or  individual  (1875)  00  N.  Y.  485, 
can  be   deemed  a  suitable  agent,  in 
89 


TOG  COLLECTIONS.  [§  340 

account  of  a  prior  indorsee  for  collection  was  liable  to  the  owner 
of  the  draft  for  the  amount  collected,  and  not  remitted  to  the 
owner  or  the  prior  indorsee,  notwithstanding  credit  for  the 
amount  was  given  the  latter  and  he  charged  the  collector  and 
credited  the  owner,  and  was  charged  for  the  same  by  the  owner, 
and  though  the  collector,  by  virtue  of  an  agreement  with  its 
indorser,  whereby  the  amount  due  from  one  to  the  other  for  col- 
lections was  to  be  placed  to  the  latter's  credit  with  a  certain  bank, 
wrote  to  that  bank  to  place  the  amount  to  the  credit  of  the  prior 
indorser,  which  order  it  could  have  countermanded  after  notice 
of  the  latter's  failure.1  In  a  case  in  the  federal  court  it  appeared 
that  the  owners  of  a  bill  of  exchange  sent  it  to  a  certain  bank 
indorsed  by  them  for  collection.  A_t  the  time  the  bank  received 
the  bill  of  exchange  it  was  insolvent,  to  the  knowledge  of  its 
managing  officer,  and  on  that  day,  or  following  morning,  it  failed. 
Prior  to  its  failure  this  bank  indorsed  the  bill  of  exchange  to 
another  bank,  which  collected  it  and  kept  the  proceeds,  crediting 
the  insolvent  bank,  which  was  indebted  to  it,  with  the  amount 
collected.  The  court  held  that  the  first  bank  acquired  no  title 
because  of  its  fraud  in  not  disclosing  its  insolvency,  and  the  col- 
lecting bank  had  no  better  title,  as  the  owner's  indorsement 
showed  that  the  bank  was  merely  the  owner's  agent  to  collect  the 
proceeds.2 

§  340.  When  indorser  of  a  check  is  relieved  of  liability.— 

The  question  of  liability  of  an  indorser  of  checks  drawn  payable 
to  his  order,  by  one  upon  a  bank  with  which  the  latter  kept  an 
account,  to  the  bank  in  which  he  placed  the  checks,  they  being 
received  as  cash  as  shown  by  the  record  of  the  case,  and  not  for 
collection  by  the  bank,  has  been  considered  in  a  recent  case  before 
the  Nebraska  Supreme  Court.  There  had  been  delay  in  the 
presentation  of  the  checks,  and  the  court  declined  to  lay  down 
any  rule  by  which  the  indorsee  of  a  check  must  present  the  same 
for  payment  in  any  given  time  to  hold  the  indorser.  But  in  this 

Commercial  Nat.  Bank  of  Cincin-  Nat.  Bank  of  Chicago®.  Bank,  3  Fed. 

nati  r.    Hamilton  Nat.    Bank  of  Ft.  Rep.  257;  Elaine  v.  Bourne,  11  R.  I. 

Wayne,  (1890)  42  Fed.  Rep.  880.     See  119;  Bank  r.  Hubbell,  22  N.  E.  Rep. 

Sweeny  v.  Easter,  1  Wall.  173;  Bank  1034;  White  v.  Bank,  102  U.  S.  658. 

of  the  Metropolis  t.  First  Nat.  Bank  of  *  Peck  v.  First  National  Bank,  (1890) 

Jersey  City,  19  Fed.  Rep.  303;  Bank  43  Fed.  Rep.  357. 
c.  Armstrong.  39  Fed.  Rep.  684;  First 


10  1  OOLLBCTI03C8.  70J 

particular  case  they  held  tlmt  t!u-  rluda  wen  not  presented  in  » 


1  First  National  Hank  of  Wymore  r.    them  by  null  to  a  bank  in 
Miller.   :17  NY!,.  r><x».     The  court  (  ,,*,.   which  bank  in  turn  MM 

sidered  th<-  question  :,s  i,,  whrthrr  tin-  ih.-m  |,_x  m«il  to  ih<-  Unk  OQ  wMdi 
indorsee  was  damaged  by  the  delay  In  th,->  w.  re  dre«n.  ihry  arrivtof  Urn* 
presenting  the  c-heck.s  was  wholly  im  on  Ju  r,.  Utcy  wrrr  thai  pro 

material,  upon  the  rule  stated,  as  they    l«*tcd  f,,r  non  parmral.     In  Kmilli  r. 
said,  in  the  following  cases:  "  In  North-   Jane*.  90  Wead.    192.   the    Baprcotr 
in  Coal  Co.  r.  Bowman  &  Co  .  60   Court  of  N-  TbefcoUfr 

Iowa.  ir>(),  the  court  say.  after  deciding   of  a  check  t*a  rtvotrr  -g-tfMl  tlM  to- 
that  the  plaintiff  hud  held  the  check  in   doraer  only  when  he  has  turd   do* 
question  an  unreasonable  time  before   diligence  in  preMroUnK  or  giriofDolkv 
presenting  it,  and  tlmt   it  could    not   of  dcnuutdand  non  p»ymrat      •     •     • 
-r   asjuinst   indoreers  :  'The  fact    Where  the  p»rtim»||  mride  IntlwMflM 
that  the  drawer  had  no  fund*  in  the    place,  the  check  khould  br  prmnalsd 
liaiuls  of  the  drawee  when  the  check    on  the  day  it  MP    ..%     . 
wm  drawn,  makes  no  differencv.'     In    lowing  iby.  and  when  paytbl- 
OoiiL'li   r.   StantM.   13  Weixl.  549.   the   difTen  nt  pbr,-  fmm  that  in  whi. 
Supreme  Court  of  New  York  say  :  •  If   ne«fotbt«I.  it  *.li..ul.|  be  f..rw»n! 
tlicr.-   has   not    been   due  <liligence  in    the  mail  on  the  name  or  thr  net 
presenting  the  check  for  payment,  the   cccding   day  for  proMntmrot.'     8tr. 
indorser  is  discharged,  although  he  lias   alw>.    Holmm    r.   !(..    fl-.«   Midi.    IW 
not   been    prejudiced    by   the  delay.'    In    Moliawk    liank    r.    IlmJrrt- 
The  Nebraska  court  said  further:  'The    Wend.  3O4.  the  Supreme  Court  •  ' 
authorities  all  say  that  in  order  to  hold    York  my:  '  A  check  on  a  bank  for  Ik* 
an  indorser  of  a  cheek  it  must  Ix*  pre-    IHIYIIK  nt  of  money,  to  chargr  an  in 
s<  n!<'  i  by  the  indorsee  in  a  reasonable   dorM-r,  mu*l  U-  prt-»rntn|  with  all  di« 
time,  and  as  to  what    is  a  reasonable    |«atcli  ami  diligence  cooabtmt  wftfc  tfc* 
time,  depends  upon  the  facts  and  cir-    transaction  of  i«bcr  commrrrial  cno 
cinn^tances   of  each   particular  case.'   ccrns.  ami    it    wan  accordingly   held. 
Tin-   facts  in  this  case  were  that  the    when-  a  chrck  w»*  rrrdrcti  in  S4»rn 
cheeks  were  placed  in  the  Imnk  about    ectady  on  the  14th  of  January,  drawn 
the  close  of  tanking  hours,  on  the  31st    on  n  lunk  in  AHnny    adblanrv  of  ti\ 
day  of  May.  1890.    The  Imnk  on  which    tccn  mile*  from  the  fornwr  pUcr.  aad 
they    were    drawn    was    in    a    place    between  which  ptacm  ibrrv  U  a  daily 
twenty-seven  miles  distant  from    the    mail,  and  not  pmtrnlnl  until  the  Bla 
location  of  the  hank  receiving  them,    of  February,  thai  Uchr»  wa*  impflnhhi 
and  a  mail  left  the  latter  place  at  0  r.    to  the  holder,  and  that  the  Indottcr  WM 
M    daily,  arriving  at  the  place  where   d!«chargrd      Although  it  U  Mid  thai 
the  Imnk  u|>on  which  the  checks  were   check*  air  like  inland  bills  of  exrhangr. 
drawn  was  located,  at  9  r.  M.  of  the   and  an*  to  bo  governed  by  UM  MUM 
same  day.     The   Imnk   receiving    the    principle*.  grmtrrdiUgroer  bnqolnO 
checks  made  no  inquiry  of  the  bank    in  prmrnting  Umn  thaa  to  prraatttoir 
on    which    they  were    drawn,    as    to    bilU  of    rxchangr  '     Tblt   CMV    »*< 
whether  the  checks  were  good,  nor  did   affirmed  by  thr  Court  for  the  Corrsctioa 
it  at  any  time  advise  that  bank  that  it    of  Error*  in  13  Wrnd.  I8S.    8s»  to  UN- 
held  the  checks,    but  on   the  day  of   *ame  cAWt   Nnrthwcstrrn  C<»1  Co  r. 
their  receipt  mailed  them  to  a   bank    Bowman.  00  Iowa,  190." 
in    another    state,  which    bank    sent 

END  OF  VULUMK  I. 


LAW  LIBRARY 

UNIVERSITY  OF  CALIFORNIA 
LOS  ANGELES 


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